All you need-to-know on prepayment meters and tariffs
Customers who pay for their gas and electricity supply through a prepayment meter often end up paying more on their energy bills compared to those who pay through direct debit. Instead of paying via direct debit or on receipt of a bill, customers who use prepayment meters have their energy supplied to them on a ‘pay as you go’ tariff.
In most cases, customers will make payment via a key, token or a smartcard that can be topped up with credit at a local post office or another convenience store where a PayPoint sign is shown. There are some companies that will offer you the ability to pay through a mobile application or the smart meter itself.
Once your prepayment meter runs out of credit, your energy will be on hold until you have topped up again, this is similar to using a pay as you go top up on a mobile phone.
Aside from the above inconvenience, generally these prepayment meters and tariffs will require customers to pay more for their gas and electricity compared to those paying through other options. Unfortunately, it gets worse, consumers on these meters can often be the most vulnerable and may have been moved over to a prepaid meter due to past financial problems.
The Competition and Markets Authority (CMA) stated in March 2016, that around four million UK households on prepaid meters were generally paying an additional £300 for their energy in comparison to those not using these pay as you go meters. These results were used in the CMA’s provisional decisions into reforming the energy market.
Fortunately, things are improving, UK customers should be able to take advantage of smart meters by 2020 to monitor energy usage. In the meantime, a temporary safeguard price control was proposed in March 2016, this will help to protect those on prepayment meters, and this initiative will endeavour to reduce bills by approximately £300million per year.
Key Points
Aside from prepaid customers being more restricted, it’s important to remember that there are alternative options out there.
You may be able to switch to a different type of meter by contacting your energy supplier. However, this could prove challenging depending on your current circumstances and/or if you’re renting your property.
If you are unable to move away from a prepayment meter in the short to medium term, it’s still a good idea to compare energy. You should still be able to switch to a new tariff and/or supplier and start saving money.
In 2015, the CMA stated that prepayment customers who switched tariffs and/or providers were generally seeing savings between £70 to £120, depending on the supplier. Although customers on alternative meters who switched were saving a lot more, it gives you a general idea that money can still be saved on a pay as you go meter.
When you compare quotes online through an energy comparison site, you will be asked how you normally pay for your energy. ‘Prepayment meter’ is listed as one of the options that you can select.
If this is selected, we’ll show you what suitable options are available for prepayment customers. You should still be given a number of different choices that could help you save money.
It may also be worth looking out for collective switching deals, in addition to reading our helpful guides on how you can save money on your energy bills.
Generally, prepayment meters are installed when the customer who was in the property at the moment of installation has had a bad payment record with the supplier. Now that the ‘pay as you go’ meter requires the customer to pay in advance for their energy, this gives providers a level of protection as they no longer have to worry about non-payment.
The number of customers on prepaid meters has increased from 7% in 1996 to 16% in 2016, according to the CMA. There are a large number of customers who didn’t have a choice in the decisions made to transfer them to a prepayment option, and there are also a number of reports of forced meter installation.
However, in some cases, the property owner will have decided to have a prepayment meter installed. Landlords will often make this decision, and these meters can be found in shared accommodation such as student accommodation. This protects the landlord from being left with unpaid energy bills on a tenant’s departure.
It’s also worth noting that some customers may find a prepayment meter useful to help them with their weekly/monthly budget. This could prevent them from overspending on their energy usage. Although this is a valid reason for opting for prepayment, you will still be paying a lot more for your gas and electricity.
If you wish to switch from a prepayment meter to a credit meter, it’s a relatively straightforward process, but will depend on your current circumstances.
If you’re a homeowner, you should contact your current energy provider to check if switching is a possibility. The decision will partly be influenced by your credit history, as suppliers will conduct a credit check to ensure you can comfortably manage the repayments.
Once you have met the criteria, your supplier will arrange for an engineer to replace the meter. In some cases, the provider may request that you pay an administration fee for the replacement meter.
If you decide not to challenge this fee and end up having to pay it, it’s important to remember that you’re still likely to save more money on your energy bills than you would have to pay for the initial meter installation. Once you have been switched over to a credit meter, it’s highly recommended that you compare energy prices with Utility Saving Expert to see how much more you could be saving.
If you’re a tenant, switching from a prepayment meter over to a credit meter could prove to be more challenging, but it can be done.
Firstly, you should get in touch with your landlord. If the landlord does say ‘no’, you should still be able to switch to an alternative prepayment energy tariff and/or a different supplier.
There are a variety of reasons why prepayment customers end up paying more for their energy usage, reduced competition in the space is one of the main factors.
Almost all prepayment customers are on standard variable tariffs, these are typically the most expensive. Options are far more limited for those on prepayment meters, and this group also contains some of the most vulnerable customers.
Smaller energy providers have made the marketplace more competitive, which has traditionally been dominated by the ‘big six’ suppliers. However, prepayment customers haven’t been a key focus for these smaller firms to target.
According to the CMA, this is due to “actual and perceived higher costs to engage with, and acquire, these customers compared with other customers, and the low prospect of successfully completing the switch of indebted customers (who represent about 15% of prepayment customers)”.
Delivery costs from suppliers to prepaid customers are also higher when compared with other types of meters. A CMA study identified that “the cheapest tariffs that are offered by suppliers to prepayment customers are significantly higher than the cheapest tariffs in the direct debit segments”. They estimated that in March 2016, the differences between the cheapest prepayment and direct debit tariffs are between £260 and £330 each year, depending on which region a customer is located in.
In most cases, prepayment customers are perceived to be less engaged compared to their direct debit paying counterparts. Because of this, they are less likely to switch tariffs or providers. The CMA claimed that there were three main reasons for this lack of engagement:
Firstly, customers faced a number of hurdles accessing switching information, reasons include reduced internet access and reduced confidence in price comparison sites.
Secondly, this group contains a high proportion of customers with a lower income level; lower level of education; living in social rented accommodation; with a disability. The CMA found these demographic characteristics to be associated with the reduced level of engagement in the energy market.
hirdly, the reduced amounts of savings that are actually made when switching and the confusion surrounding this whole process.
For those on prepayment meters, including a large number of the most vulnerable customers in the UK, there are a limited number of options to choose from compared with those on an alternative type of meter.
To summarise, the lack of engagement highlighted above makes it far more challenging for suppliers to be competitive, far more difficult for customers to switch, with far fewer options available. Gas and electricity are both indispensable and expensive for the majority of these four million UK households, especially with their cheapest tariffs costing around £300 more than credit meter customers.
This is why the CMA has proposed a transitional price control which will continue until 2020, allowing customers to take advantage of their measures, in addition to current developments such as the installation of smart meters across homes in the UK.
