2017 has been a year full of ups and downs in the world of money. Here are the most significant stories, hand-picked by the Moneywise team.
HOME FINANCES: Energy Price Cap
In the run-up to this year’s general election, Theresa May pledged to cap energy prices as part of her campaign.
The announcement followed hot on the heels of suppliers upping gas and electricity bills – among the Big Six providers, prices rose by up to 14.9% on average. Pre-payment customers had also already seen their bills capped in April.
Since being re-elected as Prime Minister, Mrs May has kept true to her promise – in October, the government published a Draft Tariff Cap Bill.
Under the Bill, a cap will be implemented to limit the cost of standard variable tariffs and other default tariffs that consumers are moved to at the end of a fixed-term deal. This will remain in place until 2020, but energy regulator Ofgem will have the power to extend it for a year on up to three occasions.
However, the level of the cap has yet to be set and there is a concern providers will simply set their prices to the level of the cap. In addition, many energy experts have warned that a cap won’t encourage consumers to switch, which could save them more.
SCAMS AND RIP-OFFS: Equifax data breach
In October, Equifax announced that 693,665 UK customers were affected by a serious breach in its security, and a potential loss of data.
This is a calamity for the people who have had their data stolen, but the Equifax data breach also marks a low point for consumer data security and confidence in corporate responsibility for data.
Criminals who gain access to Equifax’s customer data can quite easily build fake financial profiles and cause all sorts of trouble. The sheer depth of information that a credit report mines can be dangerous in the wrong hands.
A new marketplace for data, both legal and illicit, has emerged with the onset of social media, online financial management and other fintech. The breadth and depth of consumer data at stake is enormous, and the Equifax breach is the most alarming signal that now more than ever consumers need to be conscious of what they share online.
General Data Protection Regulation, which intends to strengthen and unify data protection within the European Union, becomes enforceable next year and goes a fair way to protecting consumers’ rights. But the burden will ultimately fall to individuals to make sure they don’t get caught out in the first place.
PROPERTY: The rise of renting
The news that 5.8 million (24%) households will be renting privately by 2021 – up from five million today – signals a change in attitude towards renting privately, despite homeownership still being the Holy Grail for many Brits.
Knight Frank’s annual report into the Private Rented Sector, which came out in mid-June, was based on a survey of 10,000 tenants and 26 big housing investors to get an understanding of how private renting will develop over the next few years.
While two thirds of tenants are saving up for a deposit for their first home, Knight Frank suggests that more people are renting out of choice because it is more affordable than homeownership.
The report touches on Build to Rent, which is part of a government initiative to increase the supply of high-quality homes for tenants.
These schemes are typically owned by institutional investors, rather than buy-to-let landlords.
According to research by Savills for the British Property Federation, there are 95,918 Build to Rent homes complete, under construction or in the planning pipeline across the UK. I think this sector will become increasingly important as a means of providing new homes while homeownership remains out of the reach for so many people.
SAVING & BANKING: Savers continue to battle rising inflation
Since February inflation has been above the Bank of England’s 2% target, rising to a peak of 3% in September and October.
This means that even if you have one of the top savings accounts, you are likely to be getting poorer in real terms as inflation whittles away the value of your cash. Since the summer, there have been few open-to all savings accounts that have been able to beat inflation, no matter how long you’re willing to lock your cash away for.
This means hard-pressed savers are being forced to use more ingenious methods to make their money grow.
Savvy consumers can use a combination of current accounts and regular savings accounts to beat inflation, although this does require extra legwork. See the Moneywise model savings portfolio on pages 38 and 39 to find out how to achieve this.
There is some hope that now the Bank of England has increased the base rate to 0.5% that savers will see a corresponding boost. However, it is often the case that banks are quick to pass on rate cuts to savers but slower to react when the decision is in the favour of their customers.
PENSIONS: The final salary transfer conundrum
The number of people seeking to transfer out of final salary or defined benefit (DB) pension schemes – which pay a guaranteed income for life related to salary – has soared over the past 12 months, the Financial Conduct Authority says.
Scheme members are being drawn by high transfer values and the ability to spend their cashed in pension as they wish, following the introduction of the pension freedoms in April 2015.
Meanwhile, three million final salary pension savers have just a 50% chance of receiving their benefits in full, the Pensions and Lifetime Savings Association (PLSA) has warned.
The PLSA says the majority of final salary or DB pension schemes, which have 11 million members in the UK, look sustainable. But for the weakest schemes, ‘millions of people’s retirement incomes are now at risk’ due to a combination of factors: increases in life expectancy, record low interest rates and lower investment returns.
However, the Financial Conduct Authority is concerned that fi nancial advisers are recommending pension transfers that may not be in the individual’s best interest. The regulator found that recommendations to transfer were inappropriate in more than half of the cases it examined.
INVESTING: Neil Woodford’s apology to investors
Leading fund manager Neil Woodford (pictured below) had to apologise for the poor performance of his £8.7 billion CF Woodford Equity Income fund, which is a member of the Moneywise First 50 Funds.
In September, following the news that the fund was bottom of the Investment Association’s UK Equity Income fund sector for its one-year performance, he said: “It’s been a difficult period. And I’m very sorry for the poor performance that we’ve delivered really now since 2016.”
Investors were left wondering how patient they should be when a fund manager underperforms, and if they should sell up now or wait for Mr Woodford to deliver on his pledge to turn things around.
Some commentators say Mr Woodford is managing too much money and too many products – he launched a third fund, called the Income Focus fund, in April this year.
Others say Mr Woodford has always rewarded long-term investors despite rough patches in his career.
In a September online poll, we asked: “Will you buy, sell or hold Neil Woodford?” Among the 63% of Moneywise.co.uk readers who said they hold the CF Woodford Equity Income fund, the majority (eight in 10) said they would continue to invest at the same level or increase their holdings. The remainder said they would sell some or all of their holdings.
A PERSONAL PERSPECTIVE: Brexit
As a family, Brexit has affected our jobs, pensions, savings and even our holiday this year.
My wife works for one of the large investment companies based in the City of London. Her firm already has advanced plans to move core parts of its business to mainland Europe. This will make her future employment a lot less secure.
Our pensions have not performed well in the last year, due to the fact a large chunk is invested in UK companies. They have been held back by the slow Brexit-affected growth of the UK economy. We could have sought greater returns in emerging markets, but with both of us in our 50s it’s a risky strategy.
The family’s savings have not grown at all. With two adult children still living at home, we have had to use savings to meet rising food and energy costs, which have risen partly due to Brexit woes.
Even this year’s holiday to Florida was affected by Brexit. The flights were more expensive because of the costs of aviation fuel in the UK, which has risen due to adverse foreign exchange rates. The exchange rates also reduced the buying power of our spending money, as our pounds sterling bought far fewer US dollars.