Topic 1 Continued Flashcards
What was required of payday lenders until April 2014?
had to obtain a licence from the Office of Fair Trading (OFT) and could lose it if found to be lending irresponsibly.
Which organization took over the responsibility for licensing and consumer credit legislation from April 2014?
The Financial Conduct Authority (FCA).
What did the Office of Fair Trading (OFT) investigate in February 2012?
The OFT launched an extensive review of the payday lending sector and investigated whether the top 50 lenders were complying with consumer credit legislation.
What was a key finding of the OFT’s final report in March 2013?
identified concerns such as aggressive debt collection and deep-rooted market problems.
What actions did the OFT take as a result of their findings?
Over 20 payday lenders had their licences taken away or volunteered to give them up, while all 240 lenders were warned to improve their practices or face fines and closures.
What price caps did the FCA announce for payday lenders in November 2014?
An initial cost cap of 0.8% per day, a maximum default fee of £15, and a total cost cap of 100%.
What is the purpose of financial protection products?
To help individuals withstand unexpected changes in income and expenditure, such as those caused by car accidents, illness, or redundancy.
Why is insurance considered important in financial planning?
It helps protect against events that could have a damaging impact on an individual’s finances and prevent long-term financial plans from being ruined
What did the FCA commit to further investigate regarding payday lenders?
Whether payday lenders were making adequate affordability checks on borrowers and understanding the impact of repeat borrowing
Name the 5 different types of insurance
General insurance
Life insurance
Income protection insurance (IPI)
Accident, sickness and unemployment (ASU) insurance
Critical illness cover (CIC)
Herbal insurance is usually short term, this insurance is designed to protect
-Your home (buildings and contents insurance covering loss, damage or theft)\
- Your income (third party loss, damage and theft cover)
- Your health (accident, sickness and unemployment cover; private medical insurance)
- Your holidays (travel insurance to cover cancellation, medical care, injury, cash, etc)
Life insurance
This pays out a sum of money when someone dies, to protect their dependents from the financial consequences of their death. It can be arranged to provide cover for a fixed term
Income protection insurance
Also known as a permanent health insurance, this provides a monthly income to replace salary or wages if you are unable to work as a result of illness or disability
Accident, sickness and unemployment (ASU) insurance
- This pays out income for a limited time (typically up to 12 or 24 months) if you are unable to work due to accident or sickness or if you have lost your job through no fault of your own.
- The cost of ASU is usually lower than IPI because of the limited payout
Critical illness cover (CIC)
a lump sum is paid out to protect you from the financial consequences of suffering an illness such as cancer, stroke, heart attack
What are pensions
is a long term form of investment with tax benefits for investors. People save in pension schemes throughout their working lives so that they will have an income in their retirement
there are several types of pension, including:
• State pension (a government benefit based on the individual’s National Insurance contributions)
• Occupational pensions (for those in employment)
• Personal pension plans (set up by an individual)
• Stakeholder pensions ( a type of personal pension with low costs)
• The National Employment Savings Trust (NEST)
What is NEST and when did it become mandatory for employers?
NEST (National Employment Savings Trust) is a low-cost, trust-based pension scheme that became mandatory for all employers to offer from 1 October 2012. It helps employees and self-employed people save for retirement.
What is required for eligibility for a full state pension?
Eligibility relies on a person’s National Insurance contribution (NIC) record.
Can someone who has been out of the country or in unpaid employment still receive a state pension?
Yes, but they may only be entitled to a reduced rate if they haven’t made sufficient NIC’s.
Why might a full state pension not be enough for some retirees?
The amount paid may not be generous enough, making it difficult for some pensioners to make ends meet
What is recommended for a sustainable personal financial plan for retirement?
Regular monthly payments into an occupational pension or private pension plan, in addition to the state pension.
What must employers do for employees aged 22 and over regarding pensions?
Enrol them into an occupational pension scheme that meets certain minimum standards.
What options do employers have for providing pension schemes?
Employers can use the NEST scheme or set up their own scheme through a pension provider that meets legal standards.
Who else can benefit from private pension plans aside from employees?
Self-employed individuals and those not working can also use private pension plans for additional retirement income
Investments
• People put money into investment products because of their potential to achieve high returns. But the promise of high returns is balanced by the increased risk of losing some or all the money invested.
• An investment usually entails buying an asset which the investor excepts to increase in value over time (capital growth) and/or to be a source of income
Name the 3 main forms of investments for individuals
Shares and bonds
Property
Non financial investments
Shares and bonds
Buying shares in companies is the most common form of financial investment.
Shares and bonds continued
Wealthy investors
Wealthy investors use stock brockers to buy and sell shares in particular companies, but most investors use collective investments products such as unit trusts, investment trusts and open - ended investment companies, often within a tax free ISA ‘wrapper’.
These products can also be used to invest in government bonds and corporate bonds.
Property
Most people buy a house or flat as a home for themselves and if house prices rise each year at a rate higher than that of inflation, the buyer can achieve high capital growth returns
Property continued
Before the credit crunch
the introduction of ‘buy to let mortgages’ encouraged people to buy additional properties purely as investments. The rent received was often sufficient to cover the monthly mortgage repayments, which meant that, while house prices were rising
Non financial investments
Other ways of investing for capital growth are not strictly financial products. These include buying works of art, fine wine, antique furniture, classic cars, stamp or coin collections – any physical asset that might be expected to increase in value over a period of years
What is long term investment?
An effective way of building up a capital sum to ensure a comfortable retirement.
Long term investments typically involve holding assets for several years to benefit from growth.
What must investors be aware of regarding long term investments?
The risks involved with each investment.
Understanding risks is crucial to making informed investment decisions.
How can asset prices behave in the short term?
They can rise and fall dramatically in a matter of days.
This can impact investor decisions and strategies.
What is necessary for investors to benefit from long term growth?
They must be able to leave their money invested.
This allows time for the asset’s value to appreciate.
What should effective long-term planning include as retirement approaches?
Moving money out of high risk investment products and into safer savings accounts or fixed term saving bonds.
This strategy helps to preserve capital as retirement nears.
Fill in the blank: Long term investment is a way to build up a _______.
capital sum.
True or False: Long term investments are risk-free.
False.
All investments carry some degree of risk, especially in the short term.
What significant change did the Welfare Reform Act 2012 bring about regarding the Social Fund?
It largely abolished the Social Fund.
The Act shifted the responsibility to local councils to provide similar support.
After the abolition of the Social Fund, how did the government intend for local councils to assist individuals?
By providing their own grants, loans, and practical assistance using allocated funds.
Local councils have discretion over how to use these funds in their areas.
Fill in the blank: Community Care Grants, Crisis Loans, and Budgeting Loans were available as _______ assistance in emergency situations.
one-off
These loans and grants provided immediate support to individuals in need.
True or False: The Welfare Reform Act 2012 allowed the Social Fund to continue operating without changes.
False
The Act abolished the Social Fund and changed how support is provided.
What major changes to the benefit system occurred in 2013?
Changes were largely driven by austerity measures to cut government debt after the economic recession.
These measures aimed to reform the welfare system and reduce overall benefit expenditure.
What is the ‘benefits cap’?
A maximum limit on the total amount of income that claimants aged 16-64 can receive from benefits.
The cap applies to those of working age, affecting their total benefits.
Since when has the benefits cap been in place?
April 2013.
This was part of broader reforms to the welfare system.
Who is affected by the benefits cap?
Benefit claimants aged 16-64
The cap applies regardless of the number of children in the household.
How does the benefits cap vary?
The cap varies based on the claimant’s household type: single person, couple, or lone parent.
This means different weekly amounts for different household compositions.
What happens to households previously receiving benefits higher than the cap?
Their benefits are reduced to meet the cap.
This adjustment can significantly impact the income of affected households.
Is the benefits cap the same for all regions?
No, the cap is higher for claimants who live in London.
This reflects the higher cost of living in London compared to other regions.
What change occurred to Housing Benefit after 1 April 2013?
Households entitled to Housing Benefit saw their benefit cut if renting larger properties than needed.
How many bedrooms is a property allowed to have for each adult or couple under the new Housing Benefit rules?
One bedroom per adult or couple.
What are the sharing rules for children under the new Housing Benefit regulations?
Up to two children under age 10 must share a bedroom; same-sex children aged 10 to 16 must also share.
What was the common name for the reduction in Housing Benefit related to spare bedrooms?
‘Bedroom tax’.
What type of properties were affected by the changes to Housing Benefit?
Council-owned or housing association properties.
True or False: A couple with two sons or two daughters of the same age living in a three-bedroom house would qualify for full Housing Benefit.
False.
What is Housing Benefit being replaced by?
Universal Credit.
Fill in the blank: The rules allowed a property to have one bedroom for each _______.
[adult or couple].
What is the age limit for children to share a bedroom under the new Housing Benefit rules?
Under the age of 10.
What is the age range for same-sex children that must share a bedroom?
Ages 10 to 16.
What was the government’s term for the reduction in Housing Benefit due to under-occupancy?
‘Spare room subsidy’.
Which benefits does Universal Credit replace?
Universal Credit replaces Income Support, Housing Benefit, Child Tax Credit, Working Tax Credit, income-related Employment and Support Allowance (ESA), and income-based Jobseeker’s Allowance (JSA).
What is MoneyHelper?
A service that provides information and advice on debt, financial literacy, and personal finance in England
MoneyHelper was established to help improve financial literacy following the 2007-08 financial crisis.
What was the purpose of the Financial Services Act 2010?
To improve financial literacy and require the Financial Services Authority to promote consumer financial education
The Act led to the creation of the Consumer Financial Education Body (CFEB).
What was the original name of MoneyHelper?
Money Advice Service (MAS)
MAS was created from the CFEB and was renamed in 2021 to enhance accessibility.
List some of the topics MoneyHelper provides information on.
- Family and care
- Everyday money
- Pensions and retirement
- Benefits
These topics cover a wide range of personal finance areas.
What was a major consequence of financial illiteracy identified after the 2007-08 financial crisis?
Individuals made wrong financial decisions and choices
This highlighted the need for improved financial education.
Fill in the blank: The Consumer Financial Education Body was established by the _______ to promote consumer financial education.
Financial Services Authority (FSA)
The CFEB was created as part of the FSA’s response to improve financial literacy.
What types of advertising does MoneyHelper use to promote its services?
- Television
- Radio
- Newspapers
- Posters
These campaigns aim to raise awareness about financial literacy and available services.
What is one of the main goals of MoneyHelper?
To help people clear their debts and reduce spending
This is part of their broader mission to enhance financial sustainability.
What is the main purpose of MoneyHelper?
To provide information and advice for broad financial decisions.
What types of questions does MoneyHelper aim to answer?
Questions regarding insurance products, mortgages, and pensions.
True or False: MoneyHelper offers detailed financial advice and recommends individual products.
False
Who can offer specific financial advice according to MoneyHelper?
Qualified financial advisers.
What additional support does MoneyHelper provide?
Information and advice for those in financial difficulties.
Fill in the blank: MoneyHelper explains options available to people who build up an ______ amount of debt.
unsustainable
What resources does MoneyHelper provide for those in financial difficulties?
Pages on the website and printed leaflets.
What is a key aspect of the information provided by MoneyHelper?
It helps individuals make informed decisions regarding financial products.
What is Citizens Advice?
A registered national charity providing free, impartial financial advice.
When were the first local Citizens Advice Bureaux (CAB) established?
In 1939, shortly after the outbreak of the Second World War.
What was the primary purpose of establishing the first Citizens Advice Bureaux?
To enable volunteers to offer free, impartial financial advice to people affected by the war.
How many Citizens Advice Bureaux exist today?
More than 250 individual charities at the local level.
What services does Citizens Advice provide?
Advice, education, support, and influencing policies that affect clients.
Approximately how many people does Citizens Advice help each year?
Over 2 million people.
What are the primary funding sources for Citizens Advice?
Government departments, financial services providers, and commercial or charitable organizations.
List some government departments that fund Citizens Advice.
- Department for Business, Energy and Industrial Strategy (BEIS)
- HM Treasury
- Department of Health (DH)
True or False: Citizens Advice only offers assistance via face-to-face consultations.
False.
Fill in the blank: Citizens Advice helps millions of people each year by providing advice, education, and _______.
[support].
What is the online resource for Citizens Advice?
www.citizensadvice.org.uk
How many community locations offer face-to-face assistance through Citizens Advice?
More than 2,500 community locations.
What type of volunteers initially offered assistance at Citizens Advice Bureaux?
Bank or building society branch managers.
