There is a huge lack of trust in UK financial services…
Lack of Trust: FSCS Data
In a May 2023 report, the FSCS found a huge lack of trust in the UK financial services industry. Here are some of their key statistics:
25% of consumers say they trust the UK financial services industry to act in the best interests of its consumers, with 31% saying they distrust it
42% are concerned about a lack of protection if things go wrong
Out of 7 industries surveyed, the financial services industry was the second least trusted
The FSCS has an important role to play in fostering trust among consumers
Why is Trust Important?
Let’s have a look at what others had to say…
The FSCS has stated:
“Trust and confidence in the system is critical to financial stability. Without them, more people are likely to react to uncertainty and market turmoil by seeking to pull their money out of products or firms perceived as at risk, worsening liquidity and confidence pressures”
Further to this, a paper published by Brynchko et al argues:
“It is impossible to exaggerate the role of trust in the financial sector of the economy. Without trust, the financial system is deformed, and without a well-functioning financial system, it is impossible to ensure the macroeconomic stability and the potential for the country’s development”
Therefore, for the financial services industry to thrive, consumer trust is of the utmost importance, and it is indeed an issue that there is a continued (and growing) distrust in financial institutions. Financial institutions need to start putting consumer perceptions and experience at the forefront of their approach to delivering financial products and services.
How Can this Trust Be Built?
When consumers were asked by the FSCS what would improve their trust in the financial services industry:
54% said improved consumer protection
39% said legal consequences for activities that lose customers’ money
44% said the industry meeting the costs of compensation when providers go out of business
This is a great starting point for rebuilding this consumer trust. Other ideas are to:
Improve transparency… how can consumers trust industries that aren’t being completely open and honest with them?
Improve financial education… how can we expect people to trust financial institutions if they lack the understanding around financial topics in the first place?
Have providers engage with their customers more effectively… instead of simply pushing products at consumers, they should be guiding, helping and listening to them. Instead of help being inaccessible, with communication restricted to virtual assistants and chatbots, financial services providers should be encouraging and enabling consumers to get in touch if they need to
by Red Star Wealth
Business Asset Disposal Relief (previously known as Entrepreneur Relief) is a form of tax relief from capital gains tax.
How does it Work?
Business Asset Disposal Relief is when you sell all or part of your business or its assets and pay only 10% capital gains tax (CGT) on profits up to £1 million (the new lifetime limit). Once you surpass the £1 million limit, you will be charged the usual rate of CGT on the remaining taxable gains.
Previously, the lifetime limit was £10 million but at Budget 2020, Rishi Sunak, as Chancellor of the Exchequer, announced that the lifetime limit would be brought down to £1 million for any qualifying disposals made on or after 11th March 2020.
How much can it Save You?
If you’re a basic rate taxpayer, you will pay CGT on the disposal of assets according to the size of profits, your taxable income, and whether the gain is from residential property or not. If your taxable income falls within the basic income tax band, you’ll pay 10% CGT on gains (18% if disposing of residential property).
However, as a higher or additional rate taxpayer, you would pay 20% CGT on taxable gains from any chargeable assets (except for disposal of residential property, on which you’d pay 28%).
Therefore, Business Asset Disposal Relief could save you up to £100,000, because if claiming the tax relief on up to £1 million worth of assets, you’d reduce your tax burden by 10% (£100,000).
How do I Qualify?
Business Asset Disposal Relief covers both shares and business assets. Sole traders and partnerships can claim this relief when selling assets used in the business. Company directors and shareholders can claim the relief when selling shares or assets.
To qualify for tax relief on sale of assets, you must fulfil the following criteria for at least 24 months:
You must be an employee of the company (includes being company director) or a sole trader
You must own at least 5% of company shares if claiming the tax relief on share sales
There are also some extra things to bear in mind:
You can claim relief on share sales if a company stops trading, providing this is done within 3 years
You cannot sell a ‘going concern’, i.e, you cannot claim tax relief on the sale of something that is loss making and not commercially viable
If trying to claim the tax relief on property sales, the property must exclusively be a business asset. It must be owned by the company and used rent free
The 5% Rule
As noted above, you must own at least 5% of company shares in order to qualify for Business Asset Disposal Relief on share sales. If your share in the company is only just above this 5% lower limit, you should keep an eye on it to ensure it doesn’t drop below the threshold if you’re considering selling your shares in the near future. This could happen if your shares became diluted from more shares being allocated or other employees activating share options, meaning more shares in circulation.
If you lent any assets to the business, to claim the tax relief you must have sold at least 5% of your part of the business partnership or shares in a personal company. You must have also owned these assets yourself but let the business use them for a minimum of a year before your sale of the shares or business partnership.
For information about how and when to claim Business Asset Disposal Relief, click here.
by Red Star Wealth
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
A recent Quilter survey found that most adults in the UK take their financial advice from people via media outlets like television, radio and online. 35% said they used this source to help manage their finances followed by 30% saying they used comparison sites and 29% using advice from family members.
The Lewises
Paul Lewis presents BBC Radio 4’s Money Box. Martin Lewis is the founder of MoneySavingExpert.com (MSE) and is a financial journalist and broadcaster.
Paul Lewis has faced backlash for claiming that consumers should use large, national mortgage brokers in order to access the “best possible deal.” As you can probably imagine, independent mortgage brokers were not happy to see their names besmirched by someone who is not even qualified to give advice in their field.
Click here to read more about what brokers’ had to say in response to Lewis’ comments.
“as I say always find an independent chartered financial adviser and admit that excludes some good, restricted advisers and some good IFAs who are not chartered, finding them amongst the rest is impossible. Hence my general advice. Which inevitably excludes some good guys”
Martin Lewis also faced criticism from advisers in October 2022 for telling viewers to stick with standard variable rate mortgages.
A recent article from Mortgage Solutions has highlighted these criticisms and discussed the issue that arises from the general public trusting the word of the Lewises over the advice of qualified financial experts.
What’s the Issue?
Financial journalists can be incredibly helpful in educating the public on financial matters, simplifying complex financial topics to make them more accessible and understandable. Martin Lewis in particular has made huge positive impacts by triggering major initiatives to combat scam ads, urging regulation of Buy Now Pay Later firms, and helping break down difficult financial topics via MSE.
However, education and advice are not to be conflated.
Paul Lewis himself has referred to his advice as “general,” and here lies the issue. The advice being given is often broad, general and unregulated. It is not tailored towards what is specifically best for you and your financial situation. Everyone’s finances are different and so a blanket statement of what is “best” won’t necessarily reflect what is best for all.
Many individuals advising you about your finances through various media outlets are unqualified to give this type of advice. Some advisers are now questioning whether these shows and media forums need to come with a disclaimer that these ‘experts’ are not in fact qualified to give financial advice.
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
As we are coming up to a new year, you might be thinking of making some changes to help improve your financial stability and happiness. Let’s have a look at some New Year’s Resolutions you can make to do so…
Prioritise my own Mental and Financial Wellbeing
Don’t stretch yourself too thin in order to please or impress other people. You are the main character in your own book of life!
Improve my Credit Score
A good credit score means you are more likely to be approved for loans and be offered lower interest rates on repayments. This resolution is particularly worth considering if you are thinking of getting something like a mortgage in the next few years. Some examples of steps you can take to improve your credit score are registering on the electoral roll and paying your credit card balance in full every month
Pay off More than the Minimum Payment each Month on my Credit Card
Even if you don’t pay the full balance, paying for than the minimum required payment is a good idea. This is because you reduce the amount of time you will be stuck making repayments and being charged interest. We talk more about credit cards on our sister company’s blog…
Increase my Pension Contributions
Pensions work on a system of compound interest so the earlier you start building your pension pot, the more it will be able to grow over time. If you are able to, increasing your pension contributions is definitely worth considering, especially if you are a woman… let’s close that gender pensions gap!
Build my Savings
Whether you’ve got something in mind you want to save up for or just want to create an emergency fund, savings are really important. LINK It sometimes seems impossible to save money because we think ‘too big’. For example, you might have a goal to save £1,000, but it seems unmanageable. However, when we break it down in terms of the amount we would need to save each week or month, it seems less daunting and more achievable. Maybe you could start by getting an un-openable tin money box, or enabling the round up transaction feature on your online banking if your bank offers this
Don’t open any New Credit Cards
Try not to increase your debt!
Tackle my Debt
Is 2023 the year of going debt free? One way of managing your debt is to pay off the ones with the highest interest rates first, in order to slow the rate of growth of the money you owe. It’s also worth checking out:
