Energy bills can be really confusing, but we’re here to help break it down.
Bill Confusion
In a Which? survey in 2022, 2 in 5 adults identified areas of an energy bill that they found confusing, with 13% of customers reporting that they had to contact their providers to seek clarification or help with queries relating to bills, direct debit, or credit balances they had received.
47% of customers reported feeling stressed, and 49% anxious, when faced with their energy bills.
This highlights how many of us struggle to understand the nitty-gritty of our energy bills, and how this can have an emotional (as well as financial!) impact.
Key Terms
To gain a proper understanding of our energy bills, we need to understand the terms that are often used.
Tariff – the deal on offer from an energy company which sets out how much you pay and how long for. There are two main types of tariff: fixed and variable
Credit – where you have paid more than enough into your account with your energy supplier to cover your energy costs
Debit – where you have not paid enough to cover your energy costs and so owe your supplier money for the energy you have used
kWh – Kilowatt Hour – a measure of how much energy you are using per hour
Standing charge – a daily fee charged by your energy provider for being connected to the gas grid or electricity network. You pay this regardless of how much energy you use
Unit rate – the price for each unit of gas or electricity you use. This is calculated as pence per kilowatt hour
Wholesale costs – the price that energy suppliers buy energy at. This makes up the largest component of your bill, with suppliers then adding other operational costs before arriving at a price which is charged to you as the customer
Customer number – a unique number given to you by your energy supplier to help them identify you. Make sure to make a note of this in case you need to access your online account or contact your supplier
Energy Price Cap – a cap on how much energy suppliers can pay you for each unit of energy you use if you’re on a standard variable tariff in England Scotland or Wales. This is calculated every three months, with changes mainly based on wholesale energy costs. For more info on the Energy Price Cap, click here.
Fixed vs Variable
With variable tariffs (also referred to as ‘standard’ or ‘default’ tariffs), the unit price and standing charge can go up or down. You can usually leave a variable rate contract when you want without facing any fees for doing so.
With fixed rate tariffs, your unit rate and standing charge remains fixed. These tariffs usually last for a set period of time, such as 12 or 24 months. If the wholesale price of energy changes you will still pay the rate you agreed upon with the supplier for the remainder of your contract. So if wholesale prices go up, you could end up paying less on a fixed rate tariff, and if they go down, you could end up paying more than you need to.
When Receiving Your Energy Bill, Check…
That your name and address is correct
The billing period doesn’t cover time before or after you lived at the property
The meter serial numbers (MSN), meter point administration numbers (MPAN), and meter point registration numbers (MPRN) are the same as those on your gas and electricity numbers.
by Red Star Wealth
More and more UK adults are adopting a gradual approach to retirement. In this blog, we will analyse findings from a 2022 study conducted by Smart Pension to gain an insight into changing attitudes towards retirement in the UK.
Thinking About Retirement
Since the introduction of auto-enrolment in October 2012, many workers automatically save into a pension without consciously having to make the decision to do so. This has helped to get a lot more people saving for retirement.
However, it’s still important for us to actively think about our pension and to try to maximise contributions where possible, as our pension pot will need to last us a significant length of time.
Lack of Understanding Surrounding Retirement Options
According to Smart Pension’s 2022 study, 29% of UK adults don’t have a clear understanding of the options available to them in retirement.
This figure is down from 39% in their 2021 survey, reflecting positive change in terms of how we understand our retirement options.
However, there is still a significant gap in our nation’s pension knowledge that needs to be filled.
Retirement as a Gradual Process
Smart Pension also found that retirement is now seen as more of a gradual thing, with 47% of UK respondents seeing retirement as a transition rather than a one-off event.
This makes sense, given that going from working, especially under full-time hours, to not working at all, can be an enormous lifestyle change that could seem jarring. Therefore, more and more people are reducing their working hours as a way to gradually phase in retirement.
Concerns in Retirement
The above image illustrates Smart Pension’s findings on respondents concerns about retirement.
In 2021, the biggest concern of UK respondents was having to limit their lifestyle in retirement, whereas in 2022, being able to afford daily living costs was the biggest concern. This demonstrates the impact that the continued cost-of-living crisis is having on the UK population.
Another interesting point in these findings is that in 2021, being able to afford healthcare costs in retirement was at the bottom of the list of concerns at number five, whereas in 2022, this concern leapt up to third place.
Given that we are a nation with a free national healthcare system, this is somewhat troubling, as it may link to our increasing uncertainty surrounding the future of the NHS, with many being forced to seek private treatment due to lengthy waiting times.
Supplementing Income
18% of respondents plan to supplement their pension with continued employment. Perhaps one reason behind this comes down to that earlier finding, where many are worried that they won’t have enough income in retirement to cover day-to-day living costs.
We can access most private pensions from age 55, meaning that there isn’t really a set retirement age; you can keep working for as long as you like whilst also drawing on your pension.
However, if you do continue to work whilst drawing a pension, you will lose more of your pension in tax. This is because income from your pension is treated the same as any other income, meaning that once you have used up your personal allowance, the rest of your income will be taxed in the relevant band.
The personal allowance is £12,570, so if you work whilst drawing from your pension, and the total income is below this level, you will not be taxed.
It’s worth noting here that you can’t start claiming your State Pension until you reach the State Pension age.
If you are considering phasing your retirement but aren’t sure of the best way to take your pension, or if you aren’t completely sure about the different retirement options available to you, you may wish to talk to a financial adviser. We offer confidential, personalised pensions advice if you wish to contact us at office@redstarwealth.co.uk or by ringing 01253 486346.
by Red Star Wealth
Good news, the rate of inflation is falling…
Falling Inflation
Inflation in the UK hit heights of 11.1% in October last year, creating a big strain on our purse strings. However, this has fallen to 6.7% in August and September this year. See figures underlined in orange below:
The Bank of England say they expect inflation to fall further in the coming months, with predictions of a rate of around 5% by the end of the year.
They also expect inflation to continue to fall in 2024, reaching the target rate of 2% in the first half of 2025.
It is important to note here that a fall in inflation (disinflation) does not mean goods and services are getting cheaper (which would be deflation). It simply means that the rate of inflation is decreasing, so costs are still rising, it’s just happening more slowly.
Food Costs
The rate of inflation for food and non-alcoholic beverages is much higher than the average overall inflation rate. This is because the inflation rate is an average, and the prices of different goods and services rise at different rates.
48% of Great British adults say they have spent more than usual to get their usual food shop within the last two weeks.
However, the inflation rate for food and non-alcoholic beverages has eased to 12.2% in September this year, acting as a decrease from 13.6% in August and from highs of 19.2% in March.
Why is Inflation Falling?
One key reason why the Bank of England expect continued disinflation is that energy bills should reduce more due to recent falls in gas prices.
They have also stated that higher interest rates will help bring down inflation further. This is because higher interest rates discourage spending by decreasing the cost of borrowing and increasing the reward of saving money.
What About Wages?
In June to August 2023, annual growth in regular pay for the public sector was 6.8%, acting as one of the highest regular annual growth rates since 2001. However, this rise was 8% the private sector, meaning there remains a gap between public and private wage increases.
Importantly, data from The Office of National Statistics (ONS) shows a positive annual growth rate in real pay for August 2023 (real pay accounts for inflation). This is certainly much needed to help reduce some of the pressure on household budgets among the continued cost-of-living crisis.
The last few years have witnessed a rise in direct cremations, wherein the body of the deceased is cremated without a service and the ashes are given to the family.
Sunlife’s Cost of Dying 2023 Report found that 1 in 4 people who organised a funeral were surprised by costs. Funerals can be distressing to think about, and we often avoid doing so until a point where we have to. However upsetting, it’s still an important topic, as it can be a significant cost for people to shoulder.
Sunlife stated, “More and more we’re seeing people report actively trying to cut back, to keep their funeral spend as low as possible- no surprise given the current economic situation. Unfortunately, we’re also seeing fewer people covering costs with savings and investments, and more having to borrow money.”
Here, we can see the issue… funerals are expensive, and many are either unwilling or unable to pay the cost. So, how are people responding to the cost of funerals?
Here, SunLife shows the changes in funeral patterns over 2018-2022. As we can see here, there has been a significant rise in the number of those turning to direct cremations. The leap upwards from 3% in 2019 to 14% and 18% in 2020 and 2021 respectively, is understandable, as much as this trend can be attributed to Covid-19 restrictions. However, even with Covid-19 under control, the popularity of direct cremations is still going strong.
Much of this popularity stems from its price. SunLife found that the average funeral cost in the UK for 2022 was £3,953, whereas the average cost of direct cremation was £1,511.
Even if they have the money to cover their funeral costs, many would rather leave this as an inheritance for their loved ones.
This said, a funeral tends to be for the benefit of the living, for those who are left behind when we die. It can be beneficial to the grieving process and coming to terms with the death of a loved one.
Paying for your Funeral
Many choose to pay up front for their funeral or ensure they leave enough money behind to cover the costs. You can do this by:
Taking out a prepaid funeral plan
Taking out life insurance. Your beneficiaries can then use some of the lump sum paid to them when you die to pay for your funeral
Paying for it with your savings or estate
If you are struggling to pay for a funeral, Money Helper has a guide which you may find helpful.
by Red Star Wealth
Smart meters are becoming increasingly popular, with 54% of all meters in Great Britain recorded as smart or advanced meters at the end of September 2022. Let’s have a look at the pros and cons of smart meters so that you can decide what’s best for your household.
What are Smart Meters?
Smart meters record your consumption of gas and electricity so that it’s easier to monitor your energy usage. It shows you how much energy you are using and what this is costing you on an in-home display. It also sends meter readings to your energy supplier automatically.
Pros of Smart Meters
It’s easy to track your energy usage so that you can make changes to save yourself money on your utility bills. You can clearly see how different appliances affect the cost of your bill, which can help you make informed decisions about what to cut down on
If you do choose to reduce your consumption of gas and electricity due to your smart meter, this also has a positive environmental impact. Smart meters encourage sustainability, both in terms of your finances and the environment
Your meter reading is automatically sent to your energy provider, meaning you don’t have to do it manually. Not only does this save time and effort, but it also gets rid of the need for estimated bills so that you are only charged what you actually use
The in-home display is easy to understand because it translates your energy usage in terms of the money it’s costing you
Many suppliers are now offering discounts and cheaper tariffs for those with smart meters, so it’s likely that you can get a good deal
Cons of Smart Meters
First generation smart meters use a mobile network signal to send data back to your energy supplier. This means that if you have any issues with the signal in your area, it affects your smart meter’s ability to send this information to the supplier
Smart meters don’t automatically equate to saving money. They simply help you monitor you energy use and choose whether you want to cut back on certain things based on the information you have. The meter in isolation does not reduce the cost of your monthly bill
You might find it stressful seeing the meter constantly go up every time you switch on the oven or boil the kettle
If you have a first generation smart meter and switch providers, it may lose its smart functionality, meaning it keeps recording your usage but can no longer automatically send the readings to your new provider
Check out our previous blog where we discuss the forced installation of prepayment meters to people’s homes in the UK.
by Red Star Wealth
Citizens Advice has called for a ban on customers being forced onto prepayment meters by energy companies until new protections are brought into force.
What are Prepayment Meters?
Often referred to as ‘pay-as-you-go’ meters, prepayment meters are when users have to pay for their energy before using it. They mean that you can pay small amounts often to top up your energy, but they often work out as more expensive than a direct debit deal.
Users buy credit for their meter from a top up point (often found in a local shop or Post Office) which transfers money onto a card or key. Alternatively, they can top up online via an application on their phone.
Consumers have to pay a daily fee called a ‘standing charge’. You also pay this with normal meters, but with a prepayment meter you need to ensure that you have sufficient credit to pay it. This charge comes out even when you use no gas or electricity.
What is the Issue?
Many UK adults are unable to afford their energy bills and so are being forced onto prepayment meters, but then they can’t afford to top up their credit on these either!
Source: Citizens Advice
In 2022 alone, Citizens Advice found that more people were unable to top up their prepayment meter than in the whole of the last 10 years combined. They also found that 3.2 million people across Great Britain were unable to afford to top up their prepayment meter and so ran out of credit. This equates to 1 person every 10 seconds having their energy supply cut off.
Know your Rights
If you think you can’t afford to top up your prepayment meter, you must contact your energy supplier. Ofgem rules stipulate that they must offer you emergency support.
This support includes:
Emergency credit if your meter runs out
Friendly hours credit if top up points are closed and your meter is running low
Extra support credit while you work out ways to pay if you are vulnerable
It’s also worth checking out Citizens Advice’s page on rules that your supplier has to follow with prepayment meters.
British Gas Makes a Step in the Right Direction
British Gas has now said that it will stop remotely switching people onto prepayment meters through their smart meters when they fail to make utility bill payments.Chris O’Shea, the boss of British Gas, also stated that they would be adding additional vulnerability checks. This certainly seems like a step in the right direction on the road to protecting vulnerable people from being left without heat or light.
This said, they have not committed to stopping forced installation of prepayment meters in person…
Join us next Friday for our blog discussing the pros and cons of Smart Meters…
