Investing and Car Finance Compensation

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And the Financial Conduct Authority lowers the level of compensation for millions of people who were missold alone when they bought a car on finance. But first...

To round off this Investment Week on Moneybox, we look at government plans to get people with cash savings to move them into investments, and not just any old investments. The Chancellor, Rachel Reeves, has set out her plans to encourage people... She laid out her plans during her mansion house.

speech to the City of London back in July, saying that too much emphasis was being put on avoiding risk. Moneybox Live was also in the city earlier this week, where we heard from listeners who wanted to invest but were concerned about doing it. So how will the government's plans to boost share ownership and, it says, make people better off and help the economy actually work?

Lucy Rigby is the Treasury Minister and Minister for the City of London. I asked her why the government is keen to encourage people to invest more. Here in the UK, not many people invest in stocks. We've got the lowest rate of retail investment in the G7. The evidence shows that if you do invest, then you will have the chance of making more money. in a cash ISA in 1999, for example, you'd now have £2,000 as opposed to...

having £4,500 if you put that same £1,000 in a stocks and shares ISA. So that's quite the difference. And that is exactly why we are committed to building that culture of retail investment that the Chancellor's... spoken about it's good for household finances it put more money in people's pockets and it's good for financial resilience as well yeah so those figures assume certain returns on cash ices and on shares even professionals are pulling money out of the stock market now i think

Record 3.6 billion was taken out in the most recent quarter and putting it into safer things like bonds and cash. Why is it a good time for individuals to do exactly the opposite? It's a good time to invest. And Paul, we just spoke about the... Why is it a good time to invest, though? I mean, Jamie Dimon, the JP Morgan boss on Radio 4 this week, warned there was a major correction coming. The evidence shows that...

over time, as I said, that if you put your money into stockion shares, and we're not saying that consumers shouldn't invest in cash at all, we're saying that if you put a certain amount saved up in cash, then you might want to look at investing. And that's why the chances.

announced last year that working with the FCA will be this new scheme, targeted support. And it's also why we're going to be working with the industry and with the FCA on this retail investment campaign, because we want more people to have the opportunity to invest. It's good for household finances and it's good for financial resilience as well. So how will targeted support and also simplified advice, these are these two new ways that financial advisors can talk to people?

or firms can talk to people, how will they work and how will they protect people about the risk? So targeted support to start there. This is going to allow providers to make investing recommendations to people based on people's incomes and their savings habits to make their money go further. So firms will be able to proactively.

suggest appropriate products or courses of action based on information that they hold about consumers and their circumstances. But it's really important, Paul, that the regulatory and the legislative framework around targeted support is going to be really careful So robust consumer protections will remain in place, including the consumer duty. And of course, that requires firms to deliver good outcomes for their customers. So this isn't about reducing protection. It's about enabling.

more people to make informed investment decisions but there are risks aren't there there are risks i mean in 11 out of the last 50 years the stock market has actually fallen in the uk so if you're in that year you've lost money not made it so how will these risk warnings be given so that the consumer duty which means good outcomes for customers is actually in effect

not about reducing consumer protection. So all of the firms that offer targeted support are still going to have to get permissions from the FCA to do that. The consumer duty is going to remain in place which will require firms to deliver those. good outcomes for their customers it's about enabling more people to make those informed decisions if an investment is risky then that will absolutely have to be flagged to a consumer. So it's not about taking away risk.

warnings. It's about enabling providers to say things like, if a provider knows that a certain customer is holding an awful lot of cash, the provider will be able to say, I expect, you know, once these rules have been developed, something along the lines of, you may be holding more cash than you need in your savings account, you could consider opening a stocks and shares ISA and investing £1,000 in this ready-made investment for potentially higher returns.

One of the things the Chancellor wanted was to get money invested by individuals in infrastructure projects, long-term things, innovative start-up businesses. I think she said, these are very risky things, aren't they? If we do have more people investing in UK stocks and in stocks generally, then we will see wider economic benefits that come from that. Now, what we're not saying is that people need to...

invest in UK stocks. We're not making any kind of direction in that regard. The main thing here is that it will put more money in people's pockets. And finally, do you have a dream of a share owning democracy? which Margaret Thatcher set out 40 years ago. Look, I think that allowing more people to become aware of the benefits of investing is a good thing. I think it empowers people. I think it's a good thing to have more people that have a stake in our economy.

I think this is about household incomes and allowing people to become more aware of the benefits of investing. So that's a yes, really, to Margaret Thatcher's dream of a share-owning democracy. You know, much of that agenda was around sort of privatisation. This is different, but the principle is we want to put more money in people's pockets and therefore we want more people to be. aware of the benefits of investing.

Treasury Minister Lucy Rigby. With me in the studio is Charles Randall, former chair of the Financial Conduct Authority. Charles Randall, the minister, very clear about the merits of investing, putting more money in people's pockets. Did she underplay the risks?

Well, Paul, I actually thought it was quite a balanced formulation of the government's policy in this area, perhaps more balanced than we've heard at some times in the past. And it is right that over the short term, investing in stocks and shares... does carry risk, but of course it's an activity that people should undertake for the very long term.

But how worrying are the signs? I mean, you mentioned in the short term it can go up and down, obviously, but how worrying are the current signs? You know, shares in the US and Asia fell sharply overnight on fears about a new China-US trade war. The Bank of England government... and a warning about a correction in global markets, gold at a record high. Is this just the wrong time to start investing in shares in the UK?

Well, of course, if all the experts thought that the market was overvalued, it wouldn't be as high as it is. And certainly experts generally take the view that for retail investors, trying to time the market and decide exactly when to invest is a big mistake. particularly because it leads to activity of buying and selling. And very often retail investors have the habit of buying at the top and selling at the bottom.

So it's a long-term thing. What should people think about, though? If they've got plenty of money in cash, ISIS or some money, what should they think about before they start moving some of it into shares? Well, I think it's really important to recognise that many people...

not only don't have spare cash, they actually have high-cost borrowings which they need to pay off before they do anything else. They also need to build up a really robust rainy day fund so that they can meet life's unexpected expenses. For those people who are lucky enough to have spare money to invest after they've done all of those good things, then it's critical to, first of all, invest in

investments which are really well spread, well diversified and are likely to be less volatile than single stocks or single markets around the world. Secondly, keep those costs down because the best predictor of future investment... returns is whether you're paying too much in costs. And then thirdly, be honest with yourself about your own psychology. Are you the sort of person who can sit it out if the market falls 20% in a year, or will you panic and sell?

Yes, and the Chancellor, though, has been saying she wanted bolder investments and long-term infrastructure, innovative start-ups. Those are by their nature more risky and usually more expensive, aren't they? Yes, and they're certainly not suitable for the average investor unless they are done through a very diversified structure of some sort and then there's the risk that the costs will be high.

There are people with enough money, there are wealthy investors who can make those sort of investments and there are a lot of institutions who can make those sort of investments and some of the money that ordinary people invest in the stock market. will find its way into those things, but it's not something that the average punter should be putting all their money into.

And do you think that the new, well, relatively new consumer duty, which means advisors have to ensure there is a good outcome for customers, is going to be enough, given that we're now going to have these new types of advice, you know, target? Yeah, I think the consumer duty is fundamental to the success of this programme and it's really important that when targeted support is rolled out, the FCA is very hot.

on ensuring that firms comply with the consumer duty and seek to produce good outcomes for their customers. So I think these things go together. If people do take a risk, of course they might take more money, they might not, they might lose money. How aware do you think advisors will make them of that and how that fits in with their aims in life? It's a different matter if you're 25 and if you're 65, isn't it? Exactly. So...

Advisors should have access to the sort of information that enables them to target their support to consumers in a way that fits the likely requirements for those consumers. And you're right. For somebody who's... saving for an expense that's going to fall due in the next couple of years, putting all your money into the stock market is absolutely probably the wrong thing. But if you're 40 and you're looking to build up wealth...

ultimately for your retirement and social care, then you're looking at a 20-year horizon and it may well be the right thing for you. Charles Randall, thanks very much indeed. Hiring isn't just about finding someone willing to take the job. You need the right person with the right background who can move your business forward. If you want candidates who truly match what you're looking for, trust Indeed Sponsored Jobs.

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Now, we always say the best time to start a pension is as young as possible. And thousands of parents and grandparents are taking that very seriously by opening a pension for their children, even from the day they're born, paying into it each year.

show 45,000 people under 18 have had a pension fund opened for them. Not only will it grow for 50 years or more, but every payment in comes with a big bonus from the government. Dan Whitworth's been looking into this and joined us from our Salford studio. Dan, tell us more. So this data comes direct from His Majesty's Revenue and Customs, HMRC, and covers what are known as Junior Sips.

Now that stands for self-invested personal pensions or private pensions for under 18s. And those numbers show, as you say, that in the financial year 2022 to 23, 45,000 children had nearly £80 million put into pensions for them. And that's up 15% from the two years before. Ian Beeston from Derbyshire is one of those who invested money for his now grown-up children as soon as Junior Sips were launched in 2011. Who knows what the next several decades will hold for pensions? And I thought...

Regardless of what would happen to them in the future, this would be a fantastic start because I really understand the power of compound interest. And I also understood the benefit of starting young. me and their mum we we also kind of like the idea of you know maybe when they're 55 56 57 that they would get a you know a lovely warm feeling thinking that

you know, their parents had provided for them and were helping them in their retirement. And Dan, listeners might be surprised to learn at all that you can even do this. I mean, Ian talked there about compound interest, but these juniorships also get tax relief even though the child...

Pays no tax. Yeah, and Ian described it to me as like getting almost three types of investments. So the money that parents might put in, and that's up to a maximum of £2,880 each year. Then, secondly, there's 20% tax relief from the government. Well, that brings the total to 3,600. Then there's compound interest over the years. So as the investment grows, you get interest on that interest. Now invest early and that can really add up. Here's Ian again.

for each of my children i invested the maximum amount which i think was 2880 that also got tax relief and so the total amount was around It was actually £3,600 a year each. I built that up over several years. And then when they were 18, it then became their asset and they took control of it and are investing it in according with their own.

ideas now but it's not just children who benefit by moving money out of their income or savings into a pension so long as parents or grandparents live seven years or more All the money is part of regular spending. It's not subject to inheritance tax. And that's something a lot of people are thinking about ahead of rule changes due in April 2027, when private pension pots become subject to inheritance tax for the...

first time. Moneybox listener Bob recently put several thousand pounds into a junior sip for his daughter. It will have some benefits during her working life as well because she can potentially reduce the amount of payments she makes over her working life or she could take.

sort of payment holidays from her contribution to a pension. When she's got other financial priorities, like maybe saving for a house or something, another benefit is the fact that she's going to get transferred money to her for inheritance purposes as well. So she'll get benefit from this well after we've gone.

That was Bob ending Dan's report. Listening to all that is Gherkin Barron. She's a chartered financial planner with Lubbock Fine Wealth Management. Gherkin Barron, does this growth in the number of pensions for children surprise you? No, in short, it doesn't surprise me at all. And I think the main reason is that people are a lot more conscious and aware of the power of that compounding interest that we alluded to earlier.

And also with the increases in inheritance tax, more and more people are being caught by it. So therefore families are looking for different ways in which they can pass on wealth. future generations.

Yes, and just explain in detail those rules because there are limits on what you can give without it counting towards inheritance tax. If it's from your normal income, that's okay. If it's less than £3,000 a year, just explain those rules to us. That's correct. So any individual can gift up to £3,000 a year, which will be exempt from inheritance tax from day one. That's the total, though. It's not per person, is it? It's the total amount.

It's the total amount that a single person could gift to anybody. And then the gifting from income, how does that work? So as long as the gifts are being made out of regular income and the gift after it's been made, it doesn't reduce what we call the quality of life of the person that's making. a gift, it's also exempt from inheritance tax from day one as well.

Could it be a bit annoying, though, for the children? Because, you know, they're in their 30s, they want to buy a house, there's all this money in a pension fund, they can't touch it for 25 or 30 more years. Is that going to be a bit frustrating for them? I think it can be quite frustrating, you're right, because as you said, it's not going to be accessible until they're at least 57 years of age.

It means that they can't spend it on, for example, getting on the property ladder or anything like that. Having said that, on the other side is that... By contributing into a pension from such an early age means that they've got such a long investment horizon, which means that they effectively save for their retirement.

from such an early age. And briefly, people who are listening or interested in this are surprised by it maybe. How can they find out more, maybe even start one for their own children? What do they do first, briefly? The parent or the legal guardian will need to set up a pension online, so they could just Google and go to... any pension provider. Okay. And once the account is live, anybody could contribute into it. Gherkin Barron from Lubbock. Fine. Thanks very much.

Now, the buyers of 14 million cars and vans on finance between April 2007 and November last year were deceived or misled about the commission paid to the dealer or the interest rate which they had to pay. Now, that estimate came from the Financial Conduct Authority this week when it set out details of a plan to compensate them. The average payout will be, it says, around £700 for each deal. That's rather less than the £950 it suggested just a few months ago.

And the cost of the banks and lenders will be £11 billion in compensation and administration. And that again is near the bottom end of the £9 to £18 billion, which it estimated in August. This is what the FCA chief executive... Nikhil Rathi had to say about how lenders had behaved. People were not told important details. Firms broke our rules and the law and it's time that...

consumers are fairly compensated. The Supreme Court came up with a judgment in August. We've moved really quickly after that to get these details in place.

We're live now to Alex Neal. She's co-founder of the consumer advice service Consumer Voice. Alex Neal, let's just start briefly with who can get this redress. I mean, some of these deals go back many years, don't they? They do. And like you said, it's finance agreements taken out between the 6th of April 2007 and the 1st of November 2024, where commission was payable by the lender to the broker. Now, so it's not all agreements. There were 32 million.

that period and again the fca have said only 44 of those meet the criteria the additional criteria is that you'd receive compensation if you weren't told so that's the key you must not have been told about this commission if you were you're not included

But it needs to be one of three types of arrangements, at least, where the broker sold the loan to the consumer. So it needs to be a discretionary commission arrangement. And what that means is where the broker was allowed to adjust your interest rate. mostly upwards, in order to get more commission for themselves, or whether it's what they call a really high commission arrangement. Now, the FCA is sort of defining that as...

35% of the total cost of credit or 10% of the whole loan. And then the final one is where there's a contractual arrangement or I guess really better explained as a tie. So where there's an exclusive deal between a lender and a dealer. You weren't told about that.

Now, the FCA has devised a rather complicated calculation for the redress, which it admits is less than the £950 average it estimates people would get if it had just followed that Supreme Court ruling. Why is it going to give people... less than it could have done.

Well, I mean, the lenders should be very pleased with, I guess, where the FCA are coming out at the moment, because they have, as you say, not gone with refunding the whole commission plus the 8% interest, which you would get if you went to the courts. come up with a calculation that blends um the absolute loss so again the fca have defined that as being um you know what your interest rate would have been

plus the sort of market adjusted rate, the difference there, and then the commission and dividing them by two. So they're calling it a hybrid scheme. Now, it's good in one way because it's not as low as they could have gone. They could have... stuck to what regulators typically do which is a loss-based system where they are looking purely at saying okay well you paid a bit more because of this practice but

What they've got to do is balance the fact that millions of people are actually already signed up with law firms and they're already thinking about going to court. And the court system looks at it differently and looks at fairness. And as a result, the compensation that you can get if you went to court is higher and it will still be.

hire under this proposed scheme. So the FCA is saying if you've gone to one of these companies that offers to help you claim, you shouldn't really have done that. But you're saying that if it's a lawyer and you go to court, you might actually get more.

Yeah, absolutely. And the FCA do admit that as well. I think what they're trying to do now is to say to people going forwards, they think that the difference means that... you know would you do you want the hassle and what they're trying to promote is the simplicity of using the scheme now for many people that's going to be absolutely fine but i think you know what consumers need to understand is that they do have a choice and they need to see this final scheme because of course

moment, obviously, Paul, people like myself will be looking to push up that number and the lenders will be looking to drag it down. So we've got to see where it settles. But, you know, people do have the choice to think about that. Indeed. And Alex, I'm going to ask you in a word. John has had, he says, six of these. Absolutely.

One word, brilliant. Alex Neal from Consumer Voice. Thanks. That consultation closes on the 18th of November and we expect final details of the scheme, the redress scheme, to be announced early next year. Redress. Talking of redress, Moneybox is always getting its red dress on on the podcast. So never miss a show. And if you haven't subscribed already, do that now so you don't miss one. And you'll also get Moneybox Live. Next up on that, Felicity Hanna will...

We'll be looking at apprenticeships, how to get one, how to manage the money. Now, you can help set our agenda by emailing moneybox at bbc.co.uk or sending a message or a voice note, which we love, of course, on WhatsApp 033 06. We do read and listen to them all. You might get on the show. manager was Ethan Connolly Forster. Our editor is Jess Quayle. I'm Paul Lewis and this was a BBC News money and work production for BBC Sounds.

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