What happens if my energy firm goes bust?
Millions of us ditched the "big six" last year for smaller energy suppliers. But as Ruth Jackson explains, that's starting to look like a risky move.
Almost 2.5 million households deserted the big six energy suppliers in 2015 in favour of a smaller provider, according to data from energy regulator Ofgem. But what seemed like a savvy move to get a cheaper deal on gas and electricity might now be looking more risky. Last month energy minnow GB Energy Supply went bust, and it's possible that more could follow soon.
"We are facing a perfect storm. Many small suppliers have only recently come into the market and have only ever experienced relatively low wholesale prices," says Mark Todd of EnergyHelpline.com in The Times. "However, since March this year, the price of wholesale electricity is up by about 50% and wholesale gas by about 40%. I don't think we will have seen the last supplier go bust this winter."
The good news for GB Energy's 160,000 customers is that Co-op Energy has agreed to take them on. So nobody is going to find their heating cut off or their lights not working (Ofgem, the energy regulator, says it is "committed" to finding customers another provider within 14 days if their energy firm ceases trading). The bad news is that because it occurred at the worst possible time of the year, the collapse of GB Energy could end up costing us all.
Most of us pay our energy bills by monthly direct debit, and so build up a credit balance over the summer when we aren't using the heating, which is drawn on during the winter. Unfortunately, that means many of GB Energy's customers are owed money around £25m according to reports from balances they had built up. Co-op Energy has said it will honour some of this debt, but the majority will be paid via a levy on all the other energy firms. This levy will likely then be passed on through higher prices.
So what should you do if you are a customer of a small energy supplier? The main advice is not to run up a big credit balance. "Check your credit balance regularly and ask for a refund if it gets too large," says Joe Malinowski, who runs TheEnergyShop.com, in The Guardian. You also need to keep up to date with your meter readings, as these would be used to calculate how much money you are owed if you are in credit.
If your supplier goes bust, you will be switched to another provider automatically by Ofgem, as happened in this case. However, you don't have to stay where you have been moved to and you may not want to. There are concerns about how Co-op Energy will cope with the huge increase in customers its customer base has risen by 75% of overnight, says Miles Brignall in The Guardian. The firm has already been censured for customer service failings.
"If I were a GB Energy customer I would not be keeping my fingers crossed hoping for a miracle," says Malinowski. "There are cheaper and safer options with other energy suppliers. Time to switch. Seriously." Whichever supplier you are switched to, make sure you haven't been put on to an expensive deal. Shop around to see if there are better tariffs elsewhere (in this case, Co-op has said that it will honour GB Energy's prices).
However, if you are a customer of a small supplier that is still trading and you plan to leave because you are uncertain about its future, act carefully. If you are in the process of leaving a supplier when it goes bust, you aren't covered by Ofgem's pledge to refund credit balances. So if you want to switch, ask for a refund of your credit balance, and give an up-to-date meter reading, before you start the switching process.
In the news this week
The idea of giving a child money as a Christmas present may sound "dull", says Mark Atherton in The Times, but at least your gift won't end up on eBay, and it could prove its worth when it comes to university fees. To make the most of compound interest, given the likely long-term nature of any investment, avoid "vanilla" savings accounts.
Family and friends can between them put a total of up to £4,080 a year into a child's Junior Isa, which means that any investment growth will be tax-free or, if their allowance has been used, you could consider setting up a trust to make use of the child's capital gains tax allowance. If you're thinking really long term, why not start a pension? The 20% tax relief is not to be sniffed at, and if a child starts saving early, they could end up with a "substantial" sum by the time they retire.
For those thinking of giving to charity this Christmas, make one large donation rather than lots of little ones, advises Caroline Fiennes in the Financial Times. It will make your decision easier and it will do more good. This is because donations often generate transaction costs and these are proportionally higher for small donations. Managing donor relationships is also costly: according to the US Centre for Effective Philanthropy, raising and managing one large grant takes staff an average of 12 hours versus 70 hours for smaller grants.
Those with final-salary pension schemes have always "faced the temptation" of transferring their savings to a more flexible "defined contribution" (DC) plan, says Sam Brodbeck in The Daily Telegraph. Indeed, we are now being warned that we could be "at or near the peak" of the deals being offered to members to transfer out of a final-salary plan, as a result of rising gilt yields in the wake of the US election and expectations of higher inflation, says Brodbeck. However, the decision to give up a regular guaranteed income should not be taken lightly. Although a DC plan gives you the freedom to take multiple lump sums and pass savings on free of inheritance tax, the benefits of a final-salary scheme tend to far outweigh any benefits acquired by switching.