What is it you just don’t get about money? Beginners guide to pensions, energy, credit cards, return rights and far more

Part two of our ‘I don’t get money’ podcasts. Martin explains your consumer rights when returning purchases, including what protection you have when goods are faulty, bought online, or simply not what you expected. He also guides listeners through the practicalities of starting to draw from a pension, covering the key decisions retirees face and common mistakes to avoid. Credit card borrowers ask about balance transfer deals, with Martin discussing when they can save money, what fees to watch out for, and how to use them effectively to tackle existing debt. The podcast also delves into several important later-life financial topics. Martin answers questions on inheritance tax, clarifying who may be affected and the rules families should be aware of, while also explaining the importance of setting up a Lasting Power of Attorney before it becomes urgently needed. With savings rates remaining a key concern, Martin discusses when interest earned on savings could become taxable, helping listeners understand allowances. He also examines the latest concerns around energy prices, what households should be prepared for. Plus, Martin looks at the changing role of cash in everyday spending. Finally, he highlights social tariffs for broadband, explaining how eligible households could significantly reduce their internet bills and how to check whether they qualify. 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 why he speaks so quickly, if he organises his wardrobe by colour or garment type, or have a very complicated question about your finances, email it to [email protected] mailto:[email protected].

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Speaker 00

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• 0:06Speaker 01

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• 1:47Martin Lewis?

  So let me give you the two-minute basics on taking money out of a pension, then I'll tell you where to go for advice. I cannot marry a man who is not beat. Random chance on a mastermind quiz. Inheritance tax is something that far more people are scared of than is a practical reality. What a fascinating question. Want everyone listening to just take a moment in their head and picture a Swiss roll. 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. And this is our big topic episode where each week we lead on one main subject to help you save. Usually, most of it comes from my BBC Radio 5 Live show with Adrian Charles, but there's also bonus money-saving tips, tricks and questions just for you, lucky, lucky podcast listeners. Play the theme tune.

• 2:50Speaker 03

  What have you got for us, Martin?

• 2:52Martin Lewis?

  We are throwing away the format today. We are doing a massive tellers special. It's the I don't get money special. It's the back to basics special. We asked listeners and people on my social media, what is the stuff about money that you just don't understand? And we're going to throw open the whole programme to going through it. There are questions in on pensions, credit cards, savings, energy, annuities, power of attorney and more, but it's all back to basics, right from the scratch, we're going to do it. But don't worry, Adrian, even though that's the entire programme today, there's still a mastermind just for you.

• 3:25Speaker 03

  Oh, thank goodness. Thank heavens for that.

• 3:27Martin Lewis?

  I know, and that is on student loans and a bit of credit stuff. You'll find out.

• 3:32Speaker 03

  Okay, do get in touch with us.

• 3:35Martin Lewis?

  I'm pleased with the setup today, by the way.

• 3:37Speaker 03

  Okay.

• 3:37Martin Lewis?

  I think I've written a good one.

• 3:38Speaker 03

  Oh, you're giving it the big one. Look forward to hearing it.

• 3:41Martin Lewis?

  For fans of horror films, do have a listen later and for fans of horror in general, listen to Adrian's answer.

• 3:47Speaker 03

  Yeah, do get in touch. Message 85058, WhatsApp 08599693, or email [email protected].

• 4:04Speaker 03

  So it's been a few weeks since we spoke. New PM has come in, don't know whether you noticed, he's been talking a lot about the cost of, yeah, apparently so, Everton fan. He's talked a lot about the the cost of living, little tweaks here and there, which, you know, maybe aren't change the world. Some people feel grateful for them, others are saying it's too little and so on. What's your take on it?

• 4:26Martin Lewis?

  I actually am of the view that it is an important totem, but it is only a totem. I don't think any of this is going to have any great shakes to the actual financial situation of people in the country, but it is showing a sense of direction and a sense of what we're going to look after. And if you contrast the start of the Burnham administration, you know, you've had the £46 Keteris Paribus, we'll explain that in a moment, off energy bills and £2 bus fares, the cap coming in, and you've now got the hospitality announcement today, trying to help hopefully smaller businesses in hospitality who are positive for our communities out there. All of it is a totem saying, this is a signal of intent of the type of things I intend to do. And so they're almost more important for the

• 5:11Martin Lewis?

  signal. If we contrast that to the first major activity in my area that the Starmer administration did, which was means test winter fuel payment and link it to a hideously underclaimed benefit. The form of means testing was what I objected to even more than the means testing itself. I didn't mind the means testing, I mind the form of means testing. But I think it is a signal of a real change of direction, and that's the most important thing. I should explain my Keteris Paribus, a little bit of Latin on Five Live.

• 5:37Speaker 03

  Why not?

• 5:38Martin Lewis?

  Keteris Paribus means all other things remaining equal. So the cutting VAT of energy bills, of electricity bills, I should be specific, for six months from the 1st of October, is a reduction of 4.8% in everybody's bills. But those who are on the price cap, which is 60% of people, were expecting to see a 5.1% increase in the price cap on the same date. So what the cutting bills will actually do is it will probably mean you don't see a rise, as opposed to your actual bills fall, which is why it is a saving if everything else were equal. But currently, it is looking very unlikely everything else will be equal. Those on fixed and other tariffs, where the price is locked in for a set period, they will see a direct saving of 4.8%.

• 6:23Speaker 03

  Let's get on to your I don't get money special for us.

• 6:27Martin Lewis?

  Well, I do, Adrian, I do, but you know.

• 6:29Speaker 03

  Yeah, okay. Well, there must be something you don't.

• 6:31Martin Lewis?

  I'm sure there's loads of things I don't know, but hopefully none of them are questions today. Well, we've got a bit of a problem.

• 6:36Speaker 03

  Okay, so should we just go into them?

• 6:38Martin Lewis?

  Yeah, let's do it.

• 6:39Speaker 03

  Nick Blackmore returns. Some places give you your money back with a receipt, some don't. Some give store credit. I don't know where you stand from one company to the next. So it's a perfectly reasonable bafflement, isn't it? Because you'd think there was one rule and everyone had to abide by it.

• 6:57Martin Lewis?

  There is, and I actually think this question has a sort of fundamental misunderstanding. So let me run you through the basic rules and then we'll talk about where this comes from. If you buy something that is faulty, whether you buy it online or in store, if you return it within 30 days, you have an absolute right to a full refund. If you return it after 30 days, then you have a right to either a partial refund, a replacement or a repair. That is the law. That is the Consumer Rights Act. That is inviolable. Obviously, there's questions about what is faulty. I always talk about my sad fart rules. An item when you buy it must be of satisfactory quality, as described, fit the purpose

• 7:40Martin Lewis?

  and last a reasonable length of time. And we've discussed reasonable length of time ad nauseam in the past, so I won't go into it now. That is for something that is faulty. The reason people get confused is many people assume that they have a right to change their mind, even if something isn't faulty. Now, if you have changed your mind, online, you have an absolute right to change your mind with any item, as long as it isn't perishable or personalised. If it's perishable or personalised, you don't. But if you do, which means you have 14 days to notify the company you're sending it back and a further 14 days after notification to send it back. And if they tell you different times, they're wrong. We've got many firms to correct that over the years and done some big campaigns on it.

• 8:23Martin Lewis?

  If you buy something in store and it isn't faulty, you have no right of return whatsoever. And this is where I think Nick's confusion is coming in. As you have no right of return. Unless no statutory right of return, you may have a contractual right of return. So if they have a sign saying, here's our return rights, that forms part of your contract when you buy. But they can, and some stores do say, you cannot return items after you buy them. You can always return them if they're faulty, but we're talking non-faulty items here. So if a shop says, you need a receipt, you need a receipt. If it says we'll only give you store credit, it'll only give you store credit. Because anything other than

• 9:06Martin Lewis?

  saying, we're not accepting returns, is actually being more generous than the law says they have to be. Which is why different stores have different policies. And the receipt one is really interesting. Because if an item is faulty, then you need, only need proof of purchase to take it back. So if they say it's faulty, well, you haven't got a receipt, and you say, no, here's my credit card statement, it shows I bought it, you, it shows the exact price. That's proof of purchase that any law, any court would take. So that's fine. But if it's not faulty, because it's this, they don't have to do anything at all. If they say, we only accept receipts, and we only give store credit, then they're being more generous than they need to. So they only accept receipts, and they only give store credit. Does that clear it up?

• 9:50Speaker 03

  Yes.

• 9:51Martin Lewis?

  So you've got, just your summary, three circumstances. Faulty, full right of return within 30 days. Not faulty, bought online, 14 days to notify you, sending it back if you just changed your mind. Not faulty, bought in store, you have no right of return. So any right of return and any of their rules that they give you, those are their rules. But if they've published them, then you could enforce whatever they've published. If they say, this is our returns policy, and they have that published, then you can enforce that, because that's a contractual right.

• 10:16Speaker 03

  Okay. Poppy Robinson, how to start drawing on pensions. Options available to you. How to get personal, practical, trustworthy advice on my own circumstances without costing a fortune. Feels like I'm groping in the dark, and just don't know if I can afford to retire.

• 10:32Martin Lewis?

  So let me give you the two minute basics on taking money out of a pension, then I'll tell you where to go for advice. So here's the basics. Currently, once you hit age 55, you can take your money from your pension. That is going to change to the age of 57, once we get to April 2028. Now, when you take money from your pension, I'm doing big picture here, there are a lot of minutiae, and we've done full pensions podcasts in the past that people can go and listen back to. I'll go back to BBC Sounds and you'll find that we go into much more detail. But effectively, 25% of what you take out is tax-free. The rest is taken out at your marginal tax rate. So whatever the highest rate of income tax you pay on all your other earnings, that's what you're going to pay when you take your pension out, unless

• 11:14Martin Lewis?

  it pushes you into an even higher threshold. Because it's like, it counts like income. That's the point. The 75% counts as income. Now, two main ways you can take your money out. And I always use a Swiss roll for this analogy. So I want everyone listening to just take a moment in their head and picture a Swiss roll. You've got your sponge on the outside, and you've got your lovely jam swirl in the middle. Can you see it, Adrian? I can see it. Right. So let's imagine what most people think is, I've got my Swiss roll, that is my pension pot of savings. And we're talking defined contribution savings, or pension pot, supposed to find the salary here. I want to, I'm going to take 25% out, and it's tax-free. So they take their slice, and they think that's all going to be tax-free. But

• 11:55Martin Lewis?

  no, the general rule is, if you do that, if we think of the sponge on the Swiss roll as being the taxable amount, and the good bit, the jam in the middle, that's your 25% that's tax-free. If you take a slice, then that's exactly what happens. You might take 25% of your pension, but 75% of what you've sliced off is going to be taxed, and 25% will be tax-free. You can't just take the 25% tax-free amount. There is a way to do that. And the way that you do that, is you can take your 25% tax-free amount, but you then have to put the rest, a big picture, there are minutiae, we'll talk about getting advice in a moment, the rest either in, an annuity, which is roughly a payment each

• 12:40Martin Lewis?

  year for the rest of your life until you die, but there are variants, or an income drawdown, which is basically just like a pension investment with, with a new name, because it's what you call it, when you've taken your 25% tax-free lump sum out, you leave the rest invested. And therefore, that's the way. So there is a way to take out 25% tax-free, but it's not just withdrawing money, it has to be more sophisticated like that. And you will need advice. But the good news... When it comes to pensions, if you're taking money out and you are of the age, you are entitled to totally free guidance from PensionWise, which is an independent organisation funded by a compulsory levy on the financial services industry. It's part of the Money and Pension Service. So you need to make an appointment with PensionWise or you can go online.

• 13:23Martin Lewis?

  PensionWise, do make sure it's a legit one because there'll always be shysters sites trying to pretend to be it. And it's the official, totally free, and you're entitled, I think it's the 45 minutes to an hour of one-on-one guidance. They can't advise you on products, but they can talk all through the tax implications and your options and what you're going through. Anybody taking money from your pension, you should always talk to them first. It is absolutely, the mistakes you can make can cost you tens of thousands of pounds if you've got a big pension, and you should always get that one-on-one guidance. So Poppy, I hope that gives you an understanding of Back to Basics, but also shows you, I'd really want you to go and talk to PensionWise.

• 14:01Speaker 03

  Okay, Andrew Amory says balance transfer credit cards. The exact way of doing this always comes down to get a credit card and transfer the balance from another card, which is no help to someone who's never done this before. I have looked on the apps for the cards I have, and nowhere does it say transfer balance to another card.

• 14:17Martin Lewis?

  What a fascinating question. Do you know, I always learn when I'm doing shows on Back to Basics, because I always learn that the way I explain it, because in my head, obviously, there's a whole logical path, that there might be something people are misunderstanding and they're missing. And Andrew is, and there's no blame on Andrew. I'm delighted you asked because it's a learning and I'll try and put it into my general explainer. This is the key to a balance transfer card. You get a brand new card that has a 0% balance transfer deal. That means shifting debt. Make sure it's balance transfers because there are other types of 0% deals like purchases and spending. And you get that 0% card. And then you ask it to transfer the balance from your old card. So in practice, what happens is the new card...

• 15:03Martin Lewis?

  Pays off the debt on the old card for you, or the old cards potentially, and you now owe the new card, but it's at 0%. And currently you can get over three years 0% for a fee, or you can get 12 months 0% for no fee. The fee is normally about 3% of the amount you transfer. Go via an eligibility calculator so you can find which card you'll get. So Andrew, I think the problem you're having is you're looking at your existing cards to see where it says transfer the balance. Well, they don't. They want you to keep the debt on them. So they're not going to give you a facility to transfer the balance. It's the new card that you apply for and get. Once you're accepted, you ask it to transfer the balance off your old card. Well, it'll be part of the application process generally. I mean, you're applying for a balance transfer.

• 15:47Martin Lewis?

  It'll say how much you want to transfer and which cards you want to do it from. Or you could call them up and do it. You generally have to do it within the first 60 or 90 days to get it moved to 0%. It will be a very obvious part of the application process for any balance transfer card. But it's not something your old card does. All your old card really sees is a payment has been made to your account that clears the debt. Do you see what I mean?

• 16:09Speaker 03

  Yeah. Chris Richardson, credit cards. When I do a 0% balance transfer, the payment is higher than on the previous card.

• 16:18Martin Lewis?

  So this reminds me a bit like the energy rates and energy direct debit. One is how much you actually pay and one is how much they want from you. And the same is true on a credit card. We have two separate things at play here and they can be different. And I think people do get confused about this. The 0% is the interest you're being charged. It's how much the cost of the debt is. And 0% is obviously exactly what you want. It means it's interest free. But equally, every card has a minimum monthly repayment. And there is a formula on what the minimum, minimum monthly repayment can be. But above that formula, they can ask for more. So some might set it at, you know, there's a whole load of criteria, but it must be at least 5%.

• 17:02Martin Lewis?

  Some might say it must be at least 6% or 7%. I think 3% or 5% is probably more accurate. So you may.

• 17:10Martin Lewis?

  Have moved a card from which is charging you 24% interest to a card that's charging you 0% interest, which will save you a lot of money because it means your repayments will be clearing the actual debt rather than servicing the interest. But the card you move it to may have a higher minimum repayment, so the amount you actually have to pay off each month is higher. And I think that's where that confusion is coming from. But you are far, far, far better off to have your debt at 0% interest-free than at 25%. Because, you know, let's do it on very raw sums and it doesn't work like this, but if you have a thousand pound debt at 25%, which is a typical high street credit card, at the end of the year, if you didn't pay, it'd have 1,250.

• 17:53Martin Lewis?

  So if you made 250 quid of payments, you'd still be back to where you started, a thousand pounds. If you had a thousand pounds at 0% and you paid 250 quid, at the end of the year, you'd only have 750 quid debt and therefore all of it would compound down. So it's the difference between the interest rate you're being charged and the minimum amount you have to pay each month, which are completely separate factors. Have I made sense, Adrian?

• 18:16Speaker 03

  You've made sense. I'm just wondering, why, why, why would, if you're a credit card company, why would you offer 0% on balance transfers when you might have, you're carrying someone else's debt for three grand for no benefit to yourself?

• 18:29Martin Lewis?

  Well, first of all, you start to get someone's data and you have the ability to cross-sell them other products. Second, unfortunately, the big problem with balance transfers is many people will do a balance transfer, they won't pay it off within the balance transfer period, they'll leave the debt on, they won't balance transfer it again. And now, you, okay, they've given you two years at 2,000 pounds interest-free.

• 18:47Speaker 03

  And then you get walloped.

• 18:48Martin Lewis?

  And then you get walloped, which is why, I mean, when I go, my golden rules of balance transfers, make sure you can clear the debt within the 0% period, or at least be prepared to transfer again in the month before it ends. And they factor in, in their accounting, you know, the people who follow the type of stuff I say, who perpetually keep debt at 0%. But people make mistakes and the other thing people do is they spend on that card. If you've got a 0% balance transfer, it is not cheap for spending, right? And therefore your spending will be at 25%. And some are cheap for spending, some also have, they're all rounder cards at 0% for both. So there's lots of ways they can. So when I talk balance transfers and I'm doing it in a sort rather than just answering the question, I'm doing it in a formulaic way. I have my balance transfer golden rules. Number one, never miss the minimum repayment or you can lose your balance transfer and they can charge you more.

• 19:32Martin Lewis?

  Number two, don't spend on the card unless it's at a 0% rate and even then you want to reduce your debt. Number three, make sure you clear the card in full by the end of the 0% period or at least balance transfer it again. Number four, do the balance transfer in the first 60 to 90 days. So all of these things, they have their own way to work. And the way to do it, it's why it's really interesting. When I do a guide on my website, what I try and always do. I deliberately put friction in my guide so that the best buys are not at the top. People always just want the best buys. Oh, just tell me what the best buy. But the whole thing about when you're doing stuff like this. Is it isn't just about getting the right card. It's about following the right menu in order not to let them fall into the traps.

• 20:13Martin Lewis?

  And I therefore put that make people have to scroll through all that because I need them to know that before they get the product. Do you see what I mean?

• 20:20Speaker 03

  Yeah.

• 20:21Martin Lewis?

  And so your question's a very valid one and it's always about following the right menu when you do anything like this.

• 20:26Speaker 03

  Lisa Jane wants to know about limiting inheritance tax.

• 20:30Martin Lewis?

  Okay, small question. Let's try and do it briefly, shall we? The first and most important to say is the vast majority of people's estates when they die do not pay inheritance tax. Inheritance tax is something that far more people are scared of than is a practical reality. And I think the status currently it's 6% of estates pay it. And once pensions come in into inheritance tax next year, that'll probably go up to 8%, 9%. But I think the real point is you have to do the numbers. So you can leave £325,000 tax free without any inheritance tax on it. And you can leave another £175,000 if it's your main property to your direct descendants tax free.

• 21:10Martin Lewis?

  So everybody has £500,000 effectively, they can leave without inheritance tax on it and you pay inheritance tax above that. But there are two crucial things, there are loads. And if you, again, if people go through to the podcast, we've done full programmes on inheritance tax. But the two main big things to have in your head to reduce your inheritance tax bill, if it looks like you would pay inheritance tax. Number one. Be married or in a civil partnership, not just living together, not cohabiting. If you're married and in a civil partnership, anything you leave to your spouse or civil partner is there's no inheritance tax, even if you're Bruce Wayne and you leave a billion quid, there's no inheritance tax if you leave it to your spouse, your married spouse or legal civil partner.

• 21:55Martin Lewis?

  The second thing that happens is they get your unused inheritance tax allowances. So let's just imagine, Adrian, shall we get married?

• 22:06Speaker 03

  Uh.

• 22:07Martin Lewis?

  It's not the most romantic proposal you've ever had.

• 22:09Speaker 03

  Okay, I will, yeah.

• 22:10Martin Lewis?

  Well, let's first imagine we're not married, right? But we still have that, you know, a lovely brotherly bond of love.

• 22:16Speaker 03

  Yeah.

• 22:16Martin Lewis?

  And so I have a million pounds of assets and I leave them to you. Now, we're not married, so I've used up £500,000 of my tax-free allowance and you're going to have to pay tax on the other £500,000 at 40%. So, you know, that's 200 grand. And now you've now got that 800,000 pounds after tax and you've got that 800,000 pounds and you've got 200,000 of your own and you're leaving that to our children. Not that we have them, but let's pretend you're leaving that to our children. So you've got a million pounds, but you've got a five, so there's another 200,000 pounds of inheritance tax coming off because you're going to use your 500,000 pounds.

• 22:54Speaker 04

  Hello, this is Martin, interrupting my own podcast because I'm walking home at the moment, doing this on my phone and the wonderful podcast producer Simon had sent me a review copy, just to have a quick listen over, which I normally do at double speed. And I listened to the bit of me and Adrian talking about inheritance tax and I've just gone, no, it's actually even worse than that. When I did the calculation for unmarried couples, I actually gave Adrian and assumed that he could get 500,000 pounds left to him from my estate tax-free, including the main property. But that isn't right because Adrian is not married to me, nor is he my direct descendant. And therefore I wouldn't get the extra property allowance.

• 23:38Speaker 04

  I'd just get the basic 325,000 pounds that I could leave tax-free. All the rest would be taxed, so that's an extra 175,000 pounds taxable at 40%. It's even worse if you're unmarried than I've made it out. Back to the podcast.

• 23:58Martin Lewis?

  So now let's do it the other way.

• 24:00Speaker 03

  So if you'd made an honest man of me.

• 24:01Martin Lewis?

  Now I'm making an honest man of you. And if I made an honest man of you, I've got a million quid, I leave it all to you. There's no inheritance tax because I've left everything to you. You now, and I remember our house was going in this, that's why it was the £500,000.

• 24:15Speaker 03

  I find another bloke to marry.

• 24:17Martin Lewis?

  No, no, no, let's not, no, leave it, leave it. I can't have gone, been gone one minute, one minute. That's not very nice, that's not. So you now don't find anybody else because how could you ever replace me?

• 24:28Speaker 03

  Yeah.

• 24:29Martin Lewis?

  I think that's a more likely scenario. You have got your £200,000, so you're leaving 1.2 million pounds to our kids. Right? You've got your £500,000, including property, because we're leaving the property, and my £500,000, including the property. So that's a million pounds with no inheritance tax. You're only paying inheritance tax on the £200,000. And so we're paying 40% of that. That's, oh, got 80 grand. So instead of £400,000 of inheritance tax, because we were married, it's 80 grand of inheritance tax.

• 25:00Speaker 03

  Okay.

• 25:01Martin Lewis?

  So that's the first big thing. And the even more important one to avoid inheritance tax, big picture, give stuff away. Right? And give it away before you die. If you're giving stuff out of income and it's generally out of income and not out of your wealth, you can give as much as you like, yeah, making regular donations and proving it is the way to do that. But equally, if you give stuff away more than seven years before you die without reservation, without, you know, so it's not like, I'm going to give you my house, but I'm still going to live in it and not pay any rent. Then, and you genuinely give stuff away and you live more than seven years, then there is no inheritance tax to pay on that. Those are the two big picture things I would remember, but there's a lot more. Go listen to the inheritance tax podcast.

• 25:40Martin Lewis?

  Then it was time for a news break. And in separate studios, Adrian in Salford and me in London, we both contemplated our new relationship.

• 25:55Speaker 03

  Martin Lewis with us in the last 10 minutes. He's actually suggested we get married, the two of us. So who knows what could happen before.

• 26:02Martin Lewis?

  It's over, Adrian. It's over. I've changed my mind in the break.

• 26:04Speaker 03

  Okay.

• 26:04Martin Lewis?

  I've just decided it isn't worth it.

• 26:06Speaker 03

  Okay.

• 26:06Martin Lewis?

  I mean, I cannot marry a man who is not beating random chance on a mastermind quiz. I mean, it just, I'd sit there going, well, I'm struggling with my work. Have you got any thoughts? Can you feed into this? And I look and realise, no, you're not going to be any help at all. And what are you going to bring? Just what are you going to bring to this marriage?

• 26:24Speaker 03

  Just love.

• 26:25Martin Lewis?

  Oh, that's a nice answer.

• 26:27Speaker 03

  Anyway, we're into this. I don't get money. I don't get money special. Just questions, anything you want to know, anything you want to ask about money. Mick Hall, it's what it's kind of, it's less about what he doesn't know than what he says he does know. It's, he said, it's our money. Our family know what we want to happen once we go. If prior to that, we lose our marbles, as he puts it, our family know what we want to happen. Why should anyone else know our business? We don't need a will or lasting power of eternity. Yet we supposedly have to have one or buy one.

• 26:59Martin Lewis?

  Because the world, I'm afraid, doesn't work like that, Mick. And you do not want someone saying, oh, my dad, my husband, my father, my wife isn't very well, so I'd like to get money out of their bank account, please. You don't have a lasting power? No, I just, but, but they've told me to get it. I mean, we can't work in a world, unfortunately, the modern world doesn't work like that. It doesn't work in that simple, easy way. And actually, more so, it's not just finances when you're talking about a lasting power of attorney. We're talking about the health and wellbeing one as well. I mean, do you want anyone who says, well, I'm his cousin and I'm going to go into hospital and I'm going to tell them when you're there, actually, I think this is the treatment that they should have. Well, hold on, do you have, you know, have you got a lasting power of, no, but it's fine.

• 27:45Martin Lewis?

  I think this is the treatment they should have. I talked to him about it. You actually want the protections in place that you want to be able to register legally who it is who can make decisions and access your finances if you do not have the capacity, if and when you do not have the capacity to do so. Not when you do have capacity, when you don't have capacity. And that's what a lasting power of attorney does. It puts down in law who has that right. And interestingly, if you don't do that. Then you're going to need effectively the same, but without a lasting power of attorney done in advance while you do have your faculties to say what should happen in the event you don't have your faculties, then your relatives would have to go to the court of protection. And they'd have to go to the court of protection, which is, I'm talking the English system,

• 28:28Martin Lewis?

  which is long and arduous and expensive and stressful for people who are already likely suffering semi grief because they've just lost, to an extent, they've lost the person they knew because you no longer have capacity. And they're dealing with all that, they're dealing with all your care, and they're going to have to go to the court of protection and pay all the money, and it can be thousands and take a year. So that's what a lasting power of attorney is for. You may not like the system, but I'm afraid even some people complain power of attorney isn't enough protection from relatives who don't get it quite the right way. But it's a lot better than just saying, let anyone who I'm related to access my bank accounts and my finances and my products, and equally with a will. If you don't leave a will, you're saying, our family know what we want to happen. But if you don't leave a will, then you go to the intestacy laws. And the intestacy laws are effectively the

• 29:12Martin Lewis?

  default laws of what happens to your assets. It's different in each of the UK nations. And those default laws can both leave money to the people you don't want to leave money to, but equally, they can be, we talked about inheritance tax before, they can mess up your inheritance tax planning as well. So I get you want your family to deal with it all, but we live in a modern digital world where you have assets, you have registers, you have laws, and wills and lasting power of attorneys are about that. So that's just the way it is.

• 29:39Speaker 03

  Gary Bruce, can't get my head around paying tax on savings, which is money you've already paid tax on.

• 29:46Martin Lewis?

  That's not strictly true. I'm not making a political point here, I'm making a point on accuracy. You do not pay tax on savings. You pay tax on the amount you earn on savings from the interest. And by definition, the earnings on savings you haven't paid tax on before because they are earnings. So if you, you know, let's imagine you have £10,000 in a savings account, it earns you £500 interest in a year, you pay interest on the £500 you've earned, not on the £10,000 of savings. So.

• 30:20Martin Lewis?

  As for getting your head around it, the other thing people need to understand and people miss is there are actually five big allowances on savings that mean many people do not need to pay tax on their savings interest. And remember, it's the interest. So the first one is the standard personal allowance, the £12,570 a year that most people can earn from any form of income, whether it's savings interest or income from work or income from a pension, that you do not pay tax on. So everyone's got that until you earn so much that they take it away from you. The next is a thing called the starting savings allowance. Now, this is for people who have low earnings but high savings interest. There's actually

• 31:01Martin Lewis?

  another £5,000 you can earn of interest tax free. And this is for people who generally earn under £18,570 a year. I've explained before how it works. If you don't know, have a look at the starting allowance for savings. Above that, you have the personal savings allowance. So this is where basic rate taxpayers can earn £1,000 of interest per year tax free from any form of savings. Higher rate taxpayers, those who pay 40%, can earn £500 of interest a year tax free. So remember, that's the interest you're earning. So if we say a basic rate taxpayer can earn £1,000 of interest and the top savings account is 5% roughly at the moment, well, you would need £20,000 in savings to generate £1,000

• 31:46Martin Lewis?

  of interest. So on up to £20,000 of savings, you wouldn't be paying tax on the interest if you're a basic rate taxpayer. Then you've got your ISA allowance, which is totally separate from everything else. Money inside an ISA, if it earns interest, doesn't even count towards all the other allowances. It's not taxable. It's totally tax free. And currently, you can put £20,000 per tax year in a cash ISA. So you can build that up year after year after year. From next April, it'll be £12,000 per tax year you can add for those who are under 65 and £20,000 if you're over 65. And then you're also allowed to put up to £50,000 total, not per tax year, into premium bonds too. So tax on savings is actually one of the areas where if you know what you're doing,

• 32:29Martin Lewis?

  You can really minimise or not pay any tax on savings interest unless you earn a lot. So you're a top rate taxpayer or you've got a very large amount of savings.

• 32:40Speaker 03

  Jackie Chillard, this has just made me laugh out loud, energy. Why is it such an impossible gamble for most of us? Why is it so difficult to understand when to act, whether to act, how to act? I know you try hard, but I can't understand a word you say.

• 32:56Martin Lewis?

  Thanks. Thanks so much, Jackie. Let me see if I can simplify it a bit for you.

• 33:02Martin Lewis?

  It's not that firm. You're definitely getting divorced now, mate. You're laughing a bit too hard.

• 33:08Martin Lewis?

  Look, I'll be honest here. One of the great problems I have in my job is you're dealing with multiple audiences. So at the same time as I'm talking to a struggling 70 year old who's never understood this and is new to the internet about what to do with energy bills. I'm also talking to people who just give me a quick answer and I want to get over and done with, but I sort of roughly get it. And then I'm talking to people who say, why haven't you mentioned this time of use tariff? That's only for sophisticated users and how it interacts with my EV and solar panels and my batteries. And at the same time I'm doing this and you haven't mentioned that. Now, actually I do do work on all of those, but certainly in my broadcasting, it is very difficult to talk to all those audiences at once.

• 33:53Martin Lewis?

  So what ends up happening is you do an energy show and I start simple and then I get on to more and more complexity that some people don't need to know, but other people would berate me if I didn't put it in. And that's the honest truth of the difficulty. So I'm going to try and give Jackie a simple answer. But it's interesting. You talk about it being an impossible gamble because right now I genuinely feel making a decision on what to do today is a gamble. And I actually was on a radio programme the other day where I called it a bit of a casino. So let's just go through this. And for those of you who are complicated, I am only going simple. So do not berate me for not mentioning the more complicated options. Okay. The two primary options that people have are sticking on the price cap. Now, people don't

• 34:38Martin Lewis?

  know they're on the price cap, but if you're not sure what you're on, you're probably on the price cap. The price cap is simply if you haven't chosen an energy tariff, or you were on an energy tariff, you've chosen that it ended, you go to your firm's standard variable tariff and all firms bar one, price that at what off gem says the maximum they can charge under the price cap is. And the price cap sets two things. It sets the standing charge, that is a daily fee that you pay for having gas and electricity, and the unit rate, which is the amount you pay for each unit, known as a kilowatt hour of gas and electricity that they you use. The standing charge sets that and all firms bar one are

• 35:18Martin Lewis?

  within a couple of quid of it. So that's what you're going to pay. Your main alternative is to fix. And a fix is where you say, I am going to pick a rate today, and I'm going to lock that in safe for a year. And that dictates my standing charge and unit rate for the next year. Whereas if you are on the price cap, the price cap changes every three months. That's why it's called variable. It changes. So you are contrasting a fixed rate, one that you lock in with a variable rate. And because a variable rate is variable, clearly, we don't know where it will go in future. We have predictions, but the further out you go, the more difficult it is. And this is where the choice is generally relatively

• 36:00Martin Lewis?

  complex. Now, the simple answer is over the past two years, and I've done detailed research at this, at no point would you have been better off being on the price cap than going for the cheapest fix. So fixing is generally better than the price cap. The vast majority of people should get off the price cap, get off their standard variable rates, and do a cheap fix. That doesn't mean your company's fix. That means finding the cheapest fix on the market. And you should lock in at that rate because it will be cheaper. To take this up a little step now, one of the real problems here is about time lags.

• 36:42Martin Lewis?

  The main variable that changes on energy to change the price you pay. There are lots of other things in costs, including policy costs from government. But the main variable is wholesale rates on the international market. And particularly the natural gas rate for the UK that varies a hundred times a day. And that is what is used to assess the price cap. But for the price cap, it is assessed on past prices. So the July price cap was assessed on prices from mid February to mid May. The October price cap is assessed on prices from mid May to mid August. So the price that you pay is based on past prices on the price cap.

• 37:24Martin Lewis?

  But on a fix, the price that you set, get your fix at today is based on today's prices. This is why it's complicated. Because one is moving slowly, slow to rise, slow to fall. One, the day, the price that you can lock in at depends on what's going on today and the last few days. Now, the reason why I say it is a gamble right now is because we've seen an enormous rise in wholesale rates over the last month, up about 40%. Which has done two things. One, it means the likely price cap from October is going to be higher.

• 38:05Martin Lewis?

  The October price cap is currently looking to rise about 5.1%. And I think it may be even more when we actually get there because prices are so high and that will factor into it. Now, we're ignoring that VAT cut because that is the same on fixes and the same on the price cap. It's coming off everywhere. The cheapest fix at the moment is 8% less than the current price cap. So certainly you can save money by fixing now. And certainly the cheapest fix now will be cheaper than the October price cap. And it will probably be cheaper than the January price cap. So fixing today will save you money. So I could stop there. And I could say to Jackie, there we go. You can get a fix that's 8% cheaper than the price cap right now. It is probably going to be 13% cheaper than the price cap come October.

• 38:49Martin Lewis?

  And on current predictions, it's looking to stay substantially cheaper than the price cap for the entire year that you fix for. And I could stop there and I probably should stop there. But I can't help myself, so I'm going to go on a little bit more. The problem. Is that two weeks ago, the cheapest fix was 15% cheaper than the price cap. And because wholesale rates have risen so rapidly, you can now only fix at 8% cheaper than the price cap. So the real difficulty for me, when I'm suggesting this to people, is my concern is if the conflict in the Middle East, because it's all about the conflict in the Middle East that's pushed those wholesale prices up. If the conflict in the Middle East lessened or ended tomorrow, those wholesale rates would come down and you would be able to get a much cheaper fix.

• 39:33Martin Lewis?

  And therefore, if you fixed today at 8% cheaper, whereas in a week's time you could fix at 14% cheaper, you've locked in at a higher rate than you need to, but that is unknowable. That's why it's a casino. So my answer is probably for those people who just don't get this, just get yourself on a cheap fix now and look away and cross your fingers and you will definitely save compared to what you would have paid, but it might not be the perfect outcome. For those people who understand this and are willing to play it a little bit, I probably wouldn't lock into a fix today because the rates are so high. I'd probably cross my fingers and it's only crossing my fingers. It's not an estimate, it's not a guesstimate, it's not a prediction, and hope that things change in the next couple of weeks and you can get a fix that is cheaper in a couple of weeks' time. But I wouldn't wait that much longer if I were on the price cap.

• 40:18Martin Lewis?

  And that is the problem. That's really how it works and I can't make it any simpler.

• 40:24Speaker 03

  Okay.

• 40:24Martin Lewis?

  Because it isn't. So we do mastermind and put some pressure on you instead.

• 40:28Speaker 03

  Ah, can we go, there's just one more question I'm quite interested in. It says, yeah, Stuart Guest, he says, "All banking apps and websites show you what direct debits or standing orders you have set up beyond your account and give you the opportunity to cancel unnecessary ones. Yet no credit card apps or websites show what continuous payment authorities you've got set up on your credit cards, nor give you the opportunity to cancel."

• 40:53Martin Lewis?

  I'm not aware of any that do. There are some that try and track them for you. So a continuous payment authority, also known as a recurring payment, a regular payment, is where you, instead of setting up a direct debit, where you give your bank account details, or setting up a standing order where you tell your bank account to pay someone on a regular basis a set amount, you give a company the longer number on your credit or debit card. So this does apply to debit cards too, not just credit cards. And you pay by the long number. And then they take a regular amount out. Classic examples, Netflix and other subscription services like that. So it is not a direct debit. Now, the problem is, underneath it, what a continuous payment actually is, is it's

• 41:37Martin Lewis?

  you saying, I'm going to pay you each month. Now, you could do that by actually going and making a payment and giving them your number each month, or you can say, take my card number, and you can take a payment every month of an amount that we've agreed, and that's how they take the payment. So it isn't actually, while we call it a continuous payment authority, you've given them an authority, but in sort of technical terms, you're just making a payment each month. It's as if you bought the same, you know, if you went to an online supermarket and bought, I can't even think, a £20 steak every month on the same date, that would look to your bank exactly the same as a continuous payment authority.

• 42:12Speaker 03

  But why can't they make it easy for you to cancel it if you change your mind on something?

• 42:15Martin Lewis?

  Well, you can cancel it. You can cancel it. And you can actually cancel it with your bank or credit card company. I was involved in pushing for the regulations to change on that. Many people don't know it, but it's often easier to cancel it with the company itself. But the problem is, tracking that, people don't know those subscriptions. I mean, I've actually looked at building a tool that's going to track them for you. And I think there may be a couple of apps, that they're not your own bank, that can track them for you. But basically, all you're doing is you're pattern spotting and saying, what payment is coming out the same time each month? Because it isn't a thing. Do you see that? Do you know what I mean by saying it's not a thing? It's not like a direct debit, which you've got conditions. It's just basically, you're paying someone the same amount each month, and you've given them permission to take that payment off your card each month.

• 42:53Speaker 03

  Got it.

• 42:53Martin Lewis?

  That's why. Now, we've got lots more of your "I just don't understand" questions coming later in the podcast. For now, though, I want to put Adrian to the test.

• 43:10Martin Lewis?

  Hello and welcome to Money Mastermind. Adrian, you've got 20 right and 42 wrong in this three option multiple choice quiz, leaving you sadly

• 43:23Martin Lewis?

  no better than random chance. Now, recently, our Adrian was alone in his BBC dressing room, finishing an untouched plate of fig rolls and slowly removing his makeup. Why he wears it for radio, no one is quite sure. Suddenly, the lights flicker, the heating clicks off and the air turns icy. Adrian steps out into the corridor and a pale 10 year old boy stands there staring unblinkingly. Mr. Childs, can I tell you a secret? Adrian replies gently, yes.

• 43:59Martin Lewis?

  I see debt people.

• 44:03Martin Lewis?

  Are there six cents for these things? Says Adrian. I think you mean dead people. The boy calmly replies. No, debt people, those with credit cards, personal loans, buy now, pay later. Adrian, sensing the moment, chips in. Student loans too. I'm not sure, says the boy. That's why I need your help. So Adrian.

• 44:30Martin Lewis?

  Did I go too far? Did you like that?

• 44:32Speaker 04

  No, don't go any further though.

• 44:33Martin Lewis?

  Okay.

• 44:35Martin Lewis?

  So Adrian, if someone is repaying a £50,000 Plan Two student loan, those are the loans, the big one out there, that all English students who started between 2012 and 2022 got, and all Welsh students from 2012 onwards got. If they were to apply for a mortgage, which of these statements is most accurate? A, the repayments on the student loan would reduce their disposable income for mortgage affordability purposes. B, the repayments would reduce their disposable income for mortgage affordability purposes, and the loan also damages the credit score the lender does. C, the student loan has no impact unless you have missed past repayments.

• 45:18Speaker 03

  Well, B.

• 45:20Martin Lewis?

  So B was the repayments reduce their disposable income for mortgage affordability purposes and the loan also damages the credit score with the lender.

• 45:29Speaker 03

  I, I, I, that, but look, I'm not saying, I'm not saying that's not the case, but it would strike me as being unfair. But I suppose disposable income is what they're looking at with mortgage affordability. So I'd say, I would say.

• 45:45Martin Lewis?

  So remember, A and, A and B are both mortgage affordability. The difference between A and B is you've also got the damage to the credit score. So really, if you're choosing between those, your, your real decision is, does it also damage the credit score or not?

• 45:57Speaker 03

  I don't think it does, so I'm gonna go for A.

• 46:00Martin Lewis?

  Final answer. So Adrian says the repayments reduce their disposable income for mortgage affordability purposes. And Adrian is right. Play the hallelujah.

• 46:15Martin Lewis?

  Well done, mate.

• 46:19Martin Lewis?

  Okay, we'll finish that one.

• 46:21Speaker 03

  Can we just play the hallelujah chorus until one o'clock?

• 46:24Martin Lewis?

  No, I need to explain the answer. Well done, though. So that brings the score to you've got 21 right and 42 wrong. Still no better than random chance, but if you get it right next week, then you would be better. But there is no podcast next week, so you're not going to. Sorry about that. Okay, let's explain the answer to everyone. This is really important. People always ask me about this question, student loans and credit files. So we're talking plan one, two, three, four and five here. We're not talking the earlier loans that happened between 1991 and 1998, I think it was. I may have got that last date wrong slightly. They do not appear on your credit file. The student loan is not reported to credit reference agencies. So it is not in the data for credit scoring purposes that most firms use, though they can ask you about it on their application

• 47:07Martin Lewis?

  form. But general rule, having a student loan does not affect your credit score. But that is not to say it does not affect your application for credit. Because when you apply for credit, while a credit score is done, one of the other really big elements is the affordability score. Now, the first thing is your credit reference agency doesn't include your income. So they're always going to want your income and that's the biggest single factor that affects anything. And that isn't in your credit score or your credit file anyway. So the affordability score, remember, each lender does its own credit score and affordability score. There's no universal thing. An affordability score is basically working out on the income you have and the expenditure you have. Can you afford to repay, whether it's a mortgage or a credit card or a loan?

• 47:51Martin Lewis?

  Now, exactly how they do this, in some cases, they do it statistically. You tell them they've got a student loan and they don't look at your exact outgoing. They just do, especially on cards and loans, they just do a statistical likelihood of what somebody in your exact position would do. And in some cases on mortgages, it can be more bespoke where they're looking at your exact expenditure. But the, as I always talk about, a student loan while you're repaying it effectively acts like an increased form of tax above the repayment threshold. So for Plan Two student loans, you repay nine percent of everything you earn above £29,400 odd. So above that level, it's like you're paying more tax and you have less disposable income. And what the lenders are looking at is saying, well, they have reduced disposable income.

• 48:33Martin Lewis?

  They're going to have that for the foreseeable future and we're going to factor that into the mortgage application. So it affects how much you can borrow and, you know, what you can afford to get. And all of that is what the student loan is doing. It's less about your credit score, but it is reducing your disposable income. It's effectively comparing you to someone who hadn't gone to university and doesn't have a student loan, who earns less than you do because they would have the same disposable income because they wouldn't have the extra nine percent of tax above the threshold. I explained that slightly garbily, but hopefully people got there.

• 49:08Martin Lewis?

  And just before we get back to questions, an extra quick tip for you. I want you to remember these three numbers, 159. Think of it on your phone keyboard. You're sort of going from top left to bottom right in a diagonal line. If you dial 159, you will get put through to an automated switchboard and it'll say which bank do you want to contact? You tell it your bank and it will put you through to your bank's legitimate phone number. Now, the reason this is important is all about scams. So if a scammer calls you pretending to be from your bank or someone calls you and you think they may be a scammer, you can politely say, I'm just going to check your legitimate. I'm going to put the phone down and then you call back and you call through 159. For two reasons. One, then you know you're getting the right number and you don't have to look it up if you're in a bit of a panic.

• 49:51Martin Lewis?

  And two, in the very rare events that a scammer is spoofing your line, so that they're sort of staying on, they will answer. Hello, this is Martin Bank because they thought you were going to call Martin Bank, but you're not. You're going to be calling a switchboard which will ask you what bank. So if they say hello, it's Martin Bank, you know it's not the right switchboard. You can put the phone down again and go and call on a different phone line or wait 10 minutes or do something. So it's a really nice, easy bit of protection from scams. And yeah, I put it on on social media with a little video asking people to share it. And it's going great guns. I'm very pleased to hear lots of people are sharing it because it's important information that everybody should remember. 159.

• 50:32Martin Lewis?

  Right, we're outside the podcast with Adrian now and I of course have the one and only podcast producer Simon joining me. Hello, Simon. How are you?

• 50:41Speaker 04

  I'm excellent. Actually, this is the exact sort of podcast for me. I think that kind of area of what's going on, those sort of things that I'm a bit too embarrassed to not know. I love podcasts like this. And also, the other thing to perk me up, they had a fake, well, you don't have to say fake, they had a dinosaur at Five Live today. So I got to walk past one of them when I was coming in. So that was a bit of fun.

• 51:00Martin Lewis?

  Can you just explain, obviously, it definitely is a fake dinosaur?

• 51:03Speaker 04

  Yeah.

• 51:03Martin Lewis?

  Is it an animatronic dinosaur, a dinosaur skeleton, or just a model of a dinosaur?

• 51:07Speaker 04

  No. So it was like a kind of big thing that someone then was wearing it on their back and sort of bounding around with the arms. So it was a bit of fun, you know, prehistoric, not seen, nobody else knew it existed for thousands of years. But enough about your jokes. They had this dinosaur in the office, right?

• 51:22Martin Lewis?

  That's very good.

• 51:23Speaker 04

  No, no, it was good. It was fun.

• 51:25Martin Lewis?

  Right. No, you've just lost all permission now. We're just going to move on to question. How many do we have left that we haven't covered that was in your plans?

• 51:31Speaker 04

  So I think we've got four really interesting questions left. Do you want me to start with the first?

• 51:34Martin Lewis?

  Yeah, definitely.

• 51:35Speaker 04

  So John Fults.

• 51:36Martin Lewis?

  Now, start with the third.

• 51:39Speaker 04

  John Fults got in touch. Regarding money, why is it more and more of running away from cash? In my opinion, cash is exceptionally important and should never be taken away.

• 51:49Martin Lewis?

  Well, I fundamentally agree with you and I support the campaign for cash because especially the more people that are digital natives and they prefer plastic and digital and watches and phones to pay, the more that we have to protect cash for those who need it, especially elderly and vulnerable people who prefer cash. However, I need to be straight that under the law... You are far less protected as a consumer paying with cash than you are paying on plastic. I should be careful. If you do a bank transfer, that's not particularly protected either. And cheques, not that anyone uses them anymore, aren't particularly protected either. So the strongest form of payment protection that you have is paying on a credit card for items over a hundred pounds, up to thirty thousand pounds. It's called section seventy five.

• 52:33Martin Lewis?

  And it means that the credit card company is jointly liable with the retailer for the entire transaction, even if you only part pay. If you know any point ten p on a credit card and pay the rest in cash if you wanted to, then you would get the credit card protection for the entire transaction, as long as it's an item that costs over a hundred pounds. And that that joint protection means if the retailer won't give you your rights, you can go to the credit card company. Hey, you can go to the credit card company first. It also means if the retailer goes bust, you can go to the credit card company. Second strongest protection, chargeback. Now, chargeback basically applies to all purchases on all plastic over ten quid. So it includes credit cards. So on on credit cards over a hundred quid, you have both chargeback and section seventy five. On under a hundred quid, you just have chargeback and on debit cards, you just have chargeback.

• 53:18Martin Lewis?

  Chargeback is a rule of Visa, Mastercard, Amex, that effectively says you should get what you paid for. So if something doesn't come or you're having a problem with the retailer, you can ask for a chargeback. And that means you are asking your bank to ask the retailer's bank for the money back because you didn't get it. It can then be disputed when you do and you might, if you're lying, it will be disputed. But generally, it works very well. Now, actually, if you have a chargeback right, I would always first ask for chargeback over section seventy five, even though section seventy five is more powerful, simply because with chargeback, your bank isn't paying you. So it tends to be more happy to help. It's another bank that's paying you. With section seventy five, it's actually coming out of their pockets.

• 53:58Martin Lewis?

  So I would work it that way. And then after that, you have very limited protection. If you if you leave a deposit on cash at a restaurant and the restaurant goes bust, you have no protection. If you pay for something and the order doesn't come and the firm goes bust, you're just going to be a creditor for the firm, which tends to mean if you get anything back, it'd be pennies in the pound. So. Many people find digital payments far more convenient. Many people also like cash. But when it comes to protection for major purchases, you are far more protected on plastic. And I should say, of course, if you're paying on a credit card, I don't want you to pay interest. So make sure you're paying the card off in full at the end of every month. But I understand many people feel that not just an attraction to cash, an affiliation with cash. And they don't like the idea that everything that they pay is being tracked by a bank

• 54:43Martin Lewis?

  and is all digital. And I think it's important we keep the right to cash for those who want it.

• 54:47Speaker 05

  Do you know, I, I feel nervous if I'm out and about and I don't have sort of like 20 quid on me just in case I find myself in a situation where I need cash.

• 54:55Martin Lewis?

  I think that's a really, really important to always carry some cash on you. And certainly we've had the cases where payment mechanisms and banks have closed down. So you can't transact on them and you need to get home. Or, you know, there are some places, depending where you are, that only take cash. I also keep cash on me because there's a homeless chap near me. I like to give cash to him and he doesn't have any other way to take payments. So I can get him to get buy some food if he needs it and that type of stuff. So listen, no one is making the be a unilateral one way or another choice. But I suspect, knowing your age, the vast majority of your transactions you pay for, I would suggest probably on your phone or watch, not even a card, right?

• 55:27Speaker 05

  Well, no, I do pay on my card. But yeah, it's interesting. The same 20 quid probably stays in my wallet for about six months.

• 55:33Martin Lewis?

  Exactly.

• 55:33Speaker 05

  Yeah, it's very much so. Next question, Mark Helyer. It's a big topic, but a simple explanation on annuity. With respect to defined contribution pension plans, is there a default annuity from your pension fund provider? Or are there options? What options do you pay for an annuity? What affects its performance?

• 55:53Martin Lewis?

  Okay, it's a really, really important question. And the most important thing I will say at the start is never just go for your pension provider's default option. The nature of what an annuity is, is it is arguably the biggest and most important single transaction you will make in your life if you get one. Because if you get it wrong, you're the, the result is going to affect you for the rest of your life, potentially, depending on which annuity. So. I mentioned annuities earlier in the podcast. An annuity is a product that you can buy with your pension fund that gives you an income each year for the rest of your life. Now, there are many different types out there. You could have a fixed income, you could have an escalating income, which goes up with inflation. You could have one that pays you for the rest of your life, but you might have one that pays

• 56:38Martin Lewis?

  out to someone else or keeps money. There are lots of different varieties, but we're going to stick vanilla. It is a payment you get each year for the rest of your life until you die. Now, the advantage of an annuity, it's a clever concept. If you think about it, the advantage of an annuity, if you've got money and you want to know you've got income coming in, then you simply have this guaranteed income for the rest of your life. Now, clearly, the amount it'll pay you will depend on how long you live. If you only live five years after you buy it, it might turn out to be bad value. If you live 35 years after you buy it, it might turn out to be really good value. It used to be the case that most people, when they're retired, until George Osborne's pension freedoms, had to buy an annuity with their retirement income, or at least some of their retirement income. That was changed, so you don't have to anymore.

• 57:23Martin Lewis?

  And the main reason it was got rid of is annuities are a great concept, but the rates were pants. You just weren't getting much. Now, interestingly, as interest rates have gone back up, the top annuity rate is now seven to eight percent currently. In other words, you've got a hundred thousand pounds on a basic fixed annuity, you could earn seven to eight thousand pounds a year. That's what it would buy you each year for the rest of your life. Let's just go through the core annuity rules. Never just get an annuity from your provider. As it is money each year for the rest of your life, if you lock in at a poor rate from your provider, you are losing income each year for the rest of your life. If you live 30 years, it can be an enormous amount of money. So you need to be looking right across the market and either getting advice or going

• 58:07Martin Lewis?

  to a comparison site that will do that for you. The next thing I'd say is you should be looking for an enhanced annuity. If you have an illness, therefore, there's a foreseeability that you may die sooner, being blunt, or you're a smoker, which means you would tend to have a shorter life expectancy. And you should be absolutely looking at whether you can get an enhanced annuity. In other words, you get a higher rate because you're likely to have a shorter life expectancy. Now, I go back to the answer I gave earlier in the podcast, having just given you a cursory explanation. If you want to buy an annuity, please talk to PensionWise first and get your free guidance. You may then after that, especially if you're talking substantial money, want to go and get yourself independent financial advice where they can help you find the best product as well.

• 58:52Martin Lewis?

  Because PensionWise will talk about the generality and the different options, but they won't pick a specific product for you. An independent financial advisor, you can pay to pick a specific product for you. But do not just get an annuity from your pension provider. Because it's such a big decision, you need to get it right.

• 59:08Speaker 05

  Dave Richards, percentage rates on credit cards or anything else, why can't they be written in pence per pound?

• 59:14Martin Lewis?

  It's a really interesting question, David, thank you so much. And I'm afraid it's just because the maths behind the way interest works is more complicated than that. Yes, we could say that if you have a 24.9% APR, annual percentage rate, and you had a hundred pounds on the credit card and you didn't pay it off, then you would owe £24.90 over the year, and that's a simple way to think about it. But there are some problems, because if you did it on a loan, when you have a loan, if you had a thousand pound loan at 24.9% APR and you paid it off over a year, it would not cost you £249. Because each month, you're making a repayment. And the interest is charged on your outstanding repayment.

• 59:57Martin Lewis?

  So after month one, you owe a thousand pounds, and then you make an 80 pounds-ish repayment. So after month two, you owe 922, 23 pounds with some interest added on top. After month three, you owe 846 pounds, whatever it is. So while we could say 24.9%, it wouldn't be equivalent to 249 pounds because gradually your balance is reducing and you're only paying the interest on the debt you owe. To complicate this a little bit further, ultimately, the interest is being charged normally on a daily rate. And if you wanted to convert an annual rate to a daily rate, 24.9% is roughly a daily rate of 0.061%. Little break for maths nerds, Simon's some maths nerd music please, so it's only for maths nerds.

• 1:00:42Martin Lewis?

  To convert an annual rate into a daily rate, what you do is you take 24.9%, so we'll call that 1.249 because that's the maths sum. If you're a maths nerd, you will understand why. And then you do it to the power of, open brackets, 1 divided by 365, close brackets, and that will give you the daily rate. So you can start to see how complicated it is. And this understanding of... The interest is per day is really important because there are three factors that affect how much you pay when you borrow. One, the amount of debt you have, and that can of course be changeable if you're paying it off. Two, the interest rate that you're being charged. And three, how long you are borrowing for. The longer you borrow for, the more the

• 1:01:25Martin Lewis?

  interest compounds, the more you will owe. So a thousand pound personal loan at 20% over a year is a hundred and two pounds interest. A thousand pounds at 5% interest over four years is also around a hundred and two pounds interest. It's actually a hundred and three pounds interest because you compound a bit longer. So many people think lower interest rate cheaper. No, shorter loan can often be cheaper as well. So you know, 10% over one year is cheaper than 5% over five years. And that has to be factored in. So if we just talk for a second about payday loans, I did a sum many years ago, I've just found my blog on it from 2011. And it actually was to work out one of the problems with

• 1:02:06Martin Lewis?

  APRs and one of the reasons people get confused is, Simon, if you said, can you borrow 20 quid from me?

• 1:02:13Speaker 05

  Yeah.

• 1:02:13Martin Lewis?

  And I said, tell you what, you borrow 20 quid, but you can buy me back a pint next week when I see you. And let's say, because I did work this out in 2011, so we'll say the pint is a nice cheap three quid.

• 1:02:24Speaker 05

  Yeah.

• 1:02:25Martin Lewis?

  Yeah. Would you say that was a reasonable transaction between friends?

• 1:02:28Speaker 05

  Yeah, yeah.

• 1:02:29Martin Lewis?

  What do you think the APR would be?

• 1:02:31Speaker 05

  Well, APR means annual, doesn't it?

• 1:02:33Martin Lewis?

  Annual percent rate.

• 1:02:34Speaker 05

  We're talking about a week. So 10% of, I think one pound fifty.

• 1:02:40Martin Lewis?

  Yeah.

• 1:02:41Speaker 05

  One pound fifty would be the annual.

• 1:02:43Martin Lewis?

  Fifteen percent, that'd be 15%.

• 1:02:44Speaker 05

  Yeah.

• 1:02:45Martin Lewis?

  It's 15% on a week. And this is the problem with percentages. Actually, if you were to take it as a loan and we were to assume it compounded that three pounds a week, it is equivalent to an annual interest rate of 143,000%.

• 1:03:03Speaker 05

  That's a lot.

• 1:03:04Martin Lewis?

  It's a lot. It's a big number. And this is why it is all very confusing. So if I lend you 10 quid and say, give me 11 pounds back tomorrow, it may not sound that expensive. But if we can't convert that into an APR, it's going to be absolutely enormous. And that's why there's lots of difficulties. And that's sort of my, I may have made it too complicated there, but trying to explain to David why it isn't that simple to just do it because there are so many other factors in there. And we'll stop there on that one. Have you got a last question for me? What's the last one?

• 1:03:29Speaker 05

  So our final question comes from at Sue.

• 1:03:32Martin Lewis?

  Yep.

• 1:03:32Speaker 05

  Social tariffs for broadband, why is the threshold just about the means tested benefits of universal credit? Nothing for single people not on those benefits, such as job seekers allowance and carers allowance that are also on low incomes.

• 1:03:46Martin Lewis?

  So I gave evidence to the Public Accounts Committee about this a few weeks ago. And look, there are a couple of problems with social tariffs. Social tariffs, those tariffs available for those people on lower incomes. Now, when it comes to broadband, social tariffs are entirely voluntary. And it is up to the individual broadband providers to set their social tariffs. They are hideously under-publicised. There often can be quite slow speeds, which is also a problem. They're not in comparison sites, barring one comparison site, which I can't tell you. You can probably work out which one because I believe they should be in comparison sites, which is even more of a clue to the one that they are in. So, and the reason is it's entirely voluntary and some do it. There's one that just says, we'll give it to job seekers for six months totally for free. And others give you, they give you a reduced cost and it can be good.

• 1:04:28Martin Lewis?

  But the exact criteria often, you're exactly right, just on the receipt of means tested universal credit. And something that I suggested while the regulator was in the room when giving evidence is we need to codify what the benefits are. And we need to ensure that they're on comparison sites. And a great suggestion from Citizens Advice on broadband social tariffs, which I love, is actually it should just be done via a voucher. Because you're often missing out on the faster speeds and it would be much better just to give people a voucher to get their broadband as part of the social tariffs, rather than coming up with these rather slow social tariffs that are available. And you could get your voucher each year if you qualified. But it's because it's a completely unregulated, it's just something they're encouraged to do and they do it as a sop, I think, to make sure that it doesn't come into form.

• 1:05:12Martin Lewis?

  Regulation, so many problems on social tariffs. I'll give you another example, water tariffs. The social tariff on water is company by company, so it's a postcode lottery. And I can't tell you if you're going to qualify because some do it on benefits, some do it on an assessment, some do it on your income level, some do it on your equivalized income. Don't ask me what that is. It's a, it's an economic criteria that's coming out. So I would say if you earn under £26,000, check out whether you can get a social tariff. There are millions of people missing out on social tariffs, but the government missed out on the opportunity recently to do a universal social tariff where they put, came some strict rules and every company had to offer the same. We are not as developed on social tariffs as we should be. We do not have a social tariff

• 1:05:57Martin Lewis?

  on energy. And basically, the answer to your question is because the system isn't good enough. Well, it seems a slightly depressing way to end it after we've been so positive all the way through. I hope that you have enjoyed this I don't get money podcast. It's my last big topics podcast before I take a wee break for the summer. But don't worry because Simon, you're currently editing some best of podcasts, aren't you?

• 1:06:19Speaker 05

  Some excellent best of podcasts, definitely worth still downloading.

• 1:06:22Martin Lewis?

  So they're going to be coming out over the next few weeks. And of course, I've still got a question time to come out on Monday. So do make sure you listen to that too. Thanks very much to the huge numbers of people who sent in their I just don't get it questions. Hopefully now you get it a little bit more.

• 1:06:40Martin Lewis?

  That's it for this week. We normally put an episode out every Thursday and Monday. The Monday coming is our question time podcast. That's where you get to ask me absolutely anything and everything, open brackets, within reason, closed brackets. If you've enjoyed today's show, please tell your friends you've been listening to the Martin Lewis podcast. And why not subscribe and do leave us a review too. Then your pockets and us will be pleased with you. And if you haven't enjoyed it, and you've been listening this long, well, I think you need to go back to basics yourself, don't you really? Why have you kept a podcast on this long if you haven't enjoyed it? You have choice. You have free will. Make an active decision. Shut me up earlier. Now you can't shut me up at all. I'm just going to keep going on and on and on.

• 1:07:41Speaker 06

  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.

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