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I thought it notable there wasn’t more pushback in the comments last weekend, when I cited a growing consensus that something must be done about the pension triple-lock.

A few of you raised thoughtful questions, mostly about what really drove the convergence of pension-age income with that of the rest of the population.

But there were no pitchforks, no curses. No shaking a fist at the unfairness of it all.

With hindsight, this eerie quiet further suggested that most of us can see the pension triple-lock is fair game – unsustainable in its current form.

And sure enough, on Tuesday the Prime Minister pulled the bandaid off.

The triple lock would be tweaked to reduce its long-run cost, Andy Burnham said, and any savings used to fund later life social care.

Triple-topped

As the BBC recaps:

The triple lock was introduced in 2010 by the coalition government and designed to ensure the value of the state pension was not overtaken by the increase in the cost of living or the incomes of working people.

It means the state pension rates rise every April by either inflation, earnings growth or 2.5% – whichever is the highest.

Burnham said this will stay in place until 2030, at which point he would like to “adjust it”.

He said: “The state pension will continue to rise every year at least by prices or 2.5%. And it will hold its value relative to earnings over time so that pensioners will always share in the rising prosperity of the nation.

But this change will generate significant savings which we will use to build up our national care service.

Some may not realise it but older people with nothing more than the state pension, or only a little more, can find themselves paying care charges today from that small income. Under my plan, this will no longer happen.”

On first blush it looks a sensible compromise. I think most people support a reasonable State Pension, if only because we’ll benefit from it ourselves.

But its ‘every way’s a winner’ ratchet made the old triple-lock system increasingly unviable. It’s already forecast to cost around three times as much by the end of the decade as originally expected.

Burnham’s tweak should reset the built-in escalation. According to the IFS:

The new, reformed version of the triple lock still contains three parts.

Inflation, earnings growth and 2.5% are all important.

But the new mechanism means that each year the state pension will instead increase by the maximum of:

• CPI inflation
• 2.5%
• the amount needed to ensure the state pension keeps up with average earnings growth since the introduction of the new policy.

Essentially Burnham is saying enough is enough on the catch-up we saw last week. The new tweak effectively cements the status quo, relative to average earnings, in the long run, while still providing protection against everyday inflation.

Here’s an illustrative scenario:

Source: IFS

Sense and sensibility

At first blush it looks like a good change to me.

The old mechanism was becoming too expensive. This new triple-lock will still protect the real value of the State Pension – and it will still be increasingly costly to fund. But the revised link with average earnings at least ties that cost implicitly to the taxes that will pay for it.

The tweak also seems like a pragmatic one – announced without bombast, a sensible timeline to delivery, and made in the face of some political risk.

Finally, funding social care for the elderly is a huge issue, as anyone who worked through my co-blogger’s deep dive a few years ago knows.

I don’t like the means-testy sounding way that Burnham is pitching his fresh look at the issue. Ideally I’d prefer some kind of paid-in insurance system that meant everyone would get to live in a care home for free in the end if they needed to. This would remove the lottery element to end-of-life planning, making it much easier to save (and spend) accordingly.

But at least it’s a real and weighty problem to tackle, unlike the phoney wars of the past decade.

Obviously it’s too early to declare that UK politics has returned to a reasonable centre ground. But might this too be a tweak in the right direction?

Have a great weekend!

[continue reading…]

All economies are cyclical. But in recent years the UK economy has been like a baroque town clock – one where a cuckoo pops out every 60 minutes, a peasant girl emerges every four hours to chase the geese, and at midnight the clock face spins wildly around before ending up exactly as it started.

Labour conference? Talk about the working majority and GDP growth, while foisting regulation on business and doing little for economic activity except raising salaries in the public sector.

Attention UK investors! Remember our massive broker comparison table? Well, we’ve rolled up our sleeves and updated it again to help you find the best online broker for you.

Vacuuming Buck House with a straw would be more fulfilling. But it would not have produced a quick and easy overview of all the main execution-only investment services.

Investment platforms, stock brokers, call them what you will… we’ve stripped them back to basics for you to eyeball over a cup of cocoa and a handful of your favourite stimulants.

What’s changed with this update?

^{Disclosure: Links to platforms may be affiliate links, where we may earn a commission via a tracking cookie. This article is not personal financial advice. When investing, your capital is at risk and you may get back less than invested. With commission-free brokers other fees may apply. See terms and fees. Past performance doesn’t guarantee future results.}

Not a vast amount of movement, pecking-order-wise. The main players are as you were.

Still, Chip has chipped in with a SIPP, continuing the trend for fintechs to round out their packages with pensions as their user base develops grey whiskers.

Quilter Invest has SIPPed up, too.

In both cases, the choice is restricted to essentially a single multi-asset fund brand.

That’s a pretty good idea in my view, given how analysis paralysis stalls many a budding investor. (Including my twenty-something self).

Who’s the best broker?

It’s impossible to say. There are too many subtle differences in the offers. The UK’s brokers occupy more niches than the mammal family. And while I know which one is best for me, I can’t know which one is right for you.

What we have done is laser focus the comparison onto the most important factor in play: cost.

An execution-only broker is not on this Earth to hold anyone’s hand.

Yes, we want their websites to work. We’d prefer them to not screw us over, go bust, or send us to the seventh circle of call centre hell. These things we take for granted.

So customer service metrics are not included in this table. It’s purely a bare-knuckle contest of brute cost for services rendered.

On that basis  our ‘Good for’ column reads as below.

Commission-free brokers

• InvestEngine, Freetrade*, Lightyear*, Prosper*, Trading 212*, and IG

These are commission-free brokers. It’s always worth looking at a commission-free broker’s ‘How we make money’ page because – rest assured – they will be earning a buck, one way or another.

Just search that topic on their websites.

If you find commission-free brokers unsettling, then stay under the FSCS £85,000 investor compensation limit or use a broker that charges fees directly. You’ll find some very competitive offers in our table.

Prefer paying directly?

ISAs and GIAs

• Scottish Widows

SIPPs

• Vanguard up to around £60K portfolio value
• Interactive Investor* £60K – £100K
• Fidelity* and AJ Bell* £100K+ (ETFs only, not funds)

The best choice for you depends on how often you trade and the value of your accounts, plus your personal priorities around customer service, family accounts, flexible ISAs, multi-currency accounts, and so on.

Our ‘Good for’ choices are cost-based. We assume 12 buy and four sell trades per year. Buy trades use a broker’s regular investing scheme when available.

Using the full table

We divide the major UK brokers into four camps:

• Flat-fee brokers – these charge one price for platform services, regardless of the size of your assets. In other words, they might charge you £100 per year, whether your portfolio is worth £1,000 or £1 million. Generally, if you’ve got a large portfolio then you definitely want to look here. Bear in mind that fixed fee doesn’t mean you won’t also be tapped up for dealing monies and a laundry list of other charges.

• Percentage-fee brokers – this is where the wealthy need to be careful. These guys charge a percentage of your assets, say 0.3% per year. For a portfolio of £1,000 this would amount to a fee of £3 – but on £1 million you’d be paying £3,000. Small investors should generally use percentage-fee brokers. However even surprisingly moderate rollers are better off with fixed fees. Many percentage-fee brokers offer fee caps and tiered charges to limit the damage.

• Commission-free brokers – these upstarts apparently don’t charge you at all. Their marketing departments have it easy, simply pointing to £0 account charges and trading fees costing diddly squat. So why don’t these firms go bankrupt? Because they make up the difference using other methods. Revenue streams can include higher spreads, no interest on cash, and cross-selling more profitable services.

• Trading platforms – brokerages that suit active investors who want to deal mostly in shares and more exotic securities besides. Think of noob-unfriendly sites like Interactive Brokers*, Saxo, and friends.

Our table looks complex. But choosing the right broker needn’t be any more painful than checking it offers the investments you want and running a few numbers on your portfolio.

Help us find the best online broker for all of you

Our table’s ongoing vitality relies on crowd-sourcing.

We review the whole thing roughly every three months. But it can be kept permanently up-to-date if you contact us or leave a comment every time you find an inaccuracy, fresh information, or an investing platform you think should be added.

Thanks to your efforts as much as ours, our broker comparison table has become an invaluable resource for UK investors looking to find the best online broker.

Take it steady,

The Accumulator

*Links marked with an asterisk are affiliate links.