How to Translate Your Pension Statement

With the roll out of Auto Enrolment millions of people now have a pension plan. A good number of these will be first time investors in a pension and as such they will be receiving paperwork about their pensions for the first time as well. One of these is a 24 year old relative of mine who chose to run with the idea on the basis that it was going to be a way of squeezing a bit more money out of her employer “so why not”. I don’t think she was alone in that line of thought.

Her first statement arrived a few weeks ago and like many people she scanned the ten pages of information until she found the figure she was interested in then put it back in its envelope. Then, unlike many people, she gave it to me and said “Is there anything in here I should know about?” My answer was “Yes, all of it”. Her look of disappointment was obvious and I think her plea of “Can you just translate it for me, I have no idea what half of it means” was a combination of lack of interest combined with the knowledge that she shouldn’t have a lack of interest.

She is not slow to understand things by any means, for what it is worth she has a MA and holds down a fairly responsible job with a lot of admin, but there is something about a pension statement that seems to repel her, and most people’s, interest. Whether it is the fact that it is full of stuff a regulator says must be in it, no matter how dull or irrelevant,  or whether it is a useful reminder of the ageing process I do not know, but I’ve yet to meet anyone that has read and completely understood (as opposed to thought they understood) the annual statement. With this in mind, I thought I would use her correspondence as a template and attempt to both translate it into normal, point out some of the more relevant bits, and provide a few tips about using the information for the power of good.

So here it is, a brief translation of the annual pension statement. Personal research has shown that making a cup of tea before reading is helpful!

Name and Address

This bit seems easy, but you would be surprised just how many problems follow from getting this bit of information wrong. A pension is a legal contract and as such the information within it has to be correct. This means the spelling of your name has to be correct and the address has to be your current one. When the time comes to take benefits from the plan, you pension provider will want to make sure you are who you say you are. Any discrepancy, no matter how small, has the potential of delaying your claim to your money at retirement. You must keep your pension company up to date with changes of name, title or address.

Letter and Statement

The correspondence you will get from your pension provider will consist  of a statement and a covering letter at the very least. There may well be other stuff, but these two items will always be there. Think of the covering letter as one of those round robin letters you get from a distant relative at Christmas. It will include references to how good the company is, any awards they may have got and proud boasts about particular fund performances.  it is likely to also make reference to some of the more important pieces of information in the statement, partly because they are acutely aware that only a small percentage of people actually read the whole statement. Regardless of the motives in putting information in the covering letter, you should always read it and if there is something you want explaining further, make sure you ask.

The actual statement is part fact, part conjecture and part what the regulator insists should be in it. It is important that you understand which category each piece of information falls into and I will cover this further as we go on.

TIP!

If you are getting a paper statement, scan it straightaway. if it is already digitised, then make a folder for it and subsequent statements you may get. Password protect the folder (encrypt if you feel happier to do that) and back up remotely.

So What is In The Statement

To start with, there will be a lot of different account details. Your pension plan could have all or any of the following:

  • A plan number – This will be your own plan number relating to your own personal pot of money within the scheme.
  • Your details as the Planholder – Check that all your personal details are correct
  • Scheme name and scheme number – These are the details of the overall scheme of which you are a part. Typically the scheme name will include your employer’s name.

You need to make a note of all of these and keep them safe.

A statement may well consist firstly of a summary and then a more detailed explanation. The summary will usually just give you a value of what your pension is worth, how much has been paid in and by who and a indication of what it may be worth at some point in the future. Additional information may include such things as what it might pay to your estate should you die.

Plan Value

The value of your plan will be the given value on the date of the statement. In terms of absolute accuracy, it will be wrong by the time you get it, however any differences will almost always be so small it is not something of great concern. Unless you are of an age where you are able to take benefits from the plan, knowing the value has two main purposes. firstly you can compare it with the amount that has been paid in and if it is more you can allow yourself to be appropriately chuffed depending on the amount of profit you have made. if it is less then you can dig further for an explanation as to why. The second reason is that it is also representative of a transfer value. Your plan is designed to be fully transportable between jobs and even into self employment. If you are changing your work in any way then finding out the transfer value and exploring the options open to you is a must.

Knowing how much has been paid into the plan is important. As is knowing where those payments come from. Typically there are three sources of payment into your plan: Your employer has to contribute, and there are strict rules as to how much they must pay in as a minimum. When you originally joined the scheme you would have been given a guide showing these figures, as well as the minimums and maximums that you can choose to pay in yourself. The third source will be any transfers into this plan from any other plan you may have previously held.

 

TIP!

Add up the total of what has been paid in and deduct it from the plan value in order to find out how well your plan has done over the course of the year.

What You May Get Back at Age 65

This part of the statement is most definitely conjecture. So much so that I can guarantee that the figures you are looking at will be wrong. The younger you are the more wrong they will be. This is because no one can predict all the variables that will actually happen during your working life such as how your income, and therefore the related contributions, will rise, inflation and investment performance.

The best that can be done is to use some regulator approved default predictions so that a figure can be put down. as you get older, this prediction can become a little more relevant year by year due to the fact that as you get nearer retirement, the variables will get narrower. The secret to getting a good return in a pension plan is usually to feed your plan as much as you can throughout your working life so that as the date of your retirement gets closer you will be nearer the amount of return you would like.

Most statements will show a figure at age 65. even though it is a fact that retirement for most will be at a later age than that. If you want to find out your own retirement age have a quick look here to find out. it will only take a minute. I cannot emphasise enough that you should be treating any illustration of what you might get as a pension with caution, especially if you have forty years plus to go before taking it!

TIP!

You can request that your provider send you an illustration of what your pension may be at any age, so long as it is after 55.

Plan Details

By this I mean details about how your plan is invested. When you first joined you would have been told of various funds that were available to you. You may have been offered a “strategy” whereby funds are allocated to you automatically according to to your attitude to risk or age. One theory suggests that you may be more open to higher risk when you are younger, but will gradually get mare cautious as you get older and feel you cannot accept the chance of losing money as you get close to retirement.

Here we have probably the most crucial aspect of your pension. Risk. The choice you make as to what funds or “strategy” to go for will, over time, have a huge impact on how your pension performs. There are endless guides and articles available to you concerning investment risk and all I’m going to do here is implore you to read as much as you can stomach.

As a minimum, you must read all and any information given to you by your own scheme provider.

If you are not sure of where you fall on the risk taking spectrum, then you must keep asking them questions until you are comfortable. It is worth noting that there is no point asking your employer, they are not allowed to advise you, you must ask your questions to the provider, or any advisers appointed by your employer.

TIP!

Keep a separate note of your plan number(s) and your provider’s contact details.

Charges

Imagine you have just ordered a round of drinks. the barman pours your tipple of choice into a glass, but before he gives the drink to you he takes a sip. This is how investment charges work. You give a company your money on the basis that you want a good return on that money, but before it has a chance to grow anywhere, a little chunk is taken by the provider. the size of the charge can vary, but within the auto enrolment environment these are strictly controlled. Again, you need to read and understand how the charges affect your plan. They are provided to you at outset and are easily available on your provider’s website. you can even just call them and ask.

If you do not get to grips with the charges you could find yourself losing out on quite a bit of money over time just by being in the wrong fund for you.

As well as charges that come as part and parcel of the investment element, there may be other charges, such as surrender or admin charges. You need to find out about these before you do anything that may attract them. Just ask.

Contrary to popular urban myth, all providers want you to understand their product. Dealing with complaints and misunderstandings uses up huge resources and they would rather have a client who asks a lot of questions but ends up happy with what is a fairly complicated product, than someone who doesn’t ask or read the information at an early stage and then starts a complaints procedure.

What If I Die Before Retirement?

Not a great thing to dwell on, but we have to acknowledge the possibility. In short, the value of the fund will be paid to your estate. However, I would strongly advise you to check out a part of your plan called “Expression of wish”. This is an instruction you can include in your plan specifically asking your provider to pay the proceeds of the plan to a named person (or persons). The provider is not legally bound to follow the instruction, but it is highly unusual for them not to do so.

And Finally….

The statement is important and you should read it. Somewhere it will say about getting advice, it will probably suggest you speak to a financial adviser. I would wholeheartedly endorse the idea of taking independent advice (there is no point in anything other than independent advice) from an experienced and qualified adviser. However, going back to my young relative’s statement covering her first pension year, it had a fund value of less than £100. Currently, the cost of getting good advice is going to be higher than that. So it is hardly surprising that she won’t be going down that route, and, I suspect, neither will the majority of her contemporaries. Given that, there are still things you can do such as always ask your provider about anything you are unsure of. read everything you are sent and do your own research regarding plans, funds and charges.

Over the last thirty years pension provision has changed beyond recognition. major changes in legislation have occurred with monotonous regularity. So it is a safe bet that the current rules and regulations that come with this latest idea of auto enrolment will not be the rules and regulations that will be in force when you finally come to take  your benefits at age 55, 65, 68 or whatever it will be.

Given that it is certain that changes to pensions will continue to be made, it is crucial that when your annual statement drops on the doormat you take some time to read and understand it. Not doing so could cost you very dearly throughout your retirement.

 

Getting Advice on Care Home Fees

Care fees can be £30k or more a year, so it is no wonder that there is huge debate about who should foot the bill, the state or the family, and what measures can be taken to mitigate the cost. With regard to the state or family argument this is one of those that polarises opinion with one side arguing that the state is responsible for the health and wellbeing of its citizens and should pay for the care of the elderly. On the other side is the argument that if the individual has sufficient assets to pay for their own care, then they should do so. In between are suggestions that take elements from each.

Quoting from Age Concern; the current situation can briefly summed up as

Most people will be expected to pay something towards the costs.

If your care is being organised by the local authority, then the main steps of the process are:

  1. Your local authority does a care needs assessment to identify what help you need.
  2. They make recommendations about your needs and whether or not you need residential care – this is called a Care Plan.
  3. They work out a budget to ensure you get what care you need – this is called a Personal Budget.
  4. They do a means test, also called a financial assessment, to work out how much you should pay towards your care home fees and how much they will cover.

If your care is arranged by the NHS or social services, you may not have to pay for some or all of the care.

As you would expect, Age Concern have a lot more information on this subject and I would urge you to take a look at what they have to say.

The means test is the one area that seems to be universally disliked. At present, if your assets exceed £23250, you can be expected to pay for your long term care costs. If you do not have that money available in cash, then the costs will eventually be met from the sale of your assets, which is usually your home, upon your death. It is not surprising then that considerable effort has been made in order to think of ways to mitigate these costs and protect the assets of someone who is likely to go into long term care.

When it comes to trying to mitigate the cost, there has been an entire industry that has grown around the subject of Estate Planning, not least because a great number of people are worried about what will happen to their assets should they have to go into care.  Being in the situation where my interest in this subject is morphing from the professional to the personal, I made a point of listening to “The Care Fee Trap” a Money Box programme on BBC Radio 4. Just click the link and listen to it for yourself.

Although the programme largely focused on the behaviour of one Estate Planning company, it is probably better to put that element to one side and concentrate on the actual issues is raised. Most of you who have read any of my previous blogs will know that I am a passionate advocate of asking questions and doing research before going ahead with any product or service. With the subject of planning for possible care home costs I can’t think of a product or service that needs such questioning and research more.

The common thread running through all the schemes that purport to protect assets from the means testing process is the transfer of those assets into a trust. Simply put, the assets cease to be your property and instead become the property of the trust and therefore (so it is sometimes claimed)  cannot be included in the means testing process. Such plans may not be the perfect solution they initially appear to be. There is a part of the means testing process that is called “Deliberate Deprivation” which seeks to address situations whereby the authorities believe that an asset has deliberately been moved from your ownership to that of a trust, with the main purpose of avoiding long term care costs. It is the phrase “main purpose” that drops a degree of ambiguity into the situation and makes the whole situation open to interpretation and can result in the whole plan becoming meaningless.

No estate planner would be daft enough to compile a report for you that said the reason for putting your assets into trust was to avoid long term care fees. However, is is often stated, usually verbally, that the avoidance of such fees can be a side effect of putting your assets into trust for other reasons. It may well be that these other reasons are perfectly legitimate and are borne out of genuine need. The thing to remember is that you can expect the authorities to investigate and ask you, and your family, what those reasons are. If they do not stand up to scrutiny, then the fact that the have been put into trust will be completely disregarded.

You may well be coming to the conclusion that the whole area of estate planning and will writing is a lot more complex than you first thought. It may come as a surprise then, that the process is actually unregulated. It is possible that the company you use may well be regulated through their other activities, solicitors being an ideal example. However, if it is a company that just does estate planning and will writing, then they do not have to be. In 2013, it was recommended to the government that activities such as will writing and estate planning be regulated. The recommendation had the backing of consumer groups and industry professionals who wanted to raise the profile and show their expertise in a formal way. For reasons I just cannot fathom, the government declined to regulate it.

If you are worried about the cost of long term care, do your own research. Do it carefully, don’t rush it. Don’t rely on just one source of information. As well as the age concern link above have a look at the SFE website. The SFE (Solicitors for the Elderly) is an “independent, national organisation of lawyers, such as solicitors, barristers, and chartered legal executives who provide specialist legal advice for older and vulnerable people, their families and carers”. And, of course their members are fully regulated.

 

 

 

All change on the Buy to Let bus!

Some investments become fashionable. I don’t know why, they just seem to reach the certain part of an investor that enjoys talking about them. If an anecdote about a new tenant can be thrown casually into conversation down the golf club or while sipping a free coffee at Waitrose, then all the better.

Buy to let property ticks the right boxes as one of these “vanity” investments and has done for a few years now. Don’t get me wrong, there are all manner of landlords out there, all of which have different reasons for becoming landlords. Even my mother became an accidental landlord well into her eighties when it became apparent that it was a way to help fund her care. What I am saying is that there is a certain type of investor who gets a boost to their perceived social standing through making certain types of investments. It is these people that tend to miss the early warning signs about the investment and only sit up and take note when the investment starts to cost them money rather than make them money.

We now have another warning sign for those people. Although, changes in the way income from buy to let properties are taxed have been flagged for some time, it is April 2017 that one of the most significant takes effect. After many years dealing with people who make “vanity” investments, I full expect this particular red flag to also be ignored and it will be the cold light of the actual annual tax return that will bring them up to speed. It will cost them a few quid by then.

So what has happened? Well, simply put, today marks the start of a process that will finish in 2020 whereby you will no longer be able to set the costs of a mortgage against the income gained from the property. The government website  sets out all the details of the changes, and if you have questions about your particular situation then I suggest you have a chat with your accountant sooner rather than later. Whatever your situation though, now is probably a good time to review whether or not buy to let is the right thing for you to do, or whether or not it is the right thing for you to continue doing.

As with any investment, it will only stand a chance of getting the result you want if you look at it coldly and purely in monetary terms. Buy to let is no different. The purpose of buy to let is to give you a return on your money. A return that at least outpaces inflation. In order to do that, you need to take into account everything the property is going to cost you, plus a guesstimate of what it may cost you. Here’s some pointers:

  • Costs of buying a property
  • Maintenance of the property
  • Risks
  • Tax implecations

A bit more detail…

I think everyone is aware of the costs of buying a property, deposit, survey, legal costs and, if necessary mortgage costs all have to be factored in. It is worth highlighting though that for Buy to Let, stamp duty is more expensive and most lenders have hardened their lending criteria so that the property needs to return a rent that will cover 145% of the mortgage cost, rather than the 125% that was used as a guide not that long ago. If you are getting a mortgage, then 75% of the value of the property seems to be the top end of what lenders will lend you. It goes without saying that the lower the mortgage required, the greater your chance of getting a decent return on your money. If you are looking at the top end of borrowing then you need to think very carefully about the real costs involved. Personally, there is no way that I would touch a Buy to Let investment if I had to borrow 75% of the property value.

Maintenance of the property is your responsibility, any repairs fall to you, as does insuring the property. These costs are unpredictable and can make a significant dent in your return

Other risks can include gaps in tenancy, or not finding a tenant to start with. You will still have to pay the mortgage even when the property is unoccupied. If the property is on a mortgage, then the rate can change. as previously mentioned, lenders have hardened their lending criteria in order to create a larger buffer between rental income and mortgage costs, but if interest rates rise the margins of return will become tighter.

This blog was triggered by the tax changes that come into force today, but paying tax on the income is just one element of your overall tax and financial situation. having a Buy to Let property will have implications on Capital Gains tax, Inheritance tax  and even your entitlement to certain benefits.

I know I have not mentioned the fact that the property is also a capital asset and as such there is a potential return to be had from its underlying value. it is true that the value of property has gone up, some would say by far too much, in recent years. The profit that can be made from eventually selling is something that has to be considered, as should the fact that there has been the odd property crash and the fact that it can take quite a while to find a buyer.

There is no doubt that having a property that you rent out can be a great investment, for the right people in the right circumstances and with the right understanding of the risks involved. If you are not that person, then having one because it makes you feel better is a potentially costly piece of self delusion.

 

What is a Second Charge?

Most of us are familiar with personal loans, credit cards and mortgages but a Second Charge loan may not be. As with most financial products, once you get beyond the jargon, it’s actually quite straightforward. A Second Charge is simply a loan that is secured on your property. This means that to be eligible you must be a property owner and that there must be enough equity in your property to secure the loan. The property does not have to be your main residence and can even be a commercial or Buy to Let property. The name “Second Charge” comes about from the fact that your mortgage is actually also known as a “First Charge”

Why Would I want A Second Charge?

There are a variety of reasons for considering a Second Charge. As it is secured on your property, the interest will be usually significantly lower than any unsecured debt you may have through personal loans or credit cards. Consolidating unsecured debt into a secured Second Charge will save you money, and sometimes quite a lot of money. However, never lose sight of the fact that once you have borrowed money using your property as security, then it is your property that is at risk in the event that you cannot make the repayments. Other common reasons for considering taking a Second Charge include meeting the costs of school fees, and tax bills, home improvements and deposits for other property as well as capital costs for you business. In this last instance, borrowing for business purposes is not something a normal mortgage will accept.

If you have a mortgage that has a favourable interest rate, or has penalties for early redemption, it may well make sense to take a Second Charge in order to secure further borrowing rather than remortgage your original loan.

Most unsecured loans are available up to certain limits, with the very top end being about the £35k mark. if you need to borrow more than this, then a Second Charge becomes attractive as the limit you can borrow is dictated by the equity in your property (as well as conditions relation to affordability) It is possible, though not always wise, to organise your borrowing so that the combined value of both your mortgage and Second Charge reaches 95% of the overall value of your property.

A Second Charge typically takes about three weeks from application to getting your money. Although I have been involved in mortgages that have been that quick, it is fair to say that on average a Second Charge will complete faster than a mortgage, and unlike a mortgage, there will not be any up front costs either.

As with all borrowing, you should carefully consider all aspects of what you are doing before you go ahead and ask as many questions as you can before signing. But, like most products, for the right person and the right circumstances, a Second Charge may well be a good idea.

 

 

 

 

 

 

Have you mislaid £500M?

“Commission chairman Nick O’Donohoe said: “Dormant assets should not exist, but they do. Individuals should never lose track of their assets, but they do. Companies should not have out-of-date contact details for their customers, but they do.”

This was the quote that jumped out and grabbed my attention in an article titled  “Up to £500m of ‘dormant’ assets in pensions and insurance sector” You can read the full article in Professional Adviser here, and I suggest you do!

Now £500M is rather a lot of money and it seems its all yours. You’ve just forgotten about it. It is a bit of a problem to the companies that are holding it on your behalf as they can’t do anything with it themselves and they can’t find you in order to give it back. In an attempt to try and solve this problem, the government have a whole department working with insurance companies, investment houses, banks etc.. with the aim of reuniting people with their lost money. You can find out more about the department, The Dormant Assets Commission by clicking here and again, I suggest you do.

If you have moved house, changed jobs, changed your name or somewhere in the back of your mind you have a vague idea that you put fifty grand into a pension and you just can’t remember where and when. then there is a chance that it is still sitting there waiting for you to collect it. just like lost luggage. A lot of effort is being made to try and trace the owners of dormant assets, but why not give them a hand and check any old paperwork you have, or may have even inherited from a relative who has passed away, and check to see if you still have a pot tucked away that you have long forgotten about!

Car Insurance Costs to Soar! Maybe. More Likely Maybe Not!

A fairly uninteresting formula used to calculate personal injury compensation has suddenly become a very interesting formula used to calculate personal injury compensation. This is because the government has noticed that the returns on investments are low. Fingers on the pulse as usual given that the last time this formula was altered was 2001, so why now? Returns on Index Linked Gilts have not been great for a long time, yet the 2.5% used in this formula has been a constant for over 15 years!

The formula is important as it fixes the amount of compensation from an insurance company to a personal injury claimant who is deemed to need the money in order to ease their wellbeing following life changing injuries. It is used to calculate the lump sum amount required to meet the claimants ongoing needs, while taking into account the expected investment return on that lump sum. Since 2001 this figure has been 2.5%, it is now minus (yes, minus!) 0.75%. It is in effect stating that to get what is needed from that lump sum, it has now got to be large enough to withstand an annual drop in value of 0.75%

In one of the few articles I have read that gives some actually thought out figures, the Solicitors Journal  states:

‘For someone in their twenties, lump sum damages would change from £4.8m to £11m. For someone in their sixties, where it impacts less, lump sum damages would change from £3.8m to £6.5m.’

And here I start to feel deflated and reach for yet another calming dose of Earl Grey. With the best will in the world, I think the good folks at the Solicitors Journal would accept that they do not enjoy the mass readership of the great general public. Neither does the many specialist publications who have covered this in a bit of informed detail. A very necessary bit of informed detail. Instead, the mainstream press goes straight to the eye catching “Car Insurance to rise by £300” headlines which are advertiser friendly and get people who are expert at reading these headlines much ego massaging time on the radio.

Yesterday, I was accosted by an acquaintance who’s knowledge of finance and insurance extends to the fact that he has a mortgage and three children, no life insurance but a great deal on his iphone cover, and was told that his nephew is now going to have to pay £1000 more for his car insurance because “The government have put car insurance up for the under 25’s”. Despite my best efforts, he is sticking to his dystopian view because “that guy on the radio said it”

Do the mass media really get off on scaring people?

I have read the “£1000 increase” for under 22’s in many places, along with “£400 increases” for older drivers and “£75 – £100” increases for the inbetweenies. Not once have I seen anything that tells me how the dickens these figures are derived. The ancient art of plucking figures from the air is in vogue yet again. Fact is that car insurance premiums are calculated in many ways. The figure you end up with on your renewal depends on where you live, your age, your job, the car, your own driving history and even the fact that the underwriter has been told that he must get in x amount of policies so “be friendly on the discounts this week.”

The art of acquiring financial figures to be used in newspaper headlines is ancient and has to be passed down from master to student…

 

The most recent things I have read about this change is that the government want to have meetings with the insurance industry to see if there is a “way forward”. I strongly suspect that such a “way forward” was considered long before this change was announced. If you want to dump an idea, first change it for the worse then wait for those effected to come up with their own “not quite as worse, but worserer than they would have originally demanded” plan.

The idea that someone in receipt of a large sum of money is going to use it in a way that reflects the government’s view regarding the investment of said money, and therefore the formula used to calculate it is so far from reality that it is laughable. The fact that it has been looked at now seems to me that it is more likely that they will ditch the whole idea on which this calculation is made and come up with a whole new way of dealing with this situation.

And as for car insurance premiums, I wouldn’t put my kidney on ebay just yet. Natural market forces, along with a whole lot of other things, will temper things down to just expensive rather than impossibly expensive.

Shop Around to Save Money on Your Bills

ITV News has published an article showing the rise in household bills increasing by over £200 in the last year. Average costs are shown as:

Average cost of bills for 2016 / 2015:

  • Energy: £1,383.59 / £1,289.36
  • Home: £140.58 / £135.46
  • Car: £691.85 / £595.06
  • Total: £2,216.02 / £2,019.88

These figures almost certainly include people who should be shopping around but are not. Last year, a member of my family paid £320 for her car insurance after searching around the comparison sites, the renewal came in this week at £350. Another search of the comparison sites found a quote for £148. That company was way off the mark last year, but they have obviously changed their pricing policy since (and yes…the cover is the same).

Read the full ITV article here, it’s not comfortable reading but very important reading, especially if it kicks you into shopping around. make 2017 the year when you take back a little control of your spending!

What Is A Warranty?

As we are in the busiest time of the year for buying electrical goods such as mobile phones, games consuls, TV’s and everything else that has a plug on it, it is also the busiest time for retailers to sell extended warranties. These are guarantees that give you greater cover against damage or breakdown than the guarantee that usually comes as standard with the item you have bought.

They can come as a product that is bought at a one off price at the time of purchase or can be a monthly payment that lasts as long as the warranty is designed to run. They can be specific to the item you have bought, or can offer “blanket cover” over several qualifying items. One thing they all have in common is that they are all a bit different!

Before you agree to buy an extended warranty on anything you need to find out a few things:

  1. What does the guarantee that automatically comes for free with the item cover and for how long? You may well be happy with having that.
  2. Is the cost of the warranty worth it? I once bought an iron for £20 and the optimistic salesperson tried his hardest to sell me the £15 warranty.
  3. What does the extended warranty actually cover?

    Let’s look at these a little more closely.

    What does the guarantee that automatically comes for free with the item cover and for how long?

Most things you buy in this country come with some form of guarantee against it breaking down or developing a fault. Although this seems straightforward, there are things you should be aware of. Firstly, it relates to things bought in this country. Online purchases made from abroad or even purchases while you are in another country may not have the same protection as you can expect from buying in the UK. As a general rule, it is a wise move to make such purchases with a credit card as that will give further protection to you if things go wrong. The Money Advice Service gives a good summary of how this works, click here to read it.

The next thing to look at is how long is the guarantee? One year is quite common, but by no means can this be taken for granted. Any period is possible, and obviously, the longer the better! If the item has been “refurbished”, “display” or is sold as “seconds”, the guarantee may only be a month. It still should be of merchandisable quality though and you should enjoy the same consumer rights as if it were sold as new.

A lot of guarantees require you to fill out a registration card at the time of purchase so you can easily be found should you get in touch. I’m sure that acquiring names and addresses for marketing purposes doesn’t even cross their minds. If you do not fill out the registration, it can make claiming on the guarantee more long winded and awkward, but it should still be honoured, so be persistent.

Although Guarantees have a lot in common and meet broadly similar minimum standards, they can, and do, have wide variations. It should be treated as a legal contract and as such you should read what is in it. If there is anything in it you do not understand, then you should ask about it before purchase. Citizens Advice have a page devoted to The Consumer Rights Act 2015 which is well worth a visit

Is the cost of the warranty worth it?

Seriously, this is a matter of common sense. If you are buying an item that you can easily afford to replace if you accidentally throw it at the telly while watching England getting knocked out on penalties again, then don’t spend anything on a further extended warranty. You may have an accidental claim on the telly through your insurance though.

If it’s a warranty that you are going to pay for monthly, then add up the total to see if it is worth it. Often the retailer is getting a commission for selling the extended warranty. knowing this, I have occasionally used this to my advantage and got the price of the item reduced. certainly doesn’t work every time, but it has worked, and if you don’t ask – you don’t get!

When working out the value of the warranty, it’s not just the price you should consider. There will be a long list of terms and conditions on the contract and it really is down to you to read them and decide whether or not to run with it. These terms and conditions will set out the circumstances that the item can be repaired or replaced and who meets the cost of getting the item to and from the repairer. Do not assume anything. If its written in the forms, then that’s what they will refer back to. if it’s not written in the forms, then they will argue the point.

What does the extended warranty actually cover?

The big print will refer to breakdown and damage amongst other things. The small print will specify which parts qualify and which parts won’t, there can also be maximum cash limits and time limits. The fact of the matter is that you will be offered an extended warranty with no more than a “Would you like the warranty, it costs xxxx amount” If you buy it on that basis, you really have no idea what you have just bought and as the chances of a potential claim arising is very low, the chances of you paying for something you do not need and is no use to you is highly likely.

The events that are covered are set out in the warranty paperwork, you must read it as every one is slightly different. Most are “Service Agreements” rather than “Insurance” products and as such they are not regulated by the Financial Services Authority.

What can I do to make a good decision?

The main thing you can do is not buy it until you know exactly what you are buying. Be awkward and ask questions and ask to see the relevant paperwork that confirms what you are being told. The Money Advice Service has written an excellent piece on extended warranties which I recommend you read. There is also an online comparison website which is a really useful tool when deciding whether to buy one or not.

Coffee Mugs?

“May I have a coffee, please”

“Certainly, that will be 21 minutes”

My coffee of choice is a latte, not skinny, no syrups just a straightforward latte. In Costa, a medium size latte will cost £2.55 and is typical of the price of a coffee in many cafe’s up and down the country, be they global chains or single outlets. it’s a price that I have been fortunate enough not to take much notice of over the years. Then I retired and prior to turning my full attention to writing, I decided to take a part time job to keep me occupied and pay my bills, it was there that I experienced the “minimum wage.” Currently £7.20 an hour for the over 25’s.

It was also there that the cold reality of the link between how long I worked and the cost of things really hit home. The bottom line was that I needed to work 21 minutes to buy a cup of coffee. Several friends of mine buy a take away coffee every day on the way to work. That’s £12.75 per week. A good percentage of those same people buy a £3 meal deal for their lunch. That’s another £15 per week.

So… One coffee and a meal deal is £5.55 a day. That’s £27.75 a week. That’s £1332 a year! (I used 48 instead of 52 to take account of a few weeks holiday!) To go back to my minimum wage calculation that equates to having to work 11,100 minutes or 185 hours. About a working month.

According to the Office of National Statistics, the average weekly wage in the UK is £539 per week. As someone living in the West Country, I have huge issues with this figure as I know few people earning close to this in the area I live. However, for my current purposes, I will run with it as even on that figure £27.75 still represents over 5% of the average weekly wage. Even people lucky enough to be on average earnings work over two weeks just to buy lunch.

Throughout my career I felt it was not my job to question the financial decisions people made. Rather it was my job to clarify a situation and set out realistic options to solving problems. If someone wants to spend over £600 a year on take away coffee then they go with my blessing. But I wonder how many that are spending that much have looked at the cost a bit more closely. I wish I had long before I “retired”