Payment revolution

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