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Benefits will be paid directly into banks instead of by giro cheque from April next year, writes Gary Vaux.

Beginning in just over a year's time, the methods of paying benefits will change dramatically. This will affect most Department for Work and Pensions customers, including people in residential homes. There will also be a direct impact on social services departments.

From April 2003 the normal method of paying benefits will be directly into banks or building societies instead of by giro cheque and order book. Some people will still have the option of collecting their benefits in cash at the Post Office, but only if they open a bank account that can be used through the Post Office.

Only 40 per cent of existing benefit recipients receive their benefit by automated credit transfer (ACT) at the moment, so this will be a massive change for many. It will also directly impact on home care services (where pension collection is still a service on offer) and in some residential homes.

Payments will be available at the same frequency as is currently available by order book and giro cheque. For example, people who get their retirement pension weekly over the Post Office counter will be able to continue with weekly payments through their bank account.

Current order book and giro cheque arrangements are quite flexible when a person has to have a third party - such as a home carer, relative, residential worker or volunteer - to collect their benefit. The DWP is still looking at whether the same flexibility will be available when ACT is widespread. If housebound people have to divulge their cashpoint pin number in order for a third party to get their pension, the scope for financial abuse is considerably widened, of course.

Leaving aside the very rare instances of fraud, there is also the practical issue of collection. Home carers may find that they have 10 clients who all have a different bank or building society. Instead of one trip to one Post Office, will it mean a trip around town (or further afield in rural areas) to collect the pensions due?

The answer depends on changes within the Post Office, which is currently developing what it terms "universal banking services". These will enable people to collect their benefits in cash from the post office, as banks and building societies make their basic bank accounts available through Post Office branches. In addition the Post Office is developing a simple bank account of its own. If UBS and the Post Office bank take off (and who remembers National Girobank?), the physical effort of collecting cash for a number of people at once will be eased. But the problem of the level of access to each account will, of course, remain.

There are currently more than 3.5 million adults who get benefits and who don't have a bank account. The government's aim is to bring those people "into the financial mainstream" by offering accounts that don't have overdraft or borrowing facilities. But the virtual imposition of bank accounts will not endear the idea to some.

The DWP appears to be recognising this problem. It has conceded that "there will be a small number of people who we will be unable to pay directly into bank or building society accounts, and some payments that cannot be made this way". Obvious examples will be the various kinds of "emergency" payments, such as crisis loans or severe hardship payments. For those cases, the department is still considering what alternative systems will be available.

Gary Vaux is head of money advice, Hertfordshire Council. He is unable to answer queries in person, either by post or by telephone. If you have a question to be answered in Welfare Rights, please write to him c/o Community Care