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Solution Loans Personal Finance Blog

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Lisa Kleiman

July 27, 2016 07:56:58 PM

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Why are some people better at saving money? Could your pension be at risk? How to kick start your business with a guarantor loan? Find out the answers to these questions and more from the independent loan broker Solution Loans, with lots of money saving tips and expert financial advice on a range of issues, from family budget travel to cheap home improvements and more.

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The real life consequences of being made bankrupt

UK consumers are very familiar with debt. In just... You're reading the blog post The real life consequences of being made bankrupt that was written by and first published on Getting Loans and Credit & Managing Money.

UK consumers are very familiar with debt. In just one month this year, collectively we took out more than a billion pounds worth of consumer debt. According to the Office for National Statistics, 12% of people say they always, or most of the time, run out of money at the end of the week or month and need a loan or credit card just to get to the next pay day. As a result, debts can be swiftly accumulated, often to the point where there is no prospect of paying them off. When that happens, bankruptcy becomes a very real possibility.

Bankruptcy and the British public

In the first quarter of 2018 there were 4,188 bankruptcies, which made up 15% of the total number of 27,388 individual insolvencies in the period. Individual Voluntary Arrangements (IVAs) are by far the most popular type of individual insolvency – there were 16,676 during the first quarter of 2018. These are closely followed by debt relief orders, which made up 24% of the total numbers in the first three months of this year. In comparison with the last quarter of 2017, the number of bankruptcies rose almost 10%.

What does it mean to go bankrupt?

If you’re unable to pay your debts then any creditor to whom you owe more than £5,000 can apply to have you declared bankrupt. Bankruptcy is only usually recommended if your unsecured debts are more than £20,000 – for lower figures something like an IVA is usually more appropriate, if your creditors agree.

When bankruptcy happens, any assets you have will transfer to a trustee in bankruptcy who will sell off what they can to make payments to your creditors. The other debts will be discharged 12 months after the bankruptcy order has been made. This effectively means that none of the creditors to whom you owe those debts can try to collect on them. There are some exceptions to this, including recent taxes and child support payments. While this may sound like a great solution – essentially wiping the slate clean – in fact there are some other, much less appealing consequences to going bankrupt that give many people pause for thought.

Your credit score will plummet. Going bankrupt is one of the most damaging influences on your credit score. The purpose of a credit score is to demonstrate your ability to manage credit and being unable to make repayments on debts to the point at which you become bankrupt shows a complete inability to manage credit. So, if you do go bankrupt it’s unlikely you will be able to borrow for some time afterwards. It is possible to rebuild your credit score but you will need to be patient. Even after the bankruptcy has been discharged, it will remain on your credit file for five years.
You won’t be able to get even basic credit. Without a good credit score it’s no surprise that credit cards and loans simply won’t be accessible. However, you also won’t be able to apply for a current account where the account has an overdraft or a chequebook. You may also have trouble renting, as landlords will carry out credit checks, and monthly payments for something like insurance won’t be possible so all payments will have to be made up front.
Your situation becomes a matter for public record. All your personal financial information, as well as the fact that you’re going bankrupt, becomes data that anyone can access. Although really sensitive information – such as your birth date or tax payer ID numbers – are protected, anyone can discover the financial trouble you’re in.
Possessions can be taken. There are ways to exempt your property from being available to the bankruptcy trustee to sell and if the cost of selling an item would be higher than the potential profit then the sale usually isn’t pursued. However, if you do go bankrupt you may find that possessions, such as a car or electronic equipment are sold to raise money to pay your creditors.
Your assets will be frozen. Bankruptcy essentially makes your financial affairs an open book and takes the control away from you. When you are declared bankrupt your accounts will be frozen while the trustee in bankruptcy works out how to proceed.
You may still end up having to make payments. If your income is deemed high enough then you may find yourself making repayments on the debts that were owed – for up to three years.
Some employers won’t employ a bankrupt. Depending on your profession you may struggle to obtain (or keep) a job. This is particularly so in professions that carry a lot of responsibility, for example law or accountancy.

What is a forgotten pension?

On average we will have around eleven jobs throughout the course of a lifetime. We move jobs a lot more today than in years gone by and pensions that are set up for one job can be forgotten when we move onto the next. Many people don’t entirely forget but assume that a small pension from a shorter-term job is simply not going to be worth pursuing. However, if that pension was well invested that could be completely untrue – one woman who spoke to The Guardian newspaper said that an old pension she had traced out of interest was now worth £10,000.

The “lost pensions mountain”

Data on the large number of forgotten pensions comes from the Association of British Insurers. The ABI recently published a study indicating that there are currently some 1.6 million pension pots in the UK that have been forgotten about. Their total combined value could be as high as £19.4 billion. So, there is a significant volume of retirement income currently sitting unclaimed, which could be invaluable to those who don’t yet have enough for a comfortable life in those golden years.

How to find your forgotten pensions

You may be the type of person who has always kept scrupulous records of your finances and knows where all your retirement savings are. However, for many of us, especially where moving jobs has been fairly frequent, it’s highly likely that a few slipped through the cracks. So, what can you do to find any forgotten pensions that you might have and make sure that you benefit from them?

Go back through your paperwork. Can you match a pension to every period of work that you’ve been through? If there are any gaps, that’s where the forgotten pension might be. Start the process by writing out a list of all your previous employers and the dates you started and finished with each one. Note next to each one the relevant pension scheme name.
Where you can see there was a pension but you don’t have to details, contact the schemes – or the previous employers if you don’t have the scheme details. Find out if they are sitting on top of a pot of your cash. Companies that have closed or evolved can be traced via Companies House.
If you don’t have the right information you can use the government’s Pension Tracing Service, although you will need either the name of the employer or the name of the pension fund in order to be able to use this. The Pensions Advisory Service may also be able to help and you can always speak to old colleagues to see if they have details of the right provider.
Consolidate whatever you find if it’s practical to do so. It will be easier to keep track of your pensions if they are all within the same plan. However, there may be some financial penalties involved in moving your pension out of one plan and into another so make sure you research this thoroughly before taking any action.
Keep better records going forward. It doesn’t matter what stage you’re at in life, your future is going to be easier to manage if you’ve got a good idea of your pension and retirement savings and how to access them. Make sure you keep the paperwork you find and provide your current contact address to all the providers where you have established that you have a pension.

Pensions have changed significantly over the years and employers are now required to manage them differently, especially when it comes to exits. For example, if you left a pension scheme prior to 1975 it’s likely that any contributions you made while employed would have been refunded to you. If you made five years of contributions to a pension scheme between April 1975 and April 1988 – and you were over 26 at the time – then it’s highly likely you have a pension waiting for you. After 1988, if you completed two years in a scheme with an employer then you’re also likely to have a forgotten pension waiting to be found. If you do have a forgotten pension then it could transform your retirement prospects so it’s worth taking the time to investigate.

The way we pay for our phones has changed

83% of UK mobile phone users have a smart phone today – and we spend an average of two hours every day on those phones. Looking up arrival times for a bus, online shopping, reading the news, browsing social media, answering emails or swiping on dating apps, these are just some of the activities that make having a smart phone so essential to so many people. As a result, when we sign up for a mobile phone contract today, for most of us it’s a smart phone that we’re getting. Buying that smart phone outright would cost several hundred pounds. However, mobile phone operators such as EE and Vodafone have evolved the way they charge customers so that the cost of the handset can be factored into the monthly fee. And this is where all the issues have arisen.

The issue of overcharging

According to Ofcom research, roughly two in three people who pay on a monthly basis for their phones are signed up to a contract that integrates payment for the handset itself with the cost of monthly phone usage. In theory, the idea is sound – if you can’t afford to pay for the phone separately then dividing the cost into monthly payments makes sense. However, when the contract comes to an end, many mobile phone providers keep charging the consumer at the same price every month. Even though that price includes a proportion of the cost of the handset that has now been fully paid for. This, effectively, creates a penalty for anyone who doesn’t upgrade at the exact moment that their old contract finishes. One in three people go beyond their original contract period and, on average, end up paying another six months worth of monthly charges after the contract has ended – at the same rate. Citizen’s Advice worked out that this was roughly a £22 over payment per month, which is £490 million when spread across the four million people thought to be in this position.

Is it cheaper just to buy the phone?

Yes. According to Citizen’s Advice research, in 73% of cases it would be cheaper just to pay for the cost of the phone and then buy the rest of the service separately. The problem is that most of us can’t see this because mobile phone contract wording disguises how much of each payment is actually the cost of the phone and how much relates to usage. In fact more than half of people who paid for their phone as part of a bundled contract like this thought they were taking the cheaper option.

How is this being tackled?

Ofcom has launched its consultation process and is looking at introducing a requirement that mobile phone providers have to notify people when they get to the end of their contract. However, Citizen’s Advice has suggested that this should be simpler – just require the mobile phone provider to stop charging for the phone once it has been paid off and automatically drop the monthly fee. In addition, the proposals would require more transparency when it comes to the issue of pricing so that customers can actually see what they are paying for the phone. The Ofcom consultation comes to an end in November and the results will be published in 2019.

What can you do to avoid being overcharged?

Make sure you know when your contract ends so you don’t go beyond the minimum period – make a note of it in a calendar or diary so that you know when to act
If you’ve already gone past the minimum period, upgrade your phone so that the full monthly cost is justified
Switch to a SIM only deal – these can be significantly cheaper and you’ll never end up in the position of being overcharged for the handset. The only downside is that you won’t get a new phone with your new contract so you’ll need to pay for the handset separately.

Who is at most risk to personal fraud?

The results were very surprising. Whilst the common view of fraud is of old people being taken advantage of, the age group most likely to be victims of fraud are so-called Millennials.

One fifth of all the cases reported to the police in the UK across a three-year period from 1^st August 2015 to 31^st July 2018 were against those in the 18-29 age bracket.

This was compared to just 9% of cases being committed against those aged 60-69.

Millennials regard themselves as digitally savvy, but in reality, many of them are far too ready to share details like email address and even their mother’s maiden name online. Because they spend so much time online they are more likely to be targeted by online scams, especially those operating on social media.

online fraud and deception

Where is personal fraud happening across the UK?

Everywhere. It’s a problem for police forces to solve up and down the country. Some areas affected include:

West Yorkshire – 9,098 cases in a three-year period
Northumbria – 4,630 cases
Humberside – 3,069 cases
Leicestershire – 1,793 cases
Gloucestershire – 1,530 cases
Norfolk – 1,078 cases
Cleveland – 1,050 cases
Cumbria – 806 cases

How much does it cost individuals?

The answer to this is a lot. Much more than you would expect.

In Northumbria, 14 of the cases involved individuals losing over £100,000 each, while the average cost of fraud in Leicestershire was £26,000, £7,237 in Humberside and £2,417 recorded by the British Transport Police.

Those are huge sums.

How easy is it to convict?

It’s a very hard crime for the police to secure convictions. Of the data we were provided with, we saw that in Cumbria of the 414 cases of personal fraud from 1^st August 2017 to 31^st July 2018, only 39 resulted in convictions. That’s just 9.42%.

This is compared to a success rate of 15.12% from the British Transport Police in the period 1^st August 2015 to 31^st July 2016. ActionFraud

What should I do to protect myself?

It’s important to be vigilant. You should start by following our five tips to keep yourself, your personal information and your finances safe.

Never share your banking details over email or text message – even if this looks like a legitimate request from your bank, always ignore it. Your bank will never ask you to do this.
Always keep any other personal information, like your PIN number, confidential.
Regularly update your passwords and PIN numbers, and never have the same password for multiple accounts.
Shred documents that contain personal information, rather than binning them.

Keep on top of your credit score. You should always keep a close eye on your bank account activity, but by keeping a regular check on your credit score you’ll know if someone has stolen your identity to apply for credit cards, store cards or personal loans.

Where does the loyalty penalty exist?

The research carried out by Citizen’s Advice covered five different sectors: savings, mortgages, mobile phones, broadband and home insurance. It looked into what new customers pay and what loyal existing customers pay, identifying the difference between these two amounts as effectively a penalty for remaining loyal to a particular bank or mobile phone provider. Across the five markets that Citizen’s Advice investigated it found that a loyal consumer could potentially be paying a loyalty penalty of £877. This includes:

£439 for a mortgage. This is the difference between what a new customer on a fixed rate would be offered compared to an existing customer being moved from a two-year fixed-rate mortgage on to the lender’s standard variable rate.
£113 for broadband. This figure represents the deficit in terms of the cost of the cheapest basic price new deal compared to what a customer would pay for sticking with the same provider after the end of the initial contract period.
£13 for home insurance. Compared to the new customer deals, someone with the average cheapest combined policy would pay an extra £13 after 1 year and £110 after 5.

The total also includes Citizen’s Advice research indicating that loyal customer pay £264 for a mobile phone contract and £48 for a cash ISA, as compared to the rates offered to a new customer.

Why do we pay more?

90% of people believe that they should be rewarded for loyalty. And yet many of us are not very good at spotting when we are not. Citizens Advice found that 39% of us are completely unaware that we’re paying any more for essential services because of the loyalty penalty. 35% say that they just find it too difficult to shop around. 25% say they feel that it’s difficult to get out of a contract for an essential service – i.e. we’re more inclined to stay put even if we’re being charged more because of the perceived hassle involved in switching. Providers in these markets are not exactly being proactive when it comes to informing customers where there is money to be saved either. 75% of broadband customers, for example, are not aware of ever being told that they could reduce what they pay by simply switching to a cheaper deal.

What can be done to change the situation?

Citizen’s Advice has a number of legal powers and has used these to submit a “super complaint” to the Competition and Markets Authority, which has 90 days to respond. It is hoped that the authority will take the opportunity to find a way to stop consumers from paying the loyalty penalty, whether that’s more transparency over how it arises or automatically informing consumers when they are affected.

What can you do right now?

Shop around. There are plenty of price comparison sites that will show you exactly what deals are available to you for the essential services that you need.

Mobile phone. If you’re paying for your handset through your monthly charges, make sure you don’t keep paying the same amount at the end of the minimum contract term when the phone is paid off. Ask your provider for a discount if you’re a longstanding customer – show them what you’d get as a new customer elsewhere and ask them to match it. Switch to a SIM only deal to save money.
Find a new mortgage as soon as you reach the end of the fixed period and don’t end up on the lender’s standard variable rate simply because you don’t make the effort to find a better one.
Switch as often as your contract allows so that you’re always getting the cheapest rate.
Look into online banking, as rates are often better than on the high street. Ask your bank to match what they offer to new customers.
Home insurance. Use a price comparison site to find the best deal on the home insurance that you need for your property.

The only way to avoid falling victim to the loyalty penalty is to be proactive when it comes to shopping around for the best possible deals. Making these savings could mean you stop having to take out small loans to bridge the gap to payday.

What we pay in tax

Income tax rate thresholds will move upwards as of April next year:

The personal allowance threshold – i.e. the part of everyone’s income that is tax free – will rise from £11,850 to £12,500.
Higher rate taxpayers also get a boost, as the point at which income is taxable at 40% will rise from £46,350 to £50,000.

How much we earn

Changes to the National Living Wage were announced, effective from April 2019. An increase of 4.9% will mean that the minimum wage payable to workers in the UK, aged 25 and over, rises from £7.83 to £8.21 an hour.
Despite the Chancellor announcing that austerity had at last come to an end, a £1.5bn benefit freeze is still planned for next April. The controversial Universal Credit system is “here to stay,” according to the Chancellor who also outlined that work allowances for Universal Credit will be increased by £1.7 billion. An additional £1 billion has been set aside to help benefit applicants make the transition to the new system.
According to the Chancellor there are now 3.3 million more people in work than in 2010. However, he did not provide a breakdown as to whether this included freelancers and those on zero hours contracts. The 2018 growth forecast has been downgraded to 1.3% from 1.5% but has been raised to 1.6% for next year.

Our homes

The Budget contained more stimulation for the housing market with guarantees of up to £1bn for smaller house-builders and new partnerships with housing associations to try to create another 13,000 homes. An allocation of £500 million to the Housing Infrastructure Fund should mean another 650,000 homes can be constructed.

Enabling better healthcare and protecting mental health

The NHS is going to get another £20.5 billion over the next five years and the Budget also allocates an additional £2 billion a year for the provision of mental health services. More emergency resources will be put into place, both for mental health – including mental health ambulances and a round the clock crisis helpline – and physical health, including £10 million for air ambulances.

How we travel

Fuel duty will remain frozen in this Budget. That makes nine years in a row that there has been no increase in fuel duty. £30 billion has been earmarked for the UK’s roads, including dealing with potholes and carrying out repairs to motorways. There will also be a 30% increase in infrastructure spending.

Educating the next generation

£400 million has been allocated as a one off “bonus” for schools to help primary and secondary educational institutions to buy the “extras” that they need. Funding has also been set aside for 10 University Enterprise Zones, where universities and business work together to increase local growth and innovation.

Sustainability and the environment

Philip Hammond announced a plastic tax on any packaging that does not contain at least 30% recyclable material. Although many people have called for a tax on plastic takeaway coffee cups this was not part of the Budget. The Chancellor indicated that the industry should be given the chance to make progress on the issue – but that if it does not, a tax will be considered in the future. In terms of other environmental issues, £10 million has been set aside to deal with abandoned waste sites and £60 million for planting trees.

The cost of alcohol and cigarettes

As expected, it’s going to continue to cost more to drink and smoke in the UK. The duty on a bottle of wine will rise to 8p – in line with inflation – as of February. However, duty on beer, cider and spirits has been frozen. Duty on tobacco is going up by inflation +2% and the cost of a pack of 20 cigarettes will rise by 33p. Cigar costs are also on the increase – up by 17p for a 10 gram pack.

Brexit

No one is going to be particularly overjoyed to see that another £500 million has been earmarked in the Budget to pay for the preparations that are currently under way for the UK to leave the EU. The Chancellor also announced that a commemorative 50p coin will be minted to mark the UK’s exit from the Union!

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