Tariffs, Pensions and Credit Card Debt

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BBC Sounds. Music, radio, podcasts. Hello, welcome to this Moneybox podcast. Official figures for credit card debt hit a new high this month, just a few years since Covid reduced it by a quarter. Is it a sign of financial problems? or financial confidence. And just as people were getting used to state pension age being 66, next April it starts going up again. What will yours be? But first, plunge, plunge, soar. plunge, soar, gentle slope.

Those last six trading days might make you think the London Stock Exchange had moved to Blackpool as the US President announced, then de-announced, changes in the taxes he would impose on goods coming into the USA. except for China. And when the investors who lend the US government money started pulling it out of this once safe haven, that hit the dollar and threatened the whole US economy.

Of course, it was mainly the plunges that led you to email us, worried that thousands of pounds had been wiped from your pensions and investments as the Trump Tower's rollercoaster jolted on. But all rides come to an end, and the normal advice is... Wait it out until your feet are back on solid ground. But what if you're one of the 50,000 people hitting retirement age this month and you've seen the pension you were planning to start using plummet?

Well, advice about that in a moment. But Moneybox's Sarah Rogers survived the ride. Sarah, guide us through this week. Well, Paul, let's not have a full-on economics lesson. I thought it was more of a fairground. Well, it might have felt like that if you were checking.

your accounts daily as many people told us they were as you've just said this is a political story but it definitely impacts our finances what we've seen this week is as a result of those tariffs investors selling off shares in companies that do a lot of importing and exporting. And this is how it played out on the global markets. Donald Trump unveils the details of what he has called Liberation Day. markets in Japan, Hong Kong and China.

Tonight at 10, Donald Trump announces a 90-day pause in most of the tariffs announced only a week ago. US financial markets are on the slide again after yesterday's rally caused by President Trump's decision to pause some of his... punitive tariffs. So stock markets took a tumble as you've just heard and that's where lots of savings and pension fund money is tied up.

And we spoke to Gary, who lost thousands of pounds in just a few days. He was hoping to retire soon, but now might put that off. He told us how he felt about it. Pretty sick, actually. Since... the 2nd of april i have lost 15 000 pounds in seven days so the overall loss in the last three plus weeks has been around 25 000 pounds Every day is still a struggle to meet the bills. I mean, especially with the fact that everything's just gone up this start of this month. Money is very tight.

with the drop-off that we've seen in the last two or three weeks. I don't know if that is going to pick up in the short term or whether or not it's going to take longer. If it doesn't recover to the levels I was hoping it was going to be before the drop off. Yeah, it might be another three or four years before I can access those pots. We'll have sufficient funds into what I thought I was going to get in the first place.

Now, I did get back in touch with Gary to see how he was doing at the end of the working week. Of that total £25,000 loss, he has recouped £5,000, so he's feeling slightly better, but it's still affecting his retirement plans. We know America announced this 90-day pause on those extra tariffs, well, for all but China, and that was just hours after they came into effect. Markets rebounded, then they fell again when China boosted its own tariffs. I mean, will Gary get the rest of his money back?

Well, we have seen some recovery on Friday with gains in New York and London. But what we don't know is what might happen next. Of course, this isn't the first time we've seen economic downturns hit our pockets. We had the Covid pandemic, the LizTrust mini-budget and the...

war in Ukraine, which have all caused major swings in just the past five years. Now, the Pensions and Lifetime Savings Association, who speak for pension companies, warned against knee-jerk reactions. Here's their director of policy, Zoe Alexander. We haven't seen exactly this economic crisis play out before, but we have seen many economic crises play out before. And history tells us the best thing to do is to stay invested and wait for the value of your pot to recover. Don't panic.

Don't take your money out if you can possibly avoid it. Take small amounts of money out if you're close to retirement and just wait for the investment managers who are managing your money to rebuild the value of that pot over time. Well, that, of course, is the standard view. Don't panic. And one we heard on the programme last week, too. And thanks, Sarah, for that guide to that turbulent week. Let's see now what a financial advisor has what she thinks we should be doing. Louise Claro is...

Managing Director of Circle Financial Services and an independent financial advisor. She's in our Salford studio. Louise Claro, quite a week. Easy to say, don't panic, isn't it? But it can be hard to do if you see your lifelong savings melting away.

It really is. I mean, it's been glorious weather out there today and it certainly doesn't feel very glorious for your listeners right now. You're almost compelled to do the opposite that your body is instinctively telling you to do, which is sell, sell, sell. Yeah, so what are your clients saying to you? They must be calling you in numbers, I imagine. Well, of course, I mean...

Panic is probably an understatement for some people. The thing to do, quite literally, is just to hold tight. It is easier said than done, and I think we need to be very careful that there are some listeners out there that will have certain...

contracts like pension funds that may actually start, they may automatically crystallise on a certain date. So it's much easier to say don't do something if your pension is going to come to an automatic end. But there's evasive action that you can take to stop that from happening. And just before you tell us what that is, by crystallise, you mean that the pension fund itself will take the investments out, possibly just at the wrong moment?

Yes, it's not all pension contracts that do that. There are many different types that have been developed over the years. But there are some older style pension funds that if you get to a certain age that you may have elected when you took your pension out when you were, say, only 30.

Let's just say you took the pension date to age 65. At the age of 65 or six months before, you may well get a letter through your door from that provider to say, guess what? Your pension contract's going to come to an end and you actually have to take in a new...

now and you have to take your tax free cash but there is evasive action you can do to stop that from happening so you must contact the pension provider but but can you put it on pause despite that contract you can say hang on a minute this is just the wrong time of course we don't know when it the wrong time do we or whether it will get better but we expect it to can you just give them instructions to override the contract

You can't override a contract that's in writing, but what you can do is, first of all, find out from the provider what the contract terms and conditions are. Each one will be different, so it's impossible for me to say carte blanche that all your listeners are going to have this. situation.

The provider will be able to give you some generic guidance as to whether or not they offer a different type of contract that you may be able to transfer into. And that's called a flexible drawdown. That allows you to effectively pause the... pension pot from crystallising and it allows you to

keep the money still invested, allow you just to take a little bit that you might need just to see you through. It really just allows you to kick the can down the road until we can get out of this rollercoaster situation you described. Now, taking action like that...

It implies you know where your money is and, indeed, you know who the fund managers are. But, of course, a lot of people have pensions that they've been auto-enrolled into. It's all been done through work. They may not even know they've got one or it's been done through their boss. They won't be reaching retirement age yet, but some people might be in that position. What can people do to find out where their money is?

Well, the first thing to do, obviously, is to speak to your employer and ask them for the pension details. One of the things, you should have paperwork relating to any pension contract that you've had over the years. really create a list and contact each pension provider. And you should really do that as a matter of good housekeeping in any event and keep it with your papers.

Yes, that's what people should do, obviously. And I've been asked by people this week, should I cash in my pension as if it's easy to do and put it somewhere safer? But you can't really do that, can you? Well, you can cash all your pension in if you really wanted to, but...

Why would you do that? But you pay tax on it, don't you, most of it? Exactly. That's exactly right. And also you'd be cashing your chips in when the market's down, which is exactly what you should not be doing. So really, you should not be thinking about doing that. What you should be trying to do is...

far as possible is work out what you do need to take as an absolute necessity and try and get yourself into a pension contract if you don't already have one that will allow you just to take a little bit each month or enough to keep you going. till the markets recover, because they will recover. And Louise, just to go back to Gary very briefly, he said he might have to put off retirement. Is he going to see his money come back?

I've been doing this job for over 30 years, and I think the answer I can safely say will be yes. But in the long term, I mean, he's approaching pension aid. Well, and we're on this yo-yo helter-skelter ride at the moment. Listen... We saw the down market in COVID. The market was down. It went down to five and a half, the FTSE did. Even when it came down just recently, last week, it's still over 7,000. So the market is still 30% up from the lowest point at COVID. Louise Claro.

Good thing to think of at the end, Louise Clara of Circle Financials. Thank you. From less than a dollar a week for your first year, read, watch and listen to trusted, independent journalism and storytelling. It all starts with a subscription to bbc.com. Find out more at bbc.com slash unlimited

Now, the amount we owe on our credit cards is higher than the previous record figure, which was reached in the year before the Covid pandemic struck in January 2020. The latest figures show it has now topped £73 billion during the pandemic.

outstanding fell by nearly a quarter in barely a year. But since then, the cost of living crisis, high inflation and rising interest rates, credit card debt now stands at that new record. And with people paying an average of nearly 22% interest on their cards, Seems to me like a nicer learner for the banks. All those figures.

the latest from the Bank of England. But is increased borrowing an indicator of consumer confidence or personal crisis? Our reporter Ima Devlin has been to Bolton to ask shoppers when they use their credit cards. Most purchases, actually, but we always pay the bill every month. I mean, we have some cash for, you know, buying the paper, whatever, but on the whole, we tend to put it on the credit card, anything else. And do you have a debit card?

Yes. So you choose to use the credit card over the debit card? Well, yes, because you don't have to pay as soon, do you? We tend to use it for things we want the protection on. So we're buying like a holiday or we're buying like a hotel or tickets for a concert, things like that. No. because I've got into difficulties before using credit cards in the past. I don't manage them very well. My husband has one in case of emergencies and he manages it really well. Everyday essentials, hotels.

Food, restaurants, stuff like that, shopping. How do you find dealing them with debt? Well, I paid off straight away, so I have no problem. We've used it more recently. We've got a couple of 0% interest credit cards and then used it in that way so we can pay less per month. and then pay it off over say a seven or eight month period rather than having the one-off sum to be able to do ourselves.

Ema talking to some very sensible shoppers in Bolton and listening to that. Alice Hain, she's personal finance analyst from the investment firm Best Invest. Alice Hain, during lockdown, people borrowed less and saved more. Now it's the opposite. So is this just a return to normal life? It's a mix of things. So, I mean, obviously in lockdown, we couldn't spend any money. So people just took the opportunity to rack up their savings and pay off those debts.

Then we were followed up with a cost of living crisis, a cost of borrowing crisis. So people were really struggling to pay their bills. But there did seem to be some kind of light at the end of the tunnel because over the course of last year in 2023, we started to see inflation. easing back and wage growth improving people uh started to see energy prices come down so suddenly they might have been feeling a little bit more flush

Money was stretching that bit further, so they might have felt that they could actually go out and borrow and things that had been put on hold, perhaps they could start spending again. But the situation's changed again.

Yes. Is it confidence, though, to borrow, as you were saying, or is it just having to borrow to pay those essential bills? Well, some people are feeling confident because they've put things on hold. But for other people, they're now looking at awful April. Inflation is creeping back up. We're also estimated to have the highest tax burden since the Second World War. So we've got this situation where people are being...

goes up, they're getting dragged into paying higher rates of tax. And for a lot of people, it can really feel like they're running on the spot. They're not getting anywhere. But of course, as we heard from some of those people in Bolton, using a credit card, assuming you can pay it off every month, is actually quite sensible. because it gives you better consumer protection, doesn't it? Absolutely. So use the right way.

Credit cards can be really useful. They're great for boosting cash flow. They can also give you rewards such as cash back or loyalty points on everyday spending. And you've got this consumer protection. So any purchases between £100 and £30,000. If things go wrong, you know, delivery doesn't turn up, it's faulty, the company you buy from goes bust, then your lender is equally liable and you may be able to reclaim some of that money.

Now, I mentioned interest rates earlier. They have been falling. The bank rate has been falling recently. Why do credit cards have such a high interest rate, nearly 22% on average and even more for new customers? They are high. And I've always felt that they're sort of ridiculously high sometimes. But you have to remember that credit cards are up.

It's an unsecured loan. So unlike a mortgage or a car loan where there's an asset that the lender can use as collateral if the borrower can't make the repayment, with a credit card, it's a loan without any security that the bank doesn't. know what you're going to be spending that money on even with a personal loan you would declare what you're going to be spending it on so there's there's risk but the banks will also

tell you that they need to make a profit. Banks aren't immune to cost pressures either. So for them, it can be a way to make money. Yes, and the UK finance that represents them says there are regulatory costs on them. And also, they do look at the customers. risk profile but some people do get into trouble with credit cards don't they as we hear quite often if people are struggling with an unmanageable credit card debt what should they do?

Well, if it's only a small issue, then there's things that you can do yourself, such as just cutting back your expenditure, looking at your budget and perhaps taking out a 0% credit card as some of the people that you spoke to mentioned.

out of control you really need to take more aggressive action so you need to speak to your lenders first of all don't ignore them the first thing you need to do is speak to them they may be able to put a freeze on interest charges or give you a repayment holiday to kind of get yourself back on track

But you can also get free debt advice. So if you're not comfortable speaking to your lender, you can approach people like Citizens Advice, the National Debt Line, Step Change, Debt Charity, Debt Advice Foundation. There's lots of them. They can step in and liaise.

with your creditors on your behalf, again, may be able to negotiate better repayment terms. But there could also be an affordability complaint. So if the lenders issued credit that you can't really afford to repay, you could perhaps go down that route. Hayne from Best Invest, thank you very much for that advice.

Now, just as we've got used to state pension age being 66, it's about to go up again. A year from now, it will be 66 and one month. And by the 6th of March, 2028, it will have reached 67. The changes affect everyone. born from 6 April 1960. But new research from the Institute for Fiscal Studies suggests one in six of the people who will be affected by that change don't realise their state pension age will be delayed. But do you know when you'll get yours?

Reporter Joe Krasner asked these people in Liverpool. I want to say around about 65. I thought it might be 65, but has it been higher to 68? I don't know. I do think there'll be a safe pension when I retire, but I do think it's going to be 67, 68. 67. Is it? Unless it's just gone up. Okay, so we're going to do a quick quiz. Do you know the age that you receive your state pension? 65. I think it's 67 for me. I'm sticking with 67.

I don't know. I don't know. So yeah, no, I don't know what state pension is. And are you concerned that you don't know? A little bit, but I feel like as I get older, I'll be able to know about it more. Doesn't it depend on what year you were born? Year 65. Okay, do you want to know what the answer is? So there is a rise in the state pension from... 66 to 67, starting in April 26. And that is affecting anyone born after the 6th of April 1960. So...

Are you concerned that you didn't know the state pension age? No, because by the time we get there, there won't be any pension for us. That's why. Well, certainly some confusion there. Chuckling along with me at those answers is Heidi Karielainen. She's senior research economist at the Institute for Fiscal Studies, which did that research. Heidi, what made you want to look at this rise in the state pension age?

Yeah, so the state pension age has already risen. So it used to be 60 for women, 65 for men. It's already risen to 66. And as we heard, it's going to continue to rise next year to 67. know what your state pension age is so for recent retirees the state pension the full amount of the new state pension is about 230 pounds per week so that's almost 12 000 pounds per year so it makes a huge difference to people's

retirement finances. Yeah, so it's important to know. We heard there a lot of confusion. Who does know and who doesn't know? So when we did this research, we looked at which groups are more likely to not know their state pension age or underestimate it. So they think they're going to get their state pension earlier than in reality. And we found that women, people with lower levels of wealth, people with fewer qualifications, and also people who are already out

of work, they were more likely to say, I don't know or underestimate. But these are very people who will need that state pension, aren't they? Well, exactly. Those are the kinds of groups of people who we know are, on average, more likely to be financially vulnerable.

and really rely more on the state pension to fund their retirement. Now, the main controversy, you mentioned women's state pension age rising 66 years for some people. The main complaint was the Department for Work and Pensions didn't inform them properly.

Ombudsman did agree with that. Is the department doing any better now? What are its plans? So the department did write to people, for example, those with the state pension age between 66 and 67. They did write to them 10 years before this change happened. So around 2016 to 2018. Now, of course, some people may not have received these letters or might not have read them. So, you know, there is probably more that the department could be doing. Maybe we can try and send letters. at different ages.

Other components of the pension system, so for example, the private pension providers could probably in their annual communications tell people more about these changes. So there are kind of other things that we could be doing.

That's interesting. You think private pension providers should do that. So as well as saying what your private pension or your company pension is, they should also say, don't forget your pension age will be stuck. That's an interesting idea. Now, the department did tell us we have delivered a clear and effective community.

communication strategy to make people aware of their state pension age they say they have communication campaigns they have digital tools like check your state pension age but all that is a bit proactive isn't it is that enough do you think there should be more done Well, it really, in a way, the department, you know, by sending those letters, by having these campaigns, they're just trying to raise awareness. But there is this aspect of proactivity from people.

But I think it's also really important that, for example, listeners of this program will talk to their friends and family in their 50s and 60s. We just need to make sure that people know that you can't, you can no longer assume that, you know, if my mother's state pension age was 60, that I can also...

I'll still claim my state pension at 60. Yes, I think people do. And it's not just the state pension, is it? There are other things that go along with it that you have to wait for. You have to look for work for another year. You maybe have to work itself, you know. One person tweeted me this morning and said pension age should be 50.

you get to the point where you've had enough with it all. Yeah, so it's not just about the state pension that you receive. You also, at the state pension age, you can start claiming pension credits so you don't have to search for work and so on if you're out of work. So it is really...

It's really an important age. And just tell us, how can people check? I mean, you can check online. How do you do it? So if you just Google check my state pension, you can get a tool that both you can check your state pension age and also a forecast.

for how much you're going to get. And both of those are really important for when you're making decisions and when to retire, how much to save, when to draw down your savings. And they're both on the government website, gov.uk. Heidi Carrier-Linan from the Institute of Fiscal Studies. Thanks. plan change won't be for another 19 years but of course that may also always change. I certainly know what my state pension age is. Long gone and we're nearly gone too for this week.

But Sarah's been watching your emails and messages, Sarah. Yes, Stephen said, my pension fund has dropped by £130,000. It was £580,000. He hoped to draw on it soon as he's 68 in October. That'll have to wait now, he says. And Caroline said last Friday, the amount in my pension was £129,000. She called the pension company to move the money to a lower risk fund days later. But by then it was £120,000. Hoping to access the pension next year, she said.

Hope that you got some good advice from Louise Claro earlier on. Indeed. Thanks, Sarah. So keep those emails coming with questions or comments on any money issue. You can email moneybox at pbc.co.uk or send a message or a voice note, which we love, on WhatsApp 033 06783. We do read them all. You might get on the show.

On Wednesday afternoons, Felicity Hannah's here with Moneybox Live. Next up is the show postponed for the market turmoil. She's looking at the cost of rent in the four million properties that are called affordable or social housing. How much cheaper are they? How do you get it? into one? And if you already have, is your affordable rent actually hard to pay?

The team on this podcast was Ima Devlin, Joe Krasner, Neil Morrow and Craig Henderson. Studio manager, Matthew Dempsey. Our editor was Sarah Rogers. I'm Paul Lewis and this was a BBC News money and work production for BBC Sounds. I'm David Dimbleby, and from the History Podcast and BBC Radio 4, this is Invisible Hands, the story of the free market revolution. The free market isn't solving the problem of homelessness. And the invisible hands.

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