A personal finance round-up of 2016
Ruth Jackson rounds up what happened this year and what you may need to do to shore up your finances.
Nobody could describe 2016 as a quiet year. But amid all the political upheaval, you could be forgiven for having missed one of the happenings in the world of personal finance. So, here's a round-up of what happened and what you may need to do to shore up your finances.
The year began with a significant change to your savings protection. On 1 January the Financial Services Compensation Scheme limit was cut from £85,000 to £75,000 although the recent drop in the value of the pound against the euro means it may soon go up again (under EU rules, it's set to be the equivalent of €100,000 each time it's reviewed). This means if your bank or building society goes bust, your savings are currently only protected up to a maximum of £75,000 per person per institution (not per account). If you have more than this limit with a single bank, consider moving some money elsewhere.
In April, the new savings allowance came into force. This means that all basic-rate taxpayers can now earn up to £1,000 of interest tax-free every tax year. With average interest rates sitting at around 1%, that means you can have up to £100,000 deposited in standard savings accounts before tax is due. However, the savings allowance for higher-rate taxpayers is £500, and additional-rate taxpayers don't benefit from a savings allowance at all.
For those looking for higher returns on their savings, the innovative finance individual savings account (IF Isa) also arrived in 2016. These let you hold peer-to-peer (P2P) investments within an Isa wrapper, so returns are tax-free. Unfortunately, these Isas launched with a whimper rather than a bang, since most of the big names in P2P lending have yet to get the approvals needed to launch one. The savings allowance covers P2P interest, but when IF Isas get up and running, they'll be a useful extra choice as a tax shelter for your savings.
Finally, we saw the arrival of the new plastic £5 note. Old fivers will remain legal tender until 5 May 2017. After that, you'll have to take them to a bank, building society, post office or the Bank of England to have them exchanged.
PPI claims: it's worth the hassle
The payment protection insurance (PPI) scandal continued to rumble on in 2016. Banks have now set aside more than £40bn to compensate people who were mis-sold these insurance policies alongside their credit cards, mortgages and loans.
PPI was designed to cover your loan repayments for 12 months if you become unable to work due to sickness or unemployment. The problem is that the premiums were tacked onto millions of credit agreements either without the customer's consent, or despite the fact that their personal circumstances meant they could never claim (possibly because they were self-employed).
Earlier this year the Financial Conduct Authority said it was considering bringing in a deadline for PPI claims of mid-2019. It has now delayed making that decision till early next year, but if you still haven't made a claim, you should do so, as it is likely that a deadline will be imposed eventually.
Making a claim for PPI is relatively simple. Get hold of your credit report to get a list of all the credit agreements you've had over the past six years. Then contact each company to ask if you had PPI attached to your policy. If this wasn't mentioned to you at the time, if the company didn't check that the policy fitted your circumstances, or if you were tricked into buying it, you can lodge a complaint to claim back the premiums you paid. Although this might seem like a hassle, many people have been repaid thousands of pounds, so it can be worth the effort.
Beware of claims management firms that often charge substantial fees to do this for you. There are plenty of free guides online that will take you through every step of the process.
In the news this week
Those wanting to leave their pension policy to a relative should take care that they are not bequeathing a loved one a significant tax bill instead, warns Josephine Cumbo in the Financial Times. Pension investors are allowed to nominate a beneficiary to receive the fund after their death: funds can be passed on tax-free if the pension holder dies before the age of 75, but are taxed at the beneficiary's marginal rate if they die after 75.
However, although new policies typically allow beneficiaries to choose between a lump sum or taking cash as and when they like, most policies drawn up before pensions freedom came into force in 2015 only allow beneficiaries the former option. Since a beneficiary who earns £30,000 a year and receives a £100,000 lump sum could find themselves saddled with an extra £41,800 tax bill, the situation needs to be managed. One option for those wishing to pass on an outdated policy might be to transfer to a modern contract, although it is vital to watch out for exit penalties.
The government has decided to scrap the 25% penalty fee for those who cash in a Lifetime Isa (Lisa) during the 2017/2018 tax year, says Moira O'Neill on The Spectator website. Beyond this point, anyone who accesses the account before the age of 60 and doesn't use the cash to buy a house will face a fee of 25%.
The decision to waive the charge for the first 12 months of the scheme was made "because in that year the bonus will be paid at the end of the tax year, rather than monthly, as will be the case in subsequent years". This is a "further sign" that this "complex hybrid between a pension and an Isa" has not been "properly thought through", as Steve Webb, the former pensions minister, put it.
If you're away for Christmas, try to avoid the nasty surprise of returning to find your house has been burgled, says Nina Montagu-Smith in The Times. The most prized booty for thieves includes bicycles, electronic equipment and gardening or DIY tools. So check locks on windows and doors. Secure your sheds and garages. Remember that ladders or tools lying about can help a thief break in. And don't leave a spare key under a mat.