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The Martin Lewis Podcast: Episode Summary
Episode Overview Title: It’s Love Actuarially! Base interest rate cut help. And will you get £150 off energy bills? Description: Martin Lewis tackles various financial topics including the recent cut in the Bank of England's base interest rate, its implications on mortgages, savings, credit cards, and loans. Additionally, he discusses a government initiative to reduce energy bills by £150, and encourages listeners to share stories of financial kindness.
Key Topics Discussed
- Base Interest Rate Cut
- Current Rate: The Bank of England has cut the base interest rate from 4% to 3.75%.
- Impact on Mortgages:
- Fixed Rate Mortgages: No immediate impact until the end of the fixed term. New fixed rate deals may decrease slightly, reflecting the cut.
- Variable Rate Mortgages: Rates expected to decrease by approximately 0.25%, translating to a saving of roughly £15 per £100,000 borrowed monthly.
- Tracker Mortgages: Directly linked to the base rate, will see a similar decrease.
- Impact on Savings:
- Variable rate savings accounts are likely to see a reduction, while fixed rates may already reflect the anticipated cut.
- Advice: Those considering fixed savings should act quickly to lock in competitive rates.
- Government Energy Bill Discount
- £150 Off Energy Bills:
- Applicable from April 1st for typical households across England, Scotland, and Wales.
- Concerns for Fixed Tariff Customers: Not all firms have clarified how reductions will be applied to customers on fixed rates.
- Martin emphasizes the need for clarity and transparency from energy companies regarding how they plan to pass on the discount.
- Broad Impact: The government aims to reduce the cost of the renewables obligation by moving it to general taxation, potentially resulting in lower unit rates for energy.
- Consumer Rights Regarding Gifts
- Discussion about the implications of opening gifts, particularly expensive ones, before gifting them to ensure they are in working order.
- Consumer Rights:
- If a gift is faulty, consumers have rights regarding returns depending on whether the purchase was made online or in-store.
- Consumers generally have 14 days to return online purchases and 30 days for faulty items bought in-store.
- Mastermind Segment
- A quiz segment regarding representative APRs on loans, highlighting the legal implications of lenders offering rates that differ from the advertised rate.
- Key Point: Advertised rates are representative, meaning only 51% of borrowers need to receive that rate.
- Acts of Financial Kindness
- Martin shares listener stories about unexpected financial kindness from strangers, highlighting the positive impact and community spirit during difficult times.
- Final Advice and Listener Questions
- Listeners are encouraged to ask questions about various financial situations, including energy contracts and banking options.
- The episode concludes with Martin stressing the importance of understanding personal finance and consumer rights, especially during the upcoming festive season.
Key Takeaways
- Interest Rate Changes: Be proactive in managing your mortgage and savings as interest rates change.
- Energy Bill Discounts: Stay informed on how energy companies will implement the government’s £150 discount.
- Consumer Rights: Understand your rights regarding gifts, especially around the holiday season.
- Community Kindness: Acts of kindness can significantly affect individuals' lives, showcasing the importance of community support.
Conclusion Martin Lewis continues to provide valuable insights into personal finance, helping listeners navigate recent changes in interest rates and energy costs, while also encouraging community spirit through shared acts of kindness.
Contact Information Listeners can submit questions or share their financial experiences by emailing: martinlewispodcast@bbc.co.uk.
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This markdown file serves as a comprehensive overview of the podcast episode, outlining critical topics and advice shared by Martin Lewis, while also fostering a greater understanding of personal finance issues among listeners.
Written by AI. May contain mistakes. Listen to the episode to check what was said.
Transcript
Automatic transcript. May contain errors.0:02What they didn't do is specify how it would be passed on. if you are looking imminently to get fixed savings today. Do not wait. Am I going to find out what the two of you are laughing at? The sensible thing to do would be to open it yourself and check that it is working. Hello, I'm Martin Lewis, and this is the cunningly named The Martin Lewis Podcast. I do wonder what that's going to be about. Now, usually much of it comes from my BBC Radio 5 live show with Adrian Childs, but there's also bonus money-saving tips just for you lucky, lucky podcast listeners. In today's pod, UK base rates have just been cut by 0.25 percentage points.
0:39What does that mean for your mortgage, your savings, your credit cards and your loans? Love Actuarily. This week's Tellers is all about random acts of financial kindness from strangers. The government is shifting a typical£150 off energy bills in April. And finally, we're starting to learn how it will work, especially for those on fixes. I'll be running through it firm by firm. In the final mastermind of 2025, I have a gift for our Adrian. And finally, I may shock you. I'm going to suggest if you've bought someone a Christmas present, you should open it for them. I'll tell you why in a moment.
1:13Play the theme tune. I got meals. I got to pay. So I'm going to work for the world. I got meals. I got feet. So I'm going to make sure everybody eats. Let's bring in Peter Ruddock. As we get desperately close to the interest rate decision, go ahead, Peter. We have had the decision, so within the last couple of moments, as expected, the Bank of England has cut interest rates to 3.75%, lowest level in almost two years. Was, as we were saying, widely expected. Faisal Islam, our economics editor, has been in, it's called a lock-in. You kind of get the figures a little bit early and you have a little chance to sort of read them.
1:58He says that the Governor Andrew Bailey says the UK has passed the peak in inflation. And he says that inflation is set to hit the target of 2 % as soon as April next year. It had previously forecast this wouldn't happen until 2027. So to Martin's point, it might well be interesting to see if the money markets view that interest rate cuts further from today could be coming a little bit sooner, whether that feeds through into the mortgage rates. But as Martin says, generally, the fixed rate deals that are on offer on the market have kind of priced in today's cut. Just a reminder, that cut from 4 % to 3.75%.
2:30Yeah, absolutely. And there's a lot of psychology in this because while the markets might already have predicted that inflation would be coming down much earlier next year, the fact that the Bank of England agrees and is saying that, and that's coming from Faisal, is therefore, you know, it sort of locks it in and cements it because the market's thinking it is one thing, it's the Bank of England who will make the future decisions. and the Bank of England, what it's saying, once it comes out and says you no longer have to read the runes, this is what we're saying we think is likely to happen, that sounds to me like a pretty strong signal that we'd expect interest rates to drop further over 2026.
3:05And that will start to be factored into the market's predictions. One would guess, but you never know. The markets are markets and they can react as they choose. Shall I just run through quickly at the start what this means in practice for people? So we'll start with mortgages. We'll start with the debt side of it. Now, the first thing to understand is when we talk about the Bank of England base rate being cut or the Bank of England base rate being improved, it's actually a relatively blunt economic tool. Why are they cutting interest rates, even though inflation is still high? Well, when you cut interest rates, it means borrowing is cheaper.
3:36So companies can borrow more and people can borrow more to spend it. And saving is less attractive. So people will be likely to spend more. It pumps money into the economy to try and stimulate the economy. Also, it is inflationary. So the fact that we have, even though we've got still relatively high inflation, the fact that inflation is dropping and the Bank of England is saying by next April it should be at its normal level is what's given them the permission to cut in their own heads anyway, to cut interest rates in order to stimulate the economy, which is stagnating at the moment. But it is quite a blunt tool and it's worth just understanding this.
4:10I'm going to give broad brush figures. Don't you know, don't go and dot every I and cross every T on this. If you take our nation, a third of people rent, a third of people own their house outright, and a third of people have mortgages. Of the third of people who have mortgages, less than a third are generally on variable rate mortgages. And it's only people on variable rate mortgages, in terms of the house anyway, who will actually see an impact from the base rate being cut. So the base rate cut, you're having to do quite a lot of policy through a relatively small number of people. So what happens?
4:48Look, if you are on a fixed rate mortgage, there is no change to your rate until your fix ends. The rate of new fixes may drop a little bit on the back of this announcement, the new fixes you can get. But this cut was expected, so it mostly has already been factored in. Although the sub-announcement, and I haven't read the detail yet, I'm still waiting to see it because I'm doing a radio show at the moment. The sub-announcement that the Bank of England is indicating that inflation they think is past the peak and is coming down probably indicates more rate cuts coming in 2026. If you are on a tracker rate mortgage, your mortgage rate will drop by 0.25 percentage points.
5:23Now, just to give that monetary context, a quarter point percentage drop is equivalent to a saving of roughly£15 a month per£100 ,000 of repayment mortgage. So if you've got a£200 ,000 mortgage, it would be£30 a month,£15 a month per£100 ,000 of mortgage. If you're on a variable rate mortgage or a standard variable rate, you would expect your rate to come down by around a quarter of a percent, but it doesn't have to come down by exactly that much. And it's worth keeping an eye on it. It normally happens within the next three or four weeks. You'll get an announcement on the back of that. Savings.
6:01Variable rate savings. Easy access. They'll likely drop within two to four weeks by a quarter of a percent, especially the top ones. The other ones are so low, they probably wouldn't move anyway. Fixed rate savings, just like mortgages. it's already been factored into the rate, though they may shave down a little further. My advice for anyone, if you are looking imminently to get fixed savings today, do not wait. Do it as soon, and if you're listening to this in the podcast, as soon as you hear this. Because what happens on fixed rate savings is the savings providers, they launch a trance. They launch a certain amount of savings.
6:32Now, we're going to offer£30 million of savings at this rate, and we'll decide our new rate once that£30 million goes. So you're still in the window of some of those haven't run out, and you want to try and get in before they start to come in at new lower rates. Credit cards, mostly ineffective. They're already so high above the base rate. We're typically APRs now around 25%. I mean, you're not going to see much done. We might see some slightly longer 0 % deals. Loans, personal loans, unaffected as they're usually fixed rates. New personal loans, you would think would get cheaper, but it takes a hell of a long time before base rate cuts are factored into the rate of new fixed rate personal loans.
7:06You know, it'll take three, four, five months, so it's neither hidden nor tither. This really affects people with savings and mortgages, variable rate mortgages. Franny Marzola says might need to get a better savings rate before they cut the base rate. Just hate having to ditch and switch every time. Yeah, I mean, look, easy access, they're all going to drop in a line normally. A couple of them might keep the rates high for short-term competitive advantage. Some of the challenger banks, you know, the trading 212s on its cash ISA or the plums or the money box or those type. But most will drop by a quarter of a percent.
7:39So it fixes where I think I would really be hurrying. Again, no guarantee. I can't predict what's going to happen. I'm doing this based on intuition of what's happened in the past. But if you want to fix, I'd be hurrying. If it's easy access, well, it'll all be roughly much of a muchness. But always make sure you're in the top payer. Jill Naylor says fixed rate mortgage coming to end in a few months. Do we hold out for more base rate cuts or remortgage now? Well, I wouldn't. So, what you could certainly do now is you could go, you could speak to a mortgage broker, which is always a good idea when you're getting a mortgage, and get them to go through the whole of the market for you, and find out what the best mortgage available for you right now is, and the cost of locking it in.
8:20So, you might be able to lock in a rate now for a few hundred quid application fee for the next three months, and you could also do this with your existing lender. It's worth talking to them as well, so that you have a deal that's solid. Now, if rates were to go down by the time that your mortgage ended, so a cheaper mortgage is available, well effectively you get rid of the one that you've locked in and you get a new cheaper mortgage when we come to the time but by locking in that's almost like an insurance that you can guarantee yourself a mortgage you're happy with but I mean the the mood music from today is interest rates coming down a bit further but remember the rate that you can fix that is tends to be based on future expectation so it may be again please forgive me if this is not right because there's no way to know.
9:01But it may be in the next few days we see fixed rate mortgages shaving down a bit more. Not because of this base rate cut, but because when I read that Bank of England detail that I haven't yet read, which is why I'm hedging slightly, I'm only doing it based on the news report we've just had, that looks like interest rates, that the mood of interest rates is going to be lower over the next year.
9:25You've got a little elf with you. Is this your nurse? This is podcast producer Matt, who I've met for the first time. And those who listen to the Question Time podcast, this is PPM. Nice to see you. It's very exciting, isn't it? All right. Does he rub Vicks into your chest as well? No, no. We've never met this our first time being in the same room together. It's very exciting. But what I think is very interesting is, for those of you who want to know what podcast producer Matt looks like, I shall be describing him in detail in the Question Time podcast. You'll have to wait for that one on next Monday.
9:51Shall we get on with what's in the show? Let's get on with what's in the show. Shall we move on to opening expensive Christmas gifts? We can do, yes indeed. Right, total gear change. So, look, let me explain. This is me genuinely asking people listening for their viewpoint. So let me explain the mischief, the problem that I'm looking to solve here. When it comes to Christmas gifts, timing matters. By law, if you buy something online, unless they're perishable or personalised, You have within 14 days of you receiving the item to notify the company that you want to send it back for any reason. And then 14 days after notification to send it back.
10:35If you're buying something in store, you have no right of return for changing your mind. But if an item is faulty and you take it back within 30 days of buying it, you have a right to a full refund. After that, it's repair, replacement or partial refund. So you can see one of the things that happens at this time of year is people who, and they tend to be the ones who are good with money, buy things ahead of time. They might buy them at Black Friday in the sales. Hey, they might have bought them much earlier in the year. And then, you know, they pack them away. And so it's all a new gift to give to someone, especially if you're getting to the kids or someone close and it's expensive.
11:09And they haven't checked it. And then when they open it, because in consumer rights law, timing matters and there are time limits, you've actually got lesser rights than you would have done had you opened it straight away. So my instinct, and I've been saying it this year, is actually if you're buying something expensive for somebody else as a Christmas gift, the sensible thing to do would be to open it yourself and check that it is working. Clearly, there's a lack of romanticism in that in terms of the gift-giving process. Well, I mean, if you bought an iron or something and you're checking it's working, there's not much romanticism in the first place.
11:44I mean, what kind of things are we talking about? Even with an iron, when you get a present, Adrian, and this is what I'm trying to test the sentiment of the nation, if you like, right? If you get a present, do you not want it pristine and unopened? Do you not want it in the cellar frame? I've asked for an iron for Christmas because I really like my ironing and I want to know it gets hot. I don't know. So if my wife's listening, can you check the flipping iron, please? Because I'm looking forward to doing some ironing on Christmas Day. An iron as a gift for me would leave me flat. Podcast producer Matt liked that one.
12:17No, he didn't. He rolled his eyes. It was a laugh. He's heard enough. It was a laugh. No, it wasn't. But Matt was... He looked at me with a look of desperation. You were nodding. You like the pristine idea of the gift, don't you? Yeah, he's nodding. He's not on mic, so he's nodding. He can't do... But yeah, he would... I think people like the pristine nature of the gift, and I am bastardising that by suggesting that you need to open it for your consumer rights. So that is why what I'd like people to get in touch with, Which does my it's the sensible thing to do to open it in advance, especially if it's an expensive, is that more important than when I give a gift, I want someone to have it in a pristine?
12:51So what are you checking for, though? Well, if it's an iron, you're going to check that it's worth. Obviously, if it's an iron, working implies... If it's tech, you're going to check that it switches on and it works. OK, all right. Don't get annoyed. No, no, no. No, no, but say it's an item of jewellery. Yeah. It doesn't work or not. You're just checking it's all there. It might have a chip. OK, yeah. You know, anything could be faulty. And, you know, as someone who gets, maybe I say it with exasperation because I'm the guy who gets all the questions when people have consumer rights achieved. And trust me, everything can break.
13:21And everything goes wrong and people are unhappy about purchases they buy not being right. And suddenly there's a rip on the back of the blouse that you bought your child. You know, that is really annoying for people. And if you've gone past the time, because people often think that, you know, it's all the big one everyone gets wrong is buy it in store. You can take it back. You cannot take it back under the law. You can only take it back if it's faulty. So you can't change your mind. And they can sometimes, many shops do allow you to do that in their contractual return rights. But equally, if they decide not to, you don't have a right.
13:50You can put your hand up. It's your show. You don't have to put your hand up. I do when you're here, Martin. Let's be honest. Do you know what? I should have done this last year because I bought my wife four small wine glasses in a box. She was disappointed to see the original, just to see the four wine glasses in the box. she was even more disappointed when she opened it. There was only three in there. Really? Yeah. It was missing. So I should have checked before I left the shop. I mean, QED, and thus it is proved. Yeah. Adrian, that is exactly the point that I am talking about because I just go back to, we're having, just remember what actually matters here.
14:2914 days if it's not faulty online, 30 days anywhere if it is faulty. After that, your rights diminish. And because of the Christmas, I mean, you might not be seeing someone who you're going to give a gift to till the 7th of January. You might have bought it on Black Friday in November. You're 30 days, gone. So, I mean, equally, there is something in here that says, OK, maybe if you know you're buying the gift and you're going to give it them pretty quickly. But make sure they open it quickly and check it. And we all, it's this embarrassment as well. If you got a gift from a friend that was faulty, you know, let's say it's something costs 30 quid.
15:03Right. And they bought it you and it's in the box and it's unopened. and it's new, they've done nothing wrong, and it's faulty, and there's no receipt in there, would you say something? It depends who it was, probably. Yeah, but it's embarrassing, though, isn't it, to say it? Even though no-one has done anything wrong, it's that social convention. So anyway, I think we should probably park that for now, and then come back to it later, when people have started to thrust their opinions upon us. Thrust. You've been busy this week looking at£150 savings, in energy bills, and we move on to that. Yeah, so we've talked about this here before, but let's just go into some detail.
15:41It was announced in the budget that there will be an average cut of£150 off energy bills from the 1st of April across England, Scotland and Wales. But that announcement was particularly blunt because it actually talked about the price cap. Now, while two-thirds, just under two-thirds of homes are on the price cap, a third aren't. And they will often be the people who are listening to us right now. we're interested in this type of stuff, the people who've got their fixes or they've got their special tariffs. So within an hour of that announcement, I was on the phone to the Secretary of State for Energy, Ed Miliband, saying, hold on, what about those on fixes?
16:15And he said to me, yes, we will look to make sure that firms pass this on. But again, and I've been speaking to him since, they put out a statement a couple of weeks ago saying we would expect that firms will pass this cut on. But what they didn't do is specify how it would be passed on. Now, I'd been having some conversations with the bosses of big energy firms, and I'd actually had an... I probably shouldn't say this, but I will, because people like it. I had a very interesting... I was messaging the boss of an energy firm and messaging Ed Miliband, sort of brokering the discussion, what was interesting between them.
16:50Because here's the problem. The problem is, even if a firm passes it on, I had started to hear that some firms were thinking of launching fixes, factoring in the April price cut now. So you would just get a cheaper fixed price and nothing would happen in April. Now, my problem with that is there is no transparency. It's completely opaque. They say they factored in the price cut. But how do we know? Because we don't get any of the underlying prices. I also think it makes comparison incredibly difficult, because if you were choosing between two different fixed rates now, and one had factored in the April price cut so wouldn't drop it next April, but the other said we haven't factored in the April price cut, but we'll lower our rates next April, how on earth do you compare between the two?
17:36So I've been sort of quite militant that this opacity is incredibly dangerous. Not dangerous, because it's not dangerous. I've overstressed it. But it's very difficult for consumers and shouldn't work. Now, I should, before we go into this, and I know we've got loads of questions, but just to give the basics, what is actually happening? Well, the government is planning to shift 75 % of the cost of the renewables obligation policy off energy bills into general taxation. So people will still pay for it, but it'll no longer be on energy bills, which are more regressive than taxation, and also cutting the eco scheme from the end of March.
18:09That should work out to electricity unit rates dropping by 3.5p a kilowatt hour, roughly 13 % off the price cap anyway, and gas by 0.35 pence per kilowatt hour. What I have been calling for is that all firms, whatever tariff you are on, on the 1st of April, your price drops. So if you're on the price cap, the price cap will drop, everything else remaining equal, which it won't, so it won't drop by the full amount because it was going to go up. But if you're on a fix on the 1st of April and you've locked into a fix, you should see the unit rate that you pay for gas and electricity dropping at that point.
18:45Yesterday, and I've been pushing hard on this, Ed Miliband put this out. He actually did it by retweeting my tweet on it saying, we are writing to all energy companies to ask them to put this into practice. But it doesn't mean they have to follow it and have a list by list of who's doing it and who's not doing it. So there we go. Hopefully people understood that. I can talk way more about it. There's loads more to be discussed, but there we go. Ron is currently on a fixed rate with British Gas until the end of January. Should he look to take another fix now or wait until April until the new price cut comes in?
19:17So I have a list in front of me where the vast majority of companies are now saying that they will apply the reduction to all tariffs and they will do it on the 1st of April. You know, 100 Green, yes, yes. British Gas, yes, yes. Co-op Energy, yes, yes. E-Energy only has variable tariffs, so yes. Eon Next, yes, yes. Ecotricity, yes to passing it all on, but to be confirmed in April. EDF is the same. Yes to passing it on to be confirmed in April. Fuse, I'm awaiting its response. Good Energy, awaiting its to clarify details. Octopus, yes, yes. Ovo, yes, yes. Outfox, awaiting response. Sainsbury's Energy, yes, yes.
19:58Scottish Power, intends to, but waiting for government details. So Energy, awaiting response. Tulo, awaiting response. Utilita only has variable tariffs, so yes. utility warehouse intends to, but awaiting further details from the government. So there is a list. Right, now, the point is, if we assume they're all going to pass it on, and they're going to pass it on in the April method, what that does is something really tricky for people comparing. So I want to just go slowly here. You're giving me a funny look. What have I done? Was it the list? We were being mischievous. Tell me! No, I'm not telling you.
20:32You carry on, and then we'll tell you.
20:38You see what you did? Yeah. You brought the lurgy up. We were like naughty children who were quite frightened when you caught us exchanging glasses and glances and sniggering. But anyway, go on. OK, so here's the issue. We know that in April the price cap is going to drop. The current prediction is down 6%. Without this£150 a year saving from April, it would have probably gone up by 2%. So the whole£150 won't come off. Now, what people will see once they start comparing in January onwards is they will look and they'll see a fix that is around 10 percent cheaper than the current price cap. But then they'll be told the price cap is dropping 6 percent in April.
21:19So they'll look and say, well, in future, the differential between fixing and the price cap is only 5 percent. And that diminishes the reality because the reality is in April, you'll fix if the whole amount is passed on. And we don't yet know the details of exactly what the whole amount would be in every circumstance. your fix would drop from being 11 % cheaper than the current price cap to around 17 % or 18 % cheaper than the current price cap. So the best way to look at this when you're comparing is the differential between your fix and the January price cap will be pretty similar to the differential between your fix after April and the April price cap because both are moving down in parallel.
22:03Does that make sense? So you asking me, should I wait to fix till April? No. And this is going to play out more over the next week, because all my awaiting responses, I suspect, will come in and be locked in. What's actually going to happen, I think, is you're going to fix a price, but we are in this almost unprecedented scenario where your fixed price will get cheaper on the 1st of April. So the rate you lock in for won't be the rate you lock in for the whole time, because it's going to drop by roughly 13 % on the unit rate of electricity and roughly 6%, 7 % on the unit rate of gas in April. So why would you wait?
22:39If you can save by fixing now and the differential's going to continue roughly in April, there is no point in waiting. If a fix is right for you now, which it is for most people who aren't already on fixes, then I'd be fixing now. OK. Stuart McHoney's been in touch. Stuart? No, he says, can't believe, this is directed at me, can't believe you think what can go wrong with a present, a PlayStation, a smartphone, a laptop, a CD player, an Etch-a-Sketch. I don't... I mean, to be fair to myself, Stuart, since nobody else will be, I don't think I quite said that. Yes, I did say it. It was stupid, I admit.
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23:11I was thinking more in terms of a night of jewellery or a scarf or something like that. A scarf would have a rip? You know, if it's packed with stuff and you haven't seen it, have you ordered it? I was completely wrong. I do like this. We once bought a selection pack and when wrapping late on Christmas Eve, we noticed that the crunchy was missing. An 11.30 run to the 24-hour petrol station sorted that issue, Daniel, in Leeds. That is a relief. Ultimately, under your sad fart rights, goods must be of satisfactory quality as described, fit for purpose and last a reasonable length of time. If this election-packed advert said that it had a crunchy in it and it didn't, then it was in breach of the Consumer Rights Act.
23:51I mean, there is an issue of the level of the sin compared to the effort and the cost of going back to the petrol station, but still. If a crunchy was what somebody really was looking forward to best, That could put a dampener on your Christmas card. Am I going to find out what the two of you are laughing at? And listeners, I will decide whether I think you should know what it was afterwards. I will do it on air because I was messing about on air. I've got Matt next to me. We can't talk. And I just sent him a message saying, I say, Martin's jokes aren't very good, are they? Really, honestly, admit it.
24:24And he sniggered and looked at me and shyly nodded and then blushed. And then you caught us. He was just trying to appease you. Yeah. He's an appeaser, I think. He's stuck between a rock and a hard place. He's an appeaser. And if you're going to take a side here, take Martin's side, because he's got much more power than I have. And, you know, may I just ask listeners, you're welcome to get in touch with that, and, you know, Adrian's puns versus mum. I thought the iron going flat was actually pretty reasonable. It was quick. Yeah, puns are the lowest form of humour, though, really, aren't they?
24:56What was your iron joke again? I've forgotten what it was now. I said an iron as a gift would fall flat on me. If it didn't work. Or generally, even if it did. It was a pun, Adrian. Well, John in Lincoln says, tell Martin we'd be hard-pressed to beat his iron joke. Oh, nice, you see. Yeah? Yeah. You're back in the right side there. They're working up some steam. Oh, God. Carry on. OK. You open the door, mate. Matt, I'll text you about that one shortly. Where are we? EDF, as I mother, over£1 ,000. Flat, empty, all electricity off. Ombudsman says they should repay plus compensation. 28 days have gone past, no repayment.
25:35What now? So, yes, this is an implicit difficulty with the energy system. Funnily enough, I was just involved in writing our response to a consultation on the ombudsman about this issue yesterday. The problem with the energy ombudsman is it isn't automatically enforceable. I mean, you could take them to court, and this is a totally broken system. It seems to me, ombudsman should mean something and they should have statutory powers and it should be enforceable. The energy ombudsman, most firms will do what they say, but if they don't, you have little recourse. Now, I would make another formal complaint to them.
26:09Because it's one of the bigger companies, they will probably pay you out, but the fact that they haven't paid you out now is just really annoying. So I'd make another formal complaint to them about them not paying you. You could go back to the ombudsman again or you could try and enforce your ombudsman decision in court. Clearly, my answer is not satisfactory. Not because my answer is wrong, but because the system is not satisfactory. And that's something that we're working on changing. That should not happen. That type of thing would not happen with the financial ombudsman, which is on a statutory basis.
26:41And we're looking to try and campaign to get the energy ombudsman on a statutory basis with statutory power. It doesn't at the moment, which is why frustrations like that happen. And again, I have raised that formally with both the Department for Energy and with the Energy Committee in the Commons. But I can't do much because they haven't changed it yet. Somebody once told me, a colleague here, Ian, I think you know him. He once said to me that, did you know, he said to me, that ombudsman is the only Swedish word in common use in the English language and I've never checked it. I'd love to know it's that true.
27:17Meatballs? Meatballs, no, that's English. I have no idea if it's true. It's actually a really... So I have no knowledge on that. What I do have knowledge on is the actual use of the term ombudsman. Now, I campaign for ombudsman to be a protected term. It isn't a protected term. You could set up an ombudsman if you chose to, which I think is wrong. I think ombudsman... So in my view... You don't need ombudsman accreditation. Anyone can be an ombudsman. No, and we've seen some... What about an ombudswoman? But there are also... Well, I'm not sure... I don't know about the gender of it, But I think the point is, there are some ombudsmen, when is an ombudsman not an ombudsman?
27:52There are some that are just trade body dispute, alternative dispute resolution processes that call themselves ombudsmen. We've argued ombudsmen should be a protective term and it should be on a statutory basis and no one else should be allowed to use it. Because some people, they see an ombudsman, they think, oh, it's an ombudsman, therefore it must be impartial, it must be able to enforce its decisions. The energy ombudsman's, you know, right up there in terms of legitimacy. There are some, wait, I'm not going to mention them for legal reasons. There are some that are way down the list that are just trade body dressing themselves up as if they're some official system.
28:23So you have to be careful. Financial ombudsman is one of the few with real meat that is on a statutory basis and is enforceable on its judgments. Anyway, yeah. I was just talking to somebody today whose whose energy bill was in surplus. £3 ,400 in surplus. And he complained and now it's over£1 ,400 in surplus. So my rule of thumb at this time of the year, the peak surplus or in credit that you should be is the beginning of November. So, you know, where we are now, but let's use the beginning of November rule because if you're right for the beginning of November, even though you've used them up, you're definitely right now.
29:01Two months' worth of direct debits is my rule of thumb. So if you have more than two months' worth of your direct debit in credit at this time of year, assuming you've done an up-to-date meter reading or you've got a working smart meter and that's all been factored in, because if not, you should do that first, then to me that is too much credit and you should ask for that amount back. So if you've got five months worth of credit, I would be asking for three months of it back and be in your pocket right now. So what I don't know with your friend who's£1 ,000 of credit is I don't know what his energy bills are.
29:31If he's paying four or 500 quid a month, then that seems roughly fair. If he's paying one, 200 quid a month and his direct debit is set right for his usage, then that is way too much. OK. I've got an omission to make. John in Lincoln's thing about saying he'd be hard-pressed to beat your iron joke. I didn't get his joke about being hard-pressed. I mean, that's desperate, isn't it? With that in mind... Maybe this is why you judge my humour to be poor, just because it goes... Ben from Burley in Wharfdale says, Martin's joke creased me up. I did get that one. Nice. I did get that one. John in St Albarn said smorgasbord is also derived from Swedish which is absolutely right Have we got some more energy questions Adrian?
30:14We have, alright, it's Christmas Dawn, can you please tell us if there is a fixed rate for energy for prepayment users? So, as far as I'm aware at the moment there is a fixed rate that is available for those on smart prepayment it's not as cheap as the other fixes but it's cheaper than the price cap so if you go into a comparison site you should be able to get your price on that one. EDF and EON tend to offer them most commonly. There isn't at the moment a fix available for those who are not on smart prepayment. Now, I know there's lots of controversy, some of it overblown about whether you should have a smart meter or not.
30:50The one place I would really push you to get a smart meter is if you're on prepayment. First of all, it means if you're in trouble, the energy firm can give you credit, which they wouldn't be able to do on a non-smart prepayment meter. But second, there are more tariffs available on smart prepayment than otherwise. If you're on old school prepayment metres, you are in the dark ages on energy and there's lots of different consequences. So whether there's a fix available depends. In that case, whether you're on a smart meter, I should note most of the fixes that are available elsewhere, you know, for those who are on monthly direct debit, let's say you don't have to be on a smart meter to get.
31:25Leanne says, if you're on prepayment, is it really any better to move over to direct debit? How true to life are the quotes you get on the comparison size to the actual amount you'll pay monthly? Well, those are two separate questions. Let's deal with them one by one. If you are on prepayment, is it better to be on monthly direct debit? Now, actually, prepayment metres, if you are on the price cap, are now cheaper than paying by monthly direct debit. Roughly 3 % cheaper. They are the cheapest possible rates. So, if you're not going to switch, you are actually going to pay less if you use a prepayment metre.
31:59However, as I've just mentioned, there's very little competition out there in the prepayment market. So if you switch to monthly direct debit, then there is a much greater selection of tariffs available to you. And the cheapest tariffs on the market are monthly direct debit, and they are substantially cheaper than you would pay on the price cap with prepayment. So if you are going to be someone who switches, you would be better if allowed to be on monthly direct debit. Of course, That means you have this system where you pay the same each month and they're trying to spread your costs over the year, unlike prepayment where you're going to have a lot more costs that are coming in winter months.
32:35The second bit of the question, Adrian, was about accuracy, was it? Yes. So you see a quote on a comparison site, is that what you'll end up paying months? No, we need to be careful here. The quote on the comparison site is based on the usage figure that you put in, or often these days they have your usage figure, so it is based on what you have used in the past. The amount that you use will depend on changes in your own preferences and also changes in the weather. If you have a particularly cold winter, then it's going to be more expensive this year than last year. If it's a warm winter, it will be less expensive.
33:04So what you're really looking at on a comparison site is the differential between what you will pay on different tariffs for your rough level of usage. That's what's most important. So effectively, you know, people always get, I saw a video on Instagram the other day, someone going how they'd haggled with their energy firm and they'd saved a fortune. And I was going, I can't, it's very difficult to do that. Occasionally they'll give you£100 as a bonus sign up or something. And it turned out what he'd actually done is just haggled his direct debit to be lower. But that doesn't save you any money.
33:38That's just a cash flow issue. You still pay the unit rate for your gasoline electricity and the standing charge for your gasoline electricity. And that's what a price comparison is calculating. It's saying on your rough level of usage, what is the difference between what you would pay on the tariffs that you are on compared to other tariffs out there in your region on your usage? So it is the differential that really matters. So if one is 10 or 11 % cheaper, it's 10 or 11 % cheaper. Unless your usage is so vastly different that it changes the sums, and most people's won't be if they don't change year to year that much, the actual numbers may be wrong, but the relative positions are right and that's what you want it for.
34:17But if it says you're going to pay £180 a month, well, that depends on your usage. So you can't bank on that. What you can bank on is the tariff, which is cheapest, if it's saying it will save me 13%, is the one that I will pay the least on. But it doesn't dictate the exact amount you pay. That's just illustrative. Did that make sense? It did make sense. Angela Wilson says, Octopus say my fixed price is coming to an end. What Well, look, unless you are one of the people who should get a special tariff, such as somebody who's on an electric vehicle or a very low user, where you go for a low-standing use tariff, which, I mean, it's really low users, low-standing charge tariff, or you're sophisticated in one time of use tariff, then I would go on to a whole-of-market comparison site, I would find your cheapest fix, and I'd move to the cheapest fix.
35:04If you want to stick with Octopus, which many do because it has very high customer service ratings, then you should go and look at what Octopus's cheapest fix is. make sure it's cheaper than the January price cap, which is roughly the, in fact, I'm overcomplicating, make sure it's cheaper than the current price cap. The January price cap's only changing by a little bit in terms of overall rate if you're on gas and electricity. If you're on electricity only, it's going up a lot. It's going up about 5%, but for most people, it's not really changing. And find your cheapest fix, as long as it's got a substantial saving over what you're paying at the moment.
35:34Octopus, if you fix with octopus, octopus? I don't know where that came from. No, that's how you pronounce it. Octopus. Yeah, do that in future. OK, so if you fix with octopus... We've had Greg Jackson, the boss there on the programme. He'll love this. If you fix with octopus...
35:52That's better than the iron joke. Then they are saying that on the 1st of April they will drop your price by the whole amount of the shift in the government policy costs that are coming in April. So if your fix is cheaper than the current price, or the price cap you go to when your current fix ends, then you should fix, yes. You know your nice researcher, Rosie? Yes. Do you know she's a quarter Swedish? I did know that, actually. Well, she's been in touch to say, as well as smorgasbord, moped and fartlek are of Swedish origin. What's fartlek? Fartlek is like interval training when you're running.
36:25I thought you'd know that when you do... I think it means fun with speed. I think I remember in Swedish. Rosie, does it mean fun with speed in Swedish? How is Rosie connecting to you? Is she doing it via the text consult? Yeah, via Matt. Don't worry, I'm not speaking directly to Rosie. I wouldn't assume that. Rosie will be having words later. I'm going via Matt. So, basically, your statistic about ombudsman was just complete and utter baloney. Nearly, if you just... Baloney and boulder dash, there must be another B word. Oh, God, Charlie in Hertfordshire is bored by all these ironing jokes. Oh, nice.
37:00You're not the only one, Charlie. What we haven't had, though, is someone actually replying about the question I asked of whether it is right to open the presents for somebody before that. Oh, no, we have. But you're just ignoring those and going with the puns? Yes. Could I have some of those? Yes, you could have one. Last Christmas, it's a long one. It's about a coffee filter machine. My daughter's boyfriend, his first Christmas with us, bought it online. I'm just going to the end.
37:34and yes, she was very pleased. I haven't got time to write the whole thing. I haven't got time to write. This is why I didn't do it in the first place. Sorry, but basically you're right. It's all you wanted to know. I really want to do the tellers, which is what acts of random financial kindness, preferably from strangers or people you don't know well, have you received in recent years, which I am calling love actuarily. Very good indeed. Mary. In Covid, I took my bus pass instead of bank card shopping, until I got flustered and a young girl behind me said, don't worry, I'll get it, and just paid my bill.
38:11How sweet was that? I was overwhelmed by her kindness. Michael Dobbin, four of us firefighters, were on a water rescue course miles away from our station. We stopped at a fish and chip shop in Ilkley for our evening meal. On the way home, a random man paid for it all, didn't say a word, just left. The Stirling Brief A colleague covered lunch for me during a tight month without making it awkward I'll never forget that You can see the passion in that can't you It's not sure sentence but you can feel it Emily Parsons booked a yurt in Cornwall for a family holiday with four tiny kids I found out I had leukaemia and had to cancel the holiday The lady gave me all my money back which she didn't have to then gave us the holiday for free the next year is when I was better Nice to hear How lovely Rejarn During the first winter of lockdown my landlord gave all the residents three£100 cheques through the letterbox November, December and January Very well received How wonderful Lizzie Sharp we had to move our wedding forward as my dad was passing away we went out for dinner at a very nice restaurant still wearing our wedding clothes instead of a reception someone matched our wine order Waiter brought it over, so kind, especially given the situation.
39:28These do warm the cockles of the heart, don't they? Rachel Graham, I was finishing a run of four 12-hour shifts, I'm the paramedic, and on the way home I popped into a little Tesco for a bottle of wine and a few bits for the kids, and a complete stranger saw my uniform under my coat and paid for my whole basket of shopping. It really made my year. Nice. Thank you to all the paramedics and the firefighters and everybody else who's working in the public service for all of us and we'll be working over Christmas when many of us won't be. Absolutely near trope. I let a young man who was clearly on his lunch break go in front of me in a queue in a cafe.
40:02When I got to the till, he had paid for my lunch. Sweet. And similar to that, AKH, I was in a cafe preparing for my final exams. I got talking to a lady at the next table from me, just chatting to her about her life. She left before me and I got on with some work. I went to pay for the meal and she had paid for me. Ever since then, I've tried to pay it forward. Why don't we do one more? And Ruth says, someone paid for my coffee. When it turned out, I'd be standing in the no-cash queue. I tell you what, I was amazed, and I actually filtered some out because we had so many. So many of these were people who had the wrong payment method and somebody else had sorted it out because they'd obviously been there to pay and save them the embarrassment.
40:45I think that's sort of a modern technological issue. You know, when your beep isn't working, what are you going to do? Can I tell you a heartwarming one including me? Please do. I was at a supermarket and somebody was looking for a trolley and I just gave them mine and when they fished in their pocket for a pound to give me I went no. It's on me. A whole pound. I am the hero of that anecdote. Well done. What are you laughing at Matt? No. Salute me. And I'll say thank you at this point because probably six or seven times this year when I'd been rushing because I normally walk everywhere, and jumped into a black cab.
41:23The black cab drivers, when I get out, say, your money isn't good here, and they say, during the pandemic, I got my self-employment grant due to you. It absolutely was a lifesaver, and I won't take your money. And I always do say, because I feel in my position that I don't want to take... I say, tell me what the... That's wonderful. I'm very thankful. Tell me what it is, and I'm going to donate the same amount to charity, and then everybody is a winner. But speaking of winners, let's change the theme tune to Mastermind.
41:58Welcome to the final Money Mastermind of 2026. Adrian, the score stands at you have got 14 right and 28 wrong in this three option multiple choice quiz, which I'm afraid means you're back to... N-B-R-C. No better than random chance. However, Adrian, in the spirit of Christmas, I'm giving you a present. Today, unlike normal, there are only two options in the multiple choice quiz. I know my generosity knows no bounds. So the question, Adrian, emboldened by my generosity, after the show, you simply can't help yourself. You decide rightly I deserve a huge present and you want to buy it for me. So much so that you take out a loan to do it.
42:48I'll be honest, I'm torn by the gesture. I'm genuinely moved by the love that you're showing me. I'm quietly hurt that you've clearly not listened to much of what I've said over the past year. Still, onward. You apply for a loan advertised at 7.9 % representative APR. It tells you you're accepted. But when you click through, the rate you're actually given is 20.9 % APR. well over twice what first caught your eye. The question is quite simple. Is that legal? A, yes. B, no. So you applied at 7.9 % representative of APR and they gave you a rate of 20.9%. Is that legal? I think, yes, I think incredibly I believe it is legal.
43:39I hate to be cynical at Christmas. So I just need to be careful and remember but it's over twice what first caught your eye. I don't think that's legal, because I think there's something about the way you said only twice. Or did I do that as a red herring? Well, you might have done. Because you've only got two options, I need to make it difficult. You toy with me like a family cat toys with a stricken field mouse. Yeah. So I'm going with, well, you said representative. Is that a... 7.9 % representative APR. Yeah. But the offer was when it came... 20.9%. Representative. APR, not representative.
44:20I think that... I started legal, but I'm going with illegal now. Final answer. Because you've drawn me towards that. No, I'm not. I'm going for legal. I'm going for legal because I think you're just not nice to do at Christmas. I'm going for legal. Adrian, what is your final answer? Legal. So, Adrian... Can't you amuse yourself by just humiliating somebody else? No, you'd love it, really. There's another how many billion people in the world? But everybody listening is in the same position as you, and it's an important lesson we're getting out. The key here is the word representative. As you rightly picked up, when you have a representative APR, which pretty much every loan that you will ever see advertised is on a personal loan market, The representative bit means only 51 % of accepted customers need to be given the advertised rate.
45:17The rest can be charged more. But the real underlying question here is, is there a limit on what you can be charged? For example, is there a limit that you can't be charged more than two times? That wouldn't be twice, was it? What's that? Double. A limit of what you can't be charged more than two times the rate advertised. And the answer, Adrian, is no, there is no limit whatsoever. So this is legal. Yes! Play the hallelujah! Hallelujah! Hallelujah! Hallelujah! Hallelujah! You're back. You've ended the year at slightly better than random chance. Despite your best efforts to draw me away from this.
45:59I did feel a little guilty, but it was very amusing. So look, the problem is, while we're playing hallelujah for that, it isn't really the best news out there at all. What this means is if you are applying for a personal loan or anything that says representative APR, they can give you a higher rate than advertised. And there is no limit on that. Although, arguably, within the new consumer duty regulation that applies to all firms, if they were to get a 7.9 % loan and they were to offer you at 200%, that would fall foul of the consumer duty in terms of them treating you in a fair and obvious manner.
46:28So this is really important. The problem is what people then ask me is, well, how do I get around this? What's the point of applying for a loan if I might not get the advertised rate? Well, it's really difficult. And even the eligibility calculators, which are now commonplace on credit cards and loans, will generally tell you whether you will be accepted or not, but won't tell you at what rate. There are a few guaranteed rate loans out there on some eligibility calculators now, but they're not mainstream. And this is an endemic problem in the credit scoring system. because what it means is if you want a loan and you see a rate advertised, you apply for that loan because you've got a good acceptance chance, it's 7.9%.
47:05You're giving it at 20.9%. Even if you choose not to take the loan at that point, it is now on your credit file, which has a minor impact on diminishing your ability to get future credit. So the system that we actually have in the way that credit scoring works is anti-shopping around. It's effectively negative and anti-shopping around. That's why it was an important question and worth humiliating you for. OK, and we'll finish with this thought from Derek on North Tyneside. He wants us to iron out our differences. OK, I'm in podcast-only territory now. I've got producer Matt with me. And you did have many more of your energy questions, so let's try and whiz through those, Matt.
47:47OK, let's get straight into it, shall we? Yep. Maria Newton, will I benefit from the£150 I'm going to fix with fuse? I've asked them, but they said they're looking at it. Yeah, and I've asked them too in our research and we've had a similar answer from Fuse. I think it will now, because of the huge weight of the big companies who have all agreed that they will both be passing the cut on and passing it on on the 1st of April, be very difficult for a company who does not follow that methodology. And I think it's important to understand there's a political undertone to this as well. So I, of course, have been campaigning on this from a computer perspective.
48:25I want the cut to come on the 1st of April rather than be spread earlier on fixes, because that's the only way we see transparency. Then we can see that the full amount is being passed on because we can see the differential between the rates before the 1st of April on a fix and the rates after the 1st of April. Also, there are going to be issues over dual tariffs. but equally if you're Ed Miliband at Secretary of State for Energy the last thing you want is companies launching cheap fixes early saying we've incorporated it in an untransparent way and then on the 1st of April people don't get savings what you want is a moment in time where you can say today on the back of the action we have taken everybody's prices will be coming down so I think it will be quite difficult for a firm not to go along with that there's a huge amount of pressure from me from Ed Miliband, I suspect it will come from Ofgem in future now, the government has said that, in order for firms to incorporate it this way.
49:20I just think that this has run ahead of many small firms. You know, this was, you know, the government has started pushing on the methodology. Other firms were talking about doing it different ways. I know of one fix where they were saying we're going to partially incorporate the eco cut, but not the renewables energy cut. And when we launch a fix, and I was, my view of that was it's so lacking in transparency, we don't want it. So we have time. This isn't happening till April. They have to pass on the whole cut. And I think they will use this methodology. So let's sit on our hands and wait until January.
49:53And my team and I will be monitoring this. And if they don't, I'll come back to you with my thoughts on what we do then, rather than giving it you now, because I don't think it makes any difference at the moment, because these reductions in policy costs from the government, which is what we're talking about being passed on, only come in at the beginning of April. OK, and a final one from Iona. Is it worth paying the exit fee to get out of a fixed rate energy contract with a provider not passing cuts on? And if the answer is yes, then at what level of exit fee is it worth doing for an average household?
50:23To go parliamentary with you, I refer you to the answer that I gave a few moments ago. I think that is incredibly unlikely to happen. And I also couldn't answer the question unless I knew what rate you had fixed compared to what the fixes were available out there. I think the right... I certainly wouldn't be doing anything right now This will all play out by the end of January and we will know exactly what's happening. What is going to be, and I need to be really honest here, firms are saying they will pass on the full cut. And I am giving you the unit rates, the price cap will be reduced due to this cut.
50:57What we haven't got to is understanding exactly what the rate of fixes will be cut and the complexity of how much of the price of an existing fix is made up by these two policy costs, the Renewable Obligation and the Eco Fund. And so we may be surprised that the exact amount that those fixes are being reduced isn't what we're saying. That's effectively the next stage in what my team and I will be looking at. And interestingly, I think I'll start to have some clues on this in January. So my site, we negotiate exclusive cheaper than the market's cheapest deals. and one of the conditions I've just put on with that because we do it via collective switches where they put in a bid is within the bid I want them to be upfront about what the reduction on the 1st of April will be so I want to be listing both the standing charges and then the unit rate from the start of the fix and what the unit rate will be from the 1st of April and that's one of my conditions for someone to be accepted towards any exclusive or collective switch that we do on my site and so because of that that will start to give us a clue about what the discount that we're going to see with fixes will be and whether it'll match up to the same at the price cap.
52:08So there's more of this to play out yet, if I'm really honest with you. But I certainly wouldn't be doing anything on the back. April is a good few months away. And this is a relatively recent announcement that firms are factoring in how they're going to operate on it. I think that closes off on energy, doesn't it? That's it. But we had some other questions, didn't we? Yeah, some Christmas money issue questions. OK, things people want to sort now. Yeah, before the big day. OK, let's do a few of those. Why not? This is what the podcast is all about. Because next week's question time, we're not doing questions.
52:37I know. What are you doing in the question time if you're not doing questions? I understand that's what you're thinking, listeners. We're doing a successes special. So people are going to be telling us their big successes from listening to the pod. And we'll be talking through the issues around there so other people can succeed too. So this is the last opportunity of 2025 for people to put questions to me. Let's do a few of those. OK, start with one from James. I'm really keen to take up one of the bank switching offers. I currently use Halifax as my main account. I also have two Kids Saver accounts, which I pay into monthly with Halifax.
53:06If I choose to switch my bank account from Halifax to a new provider, First Direct or Santander, will this leave me access to my Halifax savings accounts to continue as they are now, or will this shut them down too? First of all, can I congratulate you on the pronunciation of Santander? Not Santander, as you would say. Which is my New Year's resolution, and I think I've been really good. I'm managing to say Santander. I think I've caught you a couple of times. Yeah, OK, but considering that it's quite difficult to change a word in your head. Anyway, the answer to the question is you should be able to.
53:36The Halifax Kids Regular Saver, which is the best paying children's regular saver account, it pays 5.5 % on up to£100 a month, is not linked to a current account. So I think I got the question. It was specifically about the kids' regular savers he was worried about. Those, anybody can open those. You do not have to be an existing Halifax customer. So if you were to move your Halifax current account, it should not change your children's eligibility to the kids regular saver. There are some children's accounts which are special account holder perks. The Halifax kids regular saver isn't one of them.
54:14And generally when switching bank accounts, that doesn't mean you have to switch your other products with the same bank because you don't have to do that. The ones that really are those linked savers and regular savers, which tend to be for the individual, not for the individual's kids, they would be the only things that you would tend to lose out on if you switched your bank account. But the Halifax kids' regular saver isn't one of them. I would double-check just the way that your account might be structured. I'd give the Halifax a call and message them online that it's fine to do so. They obviously won't want you to switch, but they should give you a factual answer on it.
54:46But 99 % it should be fine. OK, another one. Yeah. Robbie, if I'm going to be paying tax on anything over£2 ,000 going into a private pension, once I hit retirement age, will I be paying tax on it again as the state pension will take up my tax allowance, therefore paying tax on it twice? I think that is a fundamental misunderstanding of the changes that are coming in from April 2029, which that£2 ,000 limit you're talking about is for salary sacrifice schemes. It isn't for the tax relief on a pension. I'm going to try and explain it now really simply, and I might oversimplify. So please, all those technical pensions experts listening, I know, I know, I'm oversimplifying.
55:29So let's take£100 that a basic rate taxpayer would normally earn. Well, normally, for every£100 you earn, you pay£8 in national insurance and you pay£20 in tax, so your take-home pay is£72 in your pocket. Now, if you were to contribute to an employer's pension without salary sacrifice, and we'll come on to that in a moment because that's what's changing, then you get to do that without paying income tax on it. So if you want to put£100 in your pension, the whole£100 goes into your pension. You have to pay£8 national insurance, but you don't pay the tax. So effectively, it's a bit like you're paying£80 to get£100 into your pension, and then you're paying 8 % national insurance on top of it.
56:20Plus, remember, if it's auto-enrolment, which is what most employees have, then if you're contributing 5 % of your pension, your employer must contribute a minimum 3%. So effectively, that£100 that cost you£80, you actually get£160 going into your pension for double what it is costing you in your take-home pay. Now, salary sacrifice is where, when you're contributing via your employer to a pension, what actually happens, instead of you putting money in and your employer putting money in, your employer reduces your salary. So let's say your salary is£50 ,000, it reduces it, because you want to put£2 ,000 in your pension, it reduces it to£48 ,000, and it puts that£2 ,000 into your pension for you.
57:08When that happens, there is no national insurance payment. So there is an 8 % for basic rate taxpayers, 2 % for higher rate taxpayers gain for the employee of extra money that can go into their pension. Plus the employer saves on national insurance contributions as well, which either helps it or in some cases it gives some or all of that to you as an additional amount into your pension. It is that element that is being capped, not the standard pension tax relief that is not being capped or the changes to that. There's no change to the way that that is capped in the big picture. The big change from April 2029 is that if you salary sacrifice over£2 ,000 of your income, then you will still pay the national insurance and your employer will still pay the national insurance on amounts over that.
58:01But this is not a change to pension tax relief. You still get the income tax relief, which is the bigger one and the more important one on your pension. So the question about, you know, tax relief, if I'm no longer getting tax relief, no one is talking about you no longer getting tax relief. You're just not getting national insurance relief on your pension. And then your answer to will I still be? Then he went on to say, will I be taxed on the way out? So then he said, will I be paying tax again as the state pension will take up my tax allowance, therefore paying twice? Well, there is no change to the tax that you pay on the state pension or on your private pension income.
58:38Both the state pension and the private pension are taxable payments. You pay tax on them. The big change is that the state pension is likely to go above the personal allowance, the amount you can earn without paying tax on. But you've got a private pension anyway, from what you're saying. So you would have always paid tax on some element of that income. And you get 25 % of it you can take as a tax-free lump sum. It's complicated how you do that, but we'll just do it in the big picture. And 75 % of it is taxed at your marginal income. And that's an important thing to remember. So, for example, if you're a higher rate taxpayer now at 40 % higher rate taxpayer, then, but you are, so you're getting 40 % relief on your, when your pension contribution goes in.
59:19In other words, you're putting£100 in your pension and it's only costing you£60. if you retired and you had lower income, so you're only a basic rate taxpayer, for the 75 % that's taxable, you'd only be paying tax on it at 20%, depending on how you structured taking the money out. So there is a tax benefit potentially there for higher and top rate taxpayers if they drop down a tax threshold once they retire. One more? Go on then. Okay, Kay. Something she's not sure anyone can answer. Do I convert dollars before things get worse in America and the rate drops even more? or hang on to them in the hope that something happens suddenly over there and the rate increases.
59:56So you're quite right. Anybody who tells you they know what's going to happen to relative currency rates is a liar because nobody knows. And you can go and read lots of predictions about it. And I can't tell you. I do, however, have an answer. If you are worried about the movement of the dollar, and I'm not validating that worry, but of course, currency rates move all the time. You know, there are so many different factors and it's interrelation between two different currencies. one solution is change half of your money now at current rates and change half of your money when you're going to need to spend it and that way you're hedging your bets if the dollar rate gets better for you well you've done well because half of your money is at the end period so you'll be able to change it then if it gets worse for you you've done well because half of your money is at the current rate and you've locked it in so i can't help you on answering what you should do but if you're worried, hedging your bets doing half now or half later or even, I don't know, I'm assuming it's for a holiday so it's not the biggest deal but it could be for some big transaction over there if it were a big transaction, you could even drip feed your money if it was over the next six months and convert once a month convert a six of it every month for the next six months in order to get a pound cost averaging as you do in investing worth remembering of course cheapest way to spend abroad at the current time is the Lloyd's Ultra credit card Make sure you pay it off in full every month.
1:01:16That gives you 1 % cash back on all your spending in the UK and abroad, or almost all spending in the UK and abroad. And it doesn't have any exchange rate fee, so you get perfect exchange rates and 1 % cash back on it. But that is done on the rate on the day that you spend. If you wanted the best rate on the day on now, if you wanted that on a card, you'd be using a prepay card, one of the best prepay cards, because they enable you to get the rate on the day that you convert. So I went far too much detail into that, but hopefully it was useful for some people. And that is it. And this is our last main podcast of the year.
1:01:48But coming out on Monday, you're going to get the Question Time podcast. And as I'm sure you listen to both, why wouldn't you? I will be doing my final sign-off and my final thoughts before Christmas in that pod, not this pod. So you have to listen to that one to know what I'm going to say. It's going to be very, very interesting. Probably the most interesting thing I've ever said. Shall I say that? No, I couldn't say that. Yeah, maybe. Yeah, I think I am going to say that but you won't know unless you listen. and that is it for this week if you've enjoyed it please tell your friends you've been listening to the martin lewis podcast and why not subscribe then your pockets will be pleased with you we tend to put out a new episode every thursday and now on mondays too in the form of our question time podcast where you can ask me absolutely anything and everything and if you haven't enjoyed it well you know you think it's about me but i'll be honest i think it's about you
1:02:40I'm going to work hard, hard, hard, never late. I got a mouth, I got a feet, so I'm going to make sure everybody eats. Martin Lewis is the founder of moneysavingexpert.com. But of course, other consumer and price comparison websites are available. You can get in touch with Martin's podcast production team by emailing martinlewispodcast at bbc.co.uk. The offers and rates mentioned in the podcast are correct at the time of recording. However, if you are listening on demand, it's worth double-checking as details can date. Remember to subscribe on BBC Sounds and leave us a review however you listen.
From the publisher
Martin Lewis has a selection box of topics in this week’s podcast, including: the Bank of England has cut the base interest rate, what does it mean for your mortgage, savings, credit cards, and loans? It’s Love Actuarially as you tell us when you’ve received a random act of financial kindness. The government’s taking £150 off energy bills, so Martin explains how it will work – especially if you’re on a fix. Plus, Mastermind is all about representative APR, and should you open expensive Christmas presents early? If you want to ask Martin a question, you now can! His Question Time podcast lets you ask Martin absolutely anything and everything (within reason!). So if you’ve always wanted to know his favourite colour, if he can move his eyebrows independently or not, or have a very complicated question about your finances, email it to MartinLewisPodcast@bbc.co.uk.