Energy price cap, PPI, pensions and Brexit

Millions of pre-pay energy customers will be protected by an interim price cap from next April, Ofgem announced this morning.

The cap will save ‘vulnerable’ households using pre-pay energy meters about £75 a year, the regulator said. Ofgem said it would also work with suppliers to help ‘disengaged’ customers on ‘expensive standard variable tariffs’ to shop around more. But one energy company boss said the proposals did not go far enough. The managing director of First Utility, Ed Kamm, said: ‘Ofgem itself admits that consumers who are already engaged in the market will see the first benefits. We are in real danger of continuing to fuel a ‘tale of two markets’ – helping those who already shop around and doing little to properly help those who are continuing to pay much more than they need to or should. Talking to the Today programme, Ofgem chief executive Dermot Nolan said that the regulator has decided not to cap standard variable energy tariffs. He told Radio 4 that the Competition and Markets Authority decided that capping standard tariffs ‘wasn’t in the best interests of customers’. Instead, it has proposed ‘a series of remedies’ that he said would make the market fairer and encourage customers to switch energy suppliers. PPI Britain’s biggest banks face a substantial increase in the cost of compensation over payment protection insurance policies after regulators cleared the way to putting in place a deadline on mis-selling claims. Lloyds Banking Group, which has already set aside £16 billion for PPI, could have to put as much as an extra £2 billion into its compensation fund, according to one City analyst. The Times reports that other lenders, such as Barclays and Royal Bank of Scotland, could also have to raise the amount they have provided to cover the cost of payouts. Pensions

Savers must set aside an extra £1,000 a year to keep their pensions on track because investment returns will be far lower over the next 20 years than anyone realises, according to the Daily Mail.

A worrying report by respected consultancy firm McKinsey & Company predicts an end to the ‘golden age’ of bumper returns from the stock market. It will be a severe concern for savers in their 30s, 40s and 50s, many of whom will find they are no longer on track for a decent income in retirement.

In other pensions news, Aegon research finds that the majority (74 per cent) of homeowners would only use their home as a last resort to provide a retirement income or don’t consider their home as a source of retirement income at all. Only 4 per cent of homeowners consider their home as their main source of retirement income.

Steven Cameron, pensions director at Aegon UK, said: ‘Our research shows that people view the value in their home and the funding of their retirement very separately. It’s encouraging that people are not setting out to rely on equity in their home as a silver bullet to solve a lack of pension saving. And with the right planning and saving behaviours it can probably be avoided. However, those who don’t plan ahead and realise too late that their house is by far their most valuable asset, may be forced into making some very difficult decisions.’

Brexit

The UK has a 50/50 chance of falling into recession within the next 18 months following the Brexit vote, says a leading economic forecaster.

The National Institute of Economic and Social Research (NIESR) says the country will go through a ‘marked economic slowdown’ this year and next. It says inflation will also pick up, rising to 3 per cent by the end of next year. ‘This is the short-term economic consequence of the vote to leave the EU’, said Simon Kirby of the NIESR. Meanwhile, The Times reports that retail investors used fears over Brexit to withdraw £3.5 billion from UK managed investment funds in June, dwarfing the worst month in the 2008 financial crisis. Figures from the Investment Association showed equity funds accounted for the majority of the outflow, with £2.8 billion redeemed, while property funds also suffered heavy withdrawals. The balance was made up of £191 million of withdrawals from mixed-asset funds, while fixed-income funds received a net inflow of £258 million, the fourth monthly increase in a row. In the aftermath of the Brexit vote, property funds worth a combined £18 billion suspended withdrawals as investors rushed for the exit.