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.