Weekend reading: Online financial planning software can shoot wide of an open goal

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• 1 Al Cam July 3, 2020, 4:18 pm

  Reminds me of the 2015 paper: how risky is your retirement income risk model?, see https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2548651
• 2 ermine July 3, 2020, 6:06 pm

  The death of cash seems to be a harbinger of the death of FIRE

  With consumers being much more comfortable now with digital solutions, I think they’ll be more open to things like machine-to-machine payments, like your car independently paying for the parking or for the toll, and 5G applications coming down the line.

  It’s tough enough to stop yourself spending money on tat. Having your Stuff spend money on more Stuff? What on earth could go wrong 😉
• 3 MoneyByChoice July 3, 2020, 6:29 pm

  The confessions of a FIRE skeptic article resonated with me, thanks for sharing. I never really desired the ‘Mustachian’ extreme frugality version. What’s the point of decades of sacrifice, only to arrive at a retirement that’s exactly as frugal? Stopping working early isn’t the goal, just a choice I want to have.

  Being FI, without RE, removes the unhealthy incentive to do a job you otherwise wouldn’t if money wasn’t a factor. Bad news about your employer’s company doesn’t keep you up at night. You don’t need to waste time keeping your CV fresh with trivial online courses and qualifications that recruitment software likes to see.

  Understanding and optimising your money is just a (huge) step on that path.
• 4 Jim July 3, 2020, 8:06 pm

  > Like a vasectomy, it’s a matter of cutting the outflow and redirecting internally.

  Ew.
• 5 xeny July 3, 2020, 9:18 pm

  Does the confessions of a former FIRE skeptic article require a Morningstar subscription, or am I missing a trick?
• 6 NewInvestor July 3, 2020, 9:43 pm

  @Xeny
  Yes, it’s paywalled, so I’m similarly scuppered. Of course, as a frugal-living saver and investor, I won’t be taking out a subscription to Morningstar 🙂
• 7 NewInvestor July 3, 2020, 9:45 pm

  Correction: it seems to have been demoted from the Premium section now.
• 8 Vanguardfan July 3, 2020, 9:45 pm

  Euw! Vasectomy analogy strange choice for a personal finance blog…Freudian slip?!
• 9 ermine July 3, 2020, 11:07 pm

  > the ‘Mustachian’ extreme frugality version

  You can say many things about Pete Adeney a.k.a. MMM but it’s somewhat stretching a point to say he’s ‘extreme frugality’ 😉

  I’d make the case that the writer of the Morningstar article has a serious case of Stockholm syndrome and unchallenged Protestant Work Ethic in being unable to envisage a life well lived without work.

  She’s absolutely on the money on the dirty little secret of the FI/RE movement. To retire early you need to earn seriously above the norm for your region, as well as spend a bit less than your colleagues/peer group. You’re just not gonna do it earning minimum wage, and it’s a really big ask on the median wage.
• 10 MoneyByChoice July 3, 2020, 11:46 pm

  @ermine Fair point! I was thinking of the infamous ‘the shockingly simple math behind early retirement’ approach rather than the man himself. Agree on high income, wish this was discussed more. I might have focused more on getting a higher paying career rather than penny pinching when I was younger 🙂
• 11 The Investor July 4, 2020, 12:18 am

  @NewInvestor @Xeny — I don’t know what’s going on with that article. I could read it this afternoon and now it’s behind a paywall. Perhaps Morningstar’s paywall is some sort of random affair to frustrate you into subscribing?

  I’ve removed it from the links, anyway. Too random for me.

  The gist was the author (Morningstar bigwig Christine Baenz) has talked to more FIRE people recently and they have stressed the FI part of FIRE so she’s more into the idea now, especially seeing how much better people with savings can face the current disruption etc.
• 12 c-strong July 4, 2020, 7:29 am

  The Trustnet article is interesting but the real problem with all those calculators is that it is ridiculous to give a single number for the expected portfolio after ten years’ investing. They should be giving a (wide) range, with some fairly easy to understand explanations (e.g. 80% of results are likely to fall within the range). The volatility of returns over even a ten year period is something I didn’t understand viscerally until I made my own calculator following Lars Kroijer’s YouTube series.
• 13 xxd09 July 4, 2020, 9:32 am

  A touchstone for me early on in my investing career was my wife’s teacher’s pension
  Yearly projections of Teachers final pension were given in those days-mandatory by law
  It was clear that £100000 was needed for £4000 pa index linked at retirement at 65
  (Now the same sum would buy you £3000 pa index linked )
  It gave me an idea of the formidable sums needed for a functional retirement
  Still live in a cottage with no garage
  Comfortable retirement at 57
  xxd09
• 14 Foxy July 4, 2020, 9:38 am

  The death of cash is worrying because it is what will pave the way to really deep negative rates. The current answer to ZX’s usual question “What if rates go to -5%” is that they won’t – physical cash acts as a lower bound constraint on monetary policy. There is only so low that interest on retail deposits can go before everyone keeps cash under the mattress.

  I’ve just written a post about it, Sweden is well on the way of becoming a cash-free society. Currency in circulation stands at just 1% of GDP (pre-COVID, 2017, imagine now). The central bank’s e-krona is under development.

  Imagine in 20 years we say “Oh I remember in my times, kid, I could hold cash for free!”.

  IMF’s 2018 paper: Monetary Policy with Negative Interest Rates: Decoupling Cash from Electronic Money https://www.imf.org/en/Publications/WP/Issues/2018/08/27/Monetary-Policy-with-Negative-Interest-Rates-Decoupling-Cash-from-Electronic-Money-46076

  FIRE-seeking tip: Reading Morningstar articles on the Pocket app makes me forget there’s a paywall sometimes. …oops
• 15 ermine July 4, 2020, 10:02 am

  @TI That Morningstar article still seems on open access to me. It was a great article – it hit a lot of the tropes. The writer opened batting talking about the massed young hordes on Robinhood buying individual stocks and how they will be soaked.

  She may be right, but heck, they are young. The young believe in their own exceptionalism, which is right and the way of the world otherwise it would be bereft of innovation. Telling them to buy VWRL every month for the next 40 years just isn’t going to sing to many of them, they are going to want to shoot for the moon on individual stocks. Heck, I am an old git and I still haven’t convinced myself to get rid of all my individual stocks though they are a smaller part of my portfolio now, even if I know it is the right thing to do. That Alchemy Kindle book probably explains why 😉

  I think you can only disabuse yourself of some bad habits by taking the hammering and learning that doesn’t work. A young(ish) Ermine lost about 7k in the dotcom bust trading this and that, and eventually shifting the greatly diminished proceeds in a collective Virgin FT all-share ISA. Then capitulating in…wait for it… probably 2002.

  I consider that seven grand money very well spent, training cheap at the price compared to what you could pay on courses how to be a great day trader. As Mark Twain said about carrying a cat by its tail, you learn something that you cannot learn in any other way, and it stays with you. Buy rather than sell into bear markets, and do not churn. It carried me out of the workforce and kept the wolf from the door for eight years and counting. But if I hadn’t done the dotcom stuff I’d probably be stacking shelves at Tesco.
• 16 Neverland July 4, 2020, 10:38 am

  … personally I’m a bit more interested in the Institute For Fiscal Studies big new project on how to devise a wealth tax for the UK than whether some click bait article on Morningstar is behind a pay wall or not…

  … someone is going to have to pay now that the uk’s debt to GDP is over 100% again
• 17 Tony Edgecombe July 4, 2020, 11:12 am

  >What’s the point of decades of sacrifice

  I always thought the point was to maintain a decent lifestyle without spending like everybody else. My neighbour’s car provides exactly the same service as ours yet cost four times as much. It wasn’t a sacrifice for me to choose the cheaper option. In fact it was the opposite, the more expensive car would mean more work.
• 18 Jonathan July 4, 2020, 11:18 am

  @Neverland, I agree future tax policy is something to think about (worry about?) just now. Though I don’t think the government necessarily need to rush, at the moment borrowing is so cheap that more is not an issue – until it gets to the point of creating inflation problems.

  Taxing wealth as such seems fraught with difficulty. First estimating it: easy for cash savings and quoted shares, hard for property and unquoted shares such as family businesses. And then paying it, particularly for individuals with high paper wealth (e.g. property) but small cashflow to meet such bills (e.g. pensioners).

  But taxing money taken from wealth seems obvious. Why isn’t tax on income universal, rather than depending on source? At the moment salary income is taxed more than dividend or drawdown income. I am sure it would be complicated to do, but if part of equalising tax rates meant less paid on salary income it might even be politically acceptable – even if the overall tax take ended up higher. Effectively a single rate (or progression of rates) would be applied at the point money was extracted from wealth so it would substitute for capital gains and inheritance tax as well.
• 19 Richard July 4, 2020, 12:03 pm

  Private school article, always like these ‘controversial’ topics. I get if you are wealthy and spending 20k is not really a massive sweat then knock yourself out and give your kids that edge. But if you are making difficult decisions about how best to spend 20k pa on your kids, I do wonder if you would be better saving it for 16 years. Even at a minus 1% return would mean a total of nearly 300k at 21. Thats a house in some parts of the country. How long would most professionals (assume typical level of private educated) take to earn that after tax? And after rent payments? It sounds like active vs passive investing, which I think was the point of the article……

  Of course the reality is the parents will no doubt find other uses for that money so the kids end up with nothing at 21 (and no private school edge). And handing your kids 300k+ is likely to be unhelpful in creating productive members of society.
• 20 Marco July 4, 2020, 12:03 pm

  Dividends and savings income are taxed at the save as earned income are they not (after any allowances used up).
• 21 The Investor July 4, 2020, 12:08 pm

  @ermine — Thanks for the info, I’ve now put it *back in* the links. Either their paywall is leaky, or it is some kind of clever randomly infuriating paywall. (I have a memory from childhood pirated video games that would crash after an hour or so, after seemingly working fine, to elicit similar fury. But perhaps that was really just dodgy cassette tapes! 😉 )

  @Jonathan @Neverland — I’m a bit concerned about this wealth tax talk, which I feel would likely be (clumsily?) applied in such a way that it hit financially independent types who’d forgone consumption for savings right in the family jewels. (Just added that for @Vanguardfan, although they clearly made their vasectomy comment really to subscribe for updates… 😉 ) Going to write about it soon I think.
• 22 old_eyes July 4, 2020, 12:34 pm

  Rich pickings this week.

  On the main article, about variation in predicted pension outcome, the main problem is that insufficient attention is paid to the assumptions. Yes the obvious ones are there; interest rates, growth rate, inflation, but there are lots of other hidden assumptions built into the various models, and that is where problems lie.

  In various jobs working on and advising on business strategy, I spent a remarkable amount of time getting people to surface their key assumptions about the economy, markets, technology and a dozen other issues. If two different companies can feed the same data into their strategy and come up with totally different expectations about the viability of a potential business, it is not surprising that different retirement models spit out different outcomes when fed the same data. Unless we can see all the assumptions and argument, we can’t assess as individuals the reliability of any analysis of the past or prediction of the future. Even then, as has been pointed out, you would not trust a single number. You would want to see a distribution of outcomes.
  As a consumer, I am reassured by the fact that they found so much variation in the answers given. I would be terrified if all the answers were the same because I would know that meant there was no variation in assumptions or approach. If those calculators are all there is to go on, my strategy would be to plug my numbers into as many models as possible, and change as many variables as I can. Somewhere in that sheaf of outcomes is the most probable result. At least that gives me something to think about.

  The finimus article on private education and the comments on it are interesting. The majority of people seem to think that private education is about getting a better education leading to enhanced earnings, and therefore can be substituted by state education plus an investment pot and/or tutoring. To me, this completely misunderstands what parents are investing in. At the top end it is access to the very best universities, a powerful network of like-minded people who will support you through life, and a powerful sense of entitlement and the rightness of your views that will carry you through conflict. Lower down it is the same, but less obvious as the networks and ability to place pupils in the right universities are still there, but not as effective. The education, in the sense of enabling people to achieve their intellectual potential, is far down the list of reasons.

  We do not live in a meritocracy, and probably never have. I have had the pleasure of working with many products of our elite education system, some of them are remarkable people, but the majority I have worked with are shockingly badly educated. Ignorant and prejudiced across many areas of knowledge and in many ways. What they do have is connections and that sense of entitlement that means they cannot be wrong. That leads to the sort of cheap sophistry that is displayed by our Government. We know Cummings broke the lockdown rules, and cabinet ministers arguing that he didn’t under some special reading of the precise words used in one document or speech is simply embarrassing.

  So education, skill and knowledge of the real world are not emphasised in private education as it is not the purpose of the exercise.

  We sent my son to private school after bullying at his state school that was not dealt with. Locally we had a choice of two. One was very proud of its record in Oxbridge entry, but it was very clear from walking around and talking to people that it was a hothouse. They would destroy you and spit you out without a second thought if you could not handle the pressure to conform. Everything to preserve their reputation. That was way to risky for my son who was already fragile. The other school had a rather old-fashioned ethos of educating the whole person and finding out what each individual was capable of. Its philosophy was do-as-you-would-be-done-by, whatever you do do your best ability, and it’s a wonderful world out there full of opportunity. That’s the one we chose and they did him proud. They were demanding, but of individual commitment and growth, not their league table position.

  A few years after he left, the headmaster who made the school such a thrilling place for students to grow and learn was pushed out because the exam results and top university entrance were not high enough. He was replaced by a spectacularly unpleasant Gradgrind of a character (Gove would have loved him) who apparently gave the parents what they wanted.

  Entertainingly, he was in turn forced out for special relations with the female pupils. As my son said when he heard, “we could have told you that would happen!”.

  I have no problem with diversity of educational offerings, but I worry when parents are explicitly setting out to buy power for their offspring and it apparently works.

  Finally, on the wealth tax article. The cynic in me thinks that a Conservative government is unlikely to implement one until the rich and powerful have successfully moved their wealth out of its reach.
• 23 Warren Bogle July 4, 2020, 12:45 pm

  FT Wealth Tax above £750,000

  If this excludes pensions and principal home, it will reduce downsizing (less housing) and make ISAs less attractive. Accountants will have a field day helping the wealthy avoid breaching the limit.
• 24 BeardyBillionaireBloke July 4, 2020, 1:12 pm

  morningstar article says:
  I’ve generally viewed my work as a place a place of friendship, mandatory intellectual stimulation, and purpose.

  But some jobs are a long way from that – you could even conclude that they try to be alienating.
• 25 The Investor July 4, 2020, 1:35 pm

  To those who keep adding comments like “subscribing for followups” or similar, I am going to keep deleting your comments.

  I often delete 1/2 sentence comments, and these are no exception. They lower the tone. 😉

  If you’d like to subscribe to comments, please write a meaningful contribution to the thread. Otherwise please do come back in a day or so to read.

  I know this isn’t ideal and as I’ve said before I will eventually re-implement a ‘subscribe to comments’ button/option, but the last one crashed the site repeatedly and things are (good) hectic at the moment. Apologies for any inconvenience caused.
• 26 Vanguardfan July 4, 2020, 1:40 pm

  Ok here’s my proper comment;-)
  I suspect that the main effect for me of a wealth tax would be to incentivise me to give away more of my money.
  The devil is in the detail though. Superficially it sounds like it might have merit, given the (in my view) imbalance in taxation between earnings from work (especially employment) vs other income and assets.
• 27 MrOptimistic July 4, 2020, 2:01 pm

  Re wealth tax, I’ve mentioned before about the distinction between ‘ earned’ and ‘ unearned’ income introduced by the Labour government in the 60’s and 70’s such that different tax regimes could be applied. So the Shadow Chancellor’s speech touching on this is no great surprise. A tax on dividends would be a dead cert. which would also need a hike in capital gains taxes and the ISA exemption wouldnt hold.
• 28 Richard July 4, 2020, 2:18 pm

  @old eyes – that may be the rationale parents use when deciding to send their children to private school, but does correlation mean causation? Does the poor kid at the school (whose parents are struggling to pay the fees, have no pre-exisiting connections to other parents and who isnt going on the ski trip) likely to build the same network as the rich kids whose parents already know each other and mix in the same circles and not going to the same private school would be a social faux pas? And for me, it is the ‘poor’ kid that needs to justify the use of limited resources in this way to win the game of life.

  Don’t get me wrong, I believe it gives children an edge and in some cases / some careers a significant edge. But if you come out of private peaking at 100k a year doctor are you really better off than the one who comes out peaking as a 50k middle manager with 300k in your pocket on day 1 (i need to do the sums :)) ? Maybe state education carries a higher risk of complete faliure – you had the potential to be a 100k doctor but end up on benefits (spending that 300k in a few years). And this risk is worth paying 20k a year to minimise.
• 29 Richard July 4, 2020, 2:22 pm

  @old eyes – and yes, I would say bullying is a good case for sending private. I am sorry you had to take such action and glad to hear it worked out well for your son!
• 30 ZXSpectrum48k July 4, 2020, 2:33 pm

  Re: the FT tax article “A recent You Gov poll found 61% of the British public supported a wealth tax on individuals with assets worth more than £750,000, excluding pensions and the value of their main home.”

  That’s the problem with wealth taxes nicely summed up. Basically, tax people on their wealth but please exclude the vast majority of the wealth before you implement the tax!

  Property and pensions make up 77% of the UK household wealth. Now, to be fair, a proportion of that property wealth isn’t primary residences but the majority is. Moreover, another 9% of UK wealth is in physical items (cars, art etc) that are hard to tax. So you are left with financial wealth, which is just 14% of total wealth or just £2 trillion. Exclude anything below £750k/person and by the time you finish you have the square root of bugger all.

  Think about it another way. To be in the top 1% of household wealth you need about £3.25mm. Lets double it to get an average (and the tail of super wealthy ain’t going to be paying any tax). About two-thirds of that is primary residence plus pensions. So you are left with £2.15mm per household or £1.4mm after the £750k. Tax them at 1%/annum. Net result about £4bn in tax. Back to square root of bugger all.

  Compare that to £43bn/annum in pension tax relief, £28bn in main property tax relief, £22bn in IHT nil band relief. Or £105bn in personal allowance tax relief and £56bn in tax relief due to NI primary/secondary threshold and lower profits limit.

  Now, I’ve always seen a wealth tax as inevitable. I would even knock 0.5% of my SWR to take account of it … if I used an SWR. I actually wouldn’t mind paying it as long as it was fair but it won’t be because, as we can see above, the ‘great British public’ don’t do fair. Say the wealth tax is 1%/annum and I’ve got £10mm just in financial assets. Say the guy next door has a £5mm house and a £100k/annum DB pension (which is easily worth >£5mm in capitalized value). The British public want me to pay £100k/annum in tax but think he shouldn’t pay a penny. You really think I’m going to pay that tax? Of course I’m not and financial assets are just so easily moved …
• 31 Factor July 4, 2020, 2:51 pm

  @xxdo9 ….. “£100,000 was needed for £4,000 pa index linked …..” “….. now £3,000 …..”
  If it’s of any interest, by way of comparison my total of £80k (pre-C19 valuation) in ISA’d ITs, brings me an annual income of 4k.
• 32 Onedrew July 4, 2020, 3:26 pm

  Factor, that 5% income is pretty good from your £80k ISA and much better than the 2% my gf was offered from a non-indexed annuity last week. How do you raise this amount?
• 33 Matthew July 4, 2020, 4:14 pm

  I would be very resistant to loading a payment card onto my phone, I don’t want to be losing my credit card if I lose my phone, I don’t want to be worried about having no battery and being unable to pay, or dropping it, but I wouldn’t be surprised if plastic ceases to be an option in the future to save on costs (if they judge that it wouldn’t drive people to cash)

  Re wealth tax you’d need a lot of co-operation between different countries, it’d be v difficult to implement or prevent the money escaping the system, unless you assumed everything in a GIA was in breach of the limit (which would be unfair on inheritees under the 750k amount unless you built in bespoke exemptiom for that situation)
  Besides the point a wealth tax would harm the revival of businesses that rely on the markets, it’d push bond money into cash, and it’d undermine London as a financial centre. Also we’re not exactly looking at last resorts for raising cash as a country
• 34 Pendle Witch July 4, 2020, 4:53 pm

  Interesting topics today – thanks, @TI.

  Wealth tax: perusing my June pie chart, we have 41% house and 44% pension. That’s ok – we should be fine, like ZX says 😉

  Private school: in the 80s, I entered university from a northern state school with lots of A grades but little confidence. Private school students seemed to have both. Whizz forward decades and we tried the private school route for our daughter. Lots of A grades but little confidence. I guess you can’t force it, Phoebe.
• 35 xxd09 July 4, 2020, 5:02 pm

  Well done Factor -you chose well .We await the info of how you did it!
  I was just making a general point that investors often do not realise the large sums needed to fund a reasonable retirement
  Equally some public sector employees might feel a little happier if they knew the actual capital value of their “guaranteed “ pensions
  xxd09
• 36 Vanguardfan July 4, 2020, 6:21 pm

  I agree that there are likely better ways of raising revenue that would be simpler, easier and fairer than a wealth tax. Looking at property taxes and at least reviewing/updating the crazy council tax bands would be one. I agree that setting a wealth tax at £750k, and excluding the bulk of most people’s assets, will just end up raising very little and mainly from the wrong people, as the seriously wealthy and sophisticated will most likely find a way to move their wealth out. So some seriously smart thinking needs to be done if it’s to achieve a sensible objectives without some unintended consequences.
  I have to say I don’t think ISAs as a concept will disappear, most (as we saw last week) are relatively low value. The annual allowance is absurdly generous now, so could be trimmed or left alone for a good while, but I think more likely that an overall limit will be applied.
  I don’t however see the point of both ISAs and zero rate bands for interest and dividends. Can’t see the dividend tax rates staying lower than interest either.
• 37 Dragon July 4, 2020, 7:08 pm

  @old_eyes – I think we both have very similar views on private education, in that my understanding of why parents bothered with it was not so much the education per se, but either (a) the “bragging factor” (I can afford to send my kids to ) or (b) as you say, to get them a network of contacts for post-education life.

  Where I think we may possible diverge on our views on private schools is what the end product is. I do agree that they produce a cohort of “hooray henry” types, but the other thing they do is produce a much larger cohort of people with the same world-view and sense of entitlement. I think we’re on the same page up until this point.

  What I then see though, and with apologies to the site hosts whose views on Brexit are very clear, is an “establishment” (government, civil service, quangos, charities, church, large corporates), who have all been through the same (type of) private schools, a PPE at Oxbridge and then just can’t understand why those thick, racist, pleb voters voted for Brexit 🙂

  When you’re always (only) associating with those with the same view (the bubble) it does tend to blinker your views on what it going on in the “real world”, where those who weren’t born or inducted into the chumocracy and merry-go-round of well-remunerated senior positions in the aforementioned organisations have the temerity to hold different world-views.

  No where is this more evident than when you look at the MPs of the (worker’s?) party, Labour. Once you start looking at the details, it’s barrister this, QC that, and private school / private girl’s school the other. Reaching a nadir of irony in Harriet Harman accusing William Hague some years back when he was the leader of the Conservative party of looking after his aristocractic Tory chums and him quipping back that as the niece of the Earl of Longford, she would know all about the posh aristocracy. The expression “bulldog chewing a wasp” described the expression on her face perfectly when having that ball batted back to her. Or more recently, the QC who currently heads the labout party trying to get all his online profiles edited to hide the fact he’s been knighted. Oh yes, the party of the working proletariat…

  Labour MPs organising their affairs or even retrospectively amending their parents wills to reduce inheritance tax are also not isolated incidents and nor are the details of the multiple properties so many of them seem to own, all detailed on their wikipedia entries.

  Or then you have the SNPs Mr. Blackford, a self-confessed “poor crofter”. Assuming, that is, you ignore the rather large wedge he trousered due to his involvement in a telecoms company.

  If this sounds like an anti-wealth rant, it’s not. It’s an anti-hypocrisy rant. It really is passing strange how many of those arguing for ever higher taxes for Joe Public have a big wedge of their own which they’ve made sure has been sheltered from the depredations of the taxman.

  Which leads me on to @ZXSpectrum48k’s comment about Joe Public agreeing “yes, loads more tax on wealth please, as long as you don’t count primary residence and pension as “wealth””.

  Actually, I think that is an entirely rational response from Joe Public, because what it’s really saying is “I do need a certain minimum to live, but I’m happy to pay more on the excess”.

  In other words, yes, there are plenty of property owners who are aristocrats where the mansion has been passed down through the ages, but the reality I suspect for a lot of property owners is that their property is a lot more modest and they’re working stiffs who’ve bought their property over a 20 or 25 year mortgage term, worked hard at a job and paid that mortgage out of a salary which will have been fully taxed all along the way. To then face an arbitrary “wealth” tax on something you’ve spent maybe a quarter of a century working and paying for out of already taxed income, likely scrimping and doing without on the way, is going to seem pretty iniquitous, especially when it’s being proposed by some politician who is so wealthy they might as well be on another planet.

  Same for pensions – many (most) on here are proud of doing without now to ensure a decent standard a living in retirement, so as not to be a burden on the state in old age. It’s the same thing as housing wealth – even if you’re in the “gold plated, final salary public sector”, the reality is that your pension “wealth” has been built up over a long period of time, and depending on contribution level, may well mean you’ve forgone an elementy of salary or the possibility of a higher salary for a benefit at a later date. It’s not like you’ve simply been handed a “huge, unearned wedge” on day 1 of your working life, so again, being hit by a “wealth” tax for 20, 30, 40, more (?) years of working life spent paying into your pension is again going to look pretty darned unfair, especially when being proposed by politicians with a non-contributory, 1/40ths accrual rate final salary pension.

  Anyway, rant over, I’ve probably offended everyone and Accumulator/Investor will probably delete this post for daring to mention the “B” word.
• 38 C July 4, 2020, 8:45 pm

  The issue with the FIRE Morningstar link seems to be skimlinks related. I click on it here, and I end up being redirected via skimlinks to the paywall page. But if I delve into the source code and copy the original direct link to the page on morningstar – I go to the article directly. YMMV.
• 39 Pinch July 4, 2020, 9:22 pm

  FIRE Sceptic on Morningstar

  Maybe go via APEX Money website – https://apexmoney.com/its-the-one-year-anniversary-of-apex-money/
• 40 britinkiwi July 4, 2020, 10:32 pm

  You may not be aware but as well as being the envy of the covid 19 world New Zealand also has a general election in 3 months and the parties are laying out their wares….

  Interestingly (well, maybe) the NZ Green Party are proposing a wealth tax of 1% on net worth over $1M (about 500K sterling) as part of a re-distributive package.

  https://www.greens.org.nz/poverty_action_plan

  It’s been immediately ripped up by the TOP party who have a very rational approach to tax – that is to level the playing field (they did not do well at the last GE though)

  https://www.interest.co.nz/opinion/105837/top-leader-geoff-simmons-rips-greens-wealth-tax-policy-arguing-it-would-be-disastrous

  NZ has a lot of SME and there is significant push back in social media around wealth redistribution with comments I’m sure UK readers would find familiar about bludgers (spongers) and inter-generational ne’er-do-wells. With undercurrents of racism at times too….

  @Dragon – sound and wise words – I’ve tried to re-find a reasoned website with an explanation for the B word that many here find bewildering on previous threads and by the time I do @TI has closed comments so finally (and without wanting to stimulate discussion at all) to help educate us how others may reason – https://medium.com/@timrogers9182/give-me-one-reason-why-you-voted-leave-72055bd04e1b
• 41 Fatbritabroad July 4, 2020, 11:02 pm

  Also seems to work in incognito mode
• 42 Sparschwein July 4, 2020, 11:04 pm

  A thought that links a few topics here – let’s call it Sparschwein’s razor 🙂
  *What benefits the 1% is likely to persist in some form, and one will do well when aligned with such interests.*

  So:
  – UK tax rates are lower for dividends than for employment income, and will probably stay that way. Convert salary into dividends e.g. via a Ltd if possible.
  – Private schools are key to perpetuating class privilege – probably a good investment.
  – A wealth tax looks quite possible, but we’d expect some “conveniently overlooked” loopholes (e.g. wealth in a company or trust likely protected). If/when it comes to it, hopefully a community of rather switched-on folks can work out the loopholes…
• 43 ermine July 5, 2020, 12:29 am

  @C Skimlinks? Presumably if people read this on a mobile phone they have to put up with their stuff preprocessed by scum, but the name alone seems to be a good reason to deep-six the domain. Pihole on your wifi network could be a mobile’s best friend.
• 44 TheIFA July 5, 2020, 7:31 am

  @The Investor
  “Unless you’re very wealthy, such advice will probably just be outsourced to software – albeit someone charming who might spend an hour explaining the system’s output to you, and if you’re fortunate help you with the inputs.

  But it won’t be truly individual advice, typically.”

  I guess it depends on your definition of “very wealthy”, but in my experience, this doesn’t describe a typical financial planning process. It’s most certainly individualised and is therefore time-consuming when done properly.

  https://www.kitces.com/blog/financial-planning-software-user-preferences-efficiency-time-better-faster-comprehensive-depth/
• 45 jim July 5, 2020, 7:32 am

  The dividend situation was recently (last few years) adjusted with regards to ltd. co. Used to be a lot better. I would think there would be push back if gov tried to increase dividend tax as it would effect the group who benefitted the least from the most recent gov bailout measures! Im Ltd only for reasons that income is sporadic (80k one year nothing the next). Didn’t mind in the slightest not receiving a handout but would be pi$$ed if they then tried to hammer me for more tax
• 46 C July 5, 2020, 7:49 am

  Thanks Ermine. I’ll take a look at it.

  On private/public schooling, I somewhat agree with others. You are not just paying for individual attention and hopefully better teachers, but access to the network and, I’m going to call it, confidence rather than entitlement.

  Even the privately educated from a poorer background, inevitably found decent paying summer placement opportunities when I was at university and were first in line for good ones after graduation. All in all, I reckoned that those university peers who were privately schooled were at least a decade ahead of me in mindset and access to opportunities and wealth by that time.

  I was lucky as after a month or so of being unemployed post-university, a friend recommended me for a short term research contract, and then for a longer term one they didn’t want to take up. It was all of the step up I needed.
• 47 Seeking Fire July 5, 2020, 8:20 am

  Wealth tax. feels unlikely. it raises very little money and is a great signal that you are not open for business. which the UK will need to put its best foot forward on. It does feel likely council tax (which could easily become a wealth tax of sorts) could rise substantially. Wealth tax has not been a success in France. Plus we can borrow at or near negative interest rates, income inequality has actually been falling in recent decades and the IEA notes the UK has one of the most progressive tax systems in place.

  Private schools. I commented on finumus excellent article. I went to a third rate one. lucky enough to hit the ball out the park with respect to economic roi. No additional confidence or network (laughing at who my mates are). I’m not a chinless wonder either. Local state schools though were and still are truly shocking, which I find enormously sad and I’m confident I would have not have been where I am if I had gone to one. It’s anecdotal that’s all.

  Larry Swedroe podcast was excellent (thank you). Dividends are not income….4% rule (be v careful in current environment) / you still need bonds for ballast / tap dance your way to work (ok that felt like boll*cks to me or just plain lucky if you do) / longevity (excellent point) – really worth listening to if you haven’t.

  HK Law. Can I suggest that g/f people don’t comment negatively publicly on China and then travel to Hong Kong. I’m being paranoid to make a point (without being totally serious) but think it quite likely someone is detained travelling through at some point and the direction of travel is clear. Thank goodness the UK is finally, after decades, slowly waking up that the 2nd powerful country in the world has ideals that are 180 degrees different to ours. There is a lot of pain to come (I predict without having a clue).

  And do financial planning. Human beings are so guilty of reductionism. “All my friends who are actors went to private schools” so that must mean that private schools was the reason they are actors – not really – it could equally be that their parents were rich enough to fund them continually trying to break into a profession where extremistan (taleb) rules. And because their parents were rich they also paid for them to go to private school.

  In the same way people want to know – ok if I retire in 15 years time, how much money will I have, how much do I need to save and how much can I spend. It’s laughable to try and predict. The honest answer someone can give is, I haven’t a clue. But that doesn’t sell so planners / websites ‘reduce’ everything to a single number because that sells products. Giving a very wide range, caveats and assumptions – for most of the population that would probably cause them to switch off. All you can do is directionally point the ship in the right direction and see what happens. At least by reducing the number I guess it gets you started and thinking about it all, which should a good thing.
• 48 Marco July 5, 2020, 9:04 am

  How about a more structured council tax system like 1000 per year per 100k if property value?

  I think America has more progressive property taxes vs our council tax.
• 49 jim July 5, 2020, 9:21 am

  Council tax definitely needs reform. When my LA reduced refuse collections to fortnightly they made households with 2 or less pay if they wanted to upgrade to a larger bin. Households 3 and over got it free. I contacted them and explained I was actually paying more pro rata for the services and I would not be surprised to see an increase in fly tipping locally.
• 50 TheIFA July 5, 2020, 9:54 am

  @Seeking fire
  “In the same way people want to know – ok if I retire in 15 years time, how much money will I have, how much do I need to save and how much can I spend. It’s laughable to try and predict. The honest answer someone can give is, I haven’t a clue. But that doesn’t sell so planners / websites ‘reduce’ everything to a single number because that sells products. Giving a very wide range, caveats and assumptions – for most of the population that would probably cause them to switch off. All you can do is directionally point the ship in the right direction and see what happens. At least by reducing the number I guess it gets you started and thinking about it all, which should a good thing.”

  Not clear what you mean regarding planners selling products but as you point out, planning is not a one-off exercise and you should periodically revisit your plan to ensure you are still on track and make adjustments if you are not.
  I’m also not sure what you are basing your assumptions on for most of the population switching off but the opposite is true in my experience.
• 51 Richard July 5, 2020, 10:26 am

  Council tax is interesting. The issue is many people will be living close to the limit on their monthly spending. A % could push many over. For example pushed myself as 20 something to buy that 500k flat in London with 1k CT. Now it is going to be 5k? And no doubt I will be in negative equity as the prices drop due to the expense reducing what people can afford. Otherwise you need all sorts of exemptions or local pricing structures. Or you do a stamp duty type structure – under 1m no tax, over 1m 5% of value or something. But then you have a few paying for everyones else. Though fiscal drag will slowly and somehwhat less painfully drag more and more into the net…
• 52 No Free Lunch July 5, 2020, 10:58 am

  ZXSpectrum – but the DB pension holder is paying income tax on the £100k/pa which he can not mitigate unlike employment earnings so he is already paying tax (half at a 40% rate) before any wealth tax is implemented. But I do see your point about the unfairness of the wealth tax between pension annuity holders and, say, DC pension or ISA wealth. Completely ridiculous.

  It is not as if those on public DB pensions have had it hard, they benefited immensely from falling real yields over the last 30 years and all the burden is on the tax payer to fund these liabilities. No thought ever goes into planning by the government having assumed real growth would stay strong and thus tax revenues would be plentiful.

  If you look at the NHS for example, those doctors who started practicing in the 80s/90s have absolutely milked it with their generous DB pension plans (which is now becoming more expensive, as it should). Most are all well into the millions in terms of net worth with much of this wealth as capitalized DB pension plans. What is the current NPV of the NHS DB pension plan currently? £500bn. This represents (but is not part of since it is unfunded), about a third of the UK national debt.

  There is a strong argument to be made that the NHS is seriously a money sucker and for no good reason. How many GP appointments are actually related to a life threatening situation/illness as a proportion of total appointments? I suspect not very much, perhaps less than 20%. The lock-down should be giving decent statistics on how many appointments are absolutely necessary. If you socialize care for life threatening situations and make people pay for non-life threatening ones, such as an injured knee due to a £5k skiing holiday or a painful back after a gym workout, then you can reduce the need for public sector GPs and thus reduce the burden on the taxpayer to fund their generous pension plans which are also fully protected from inflation, inflation which the taxpayers who do not have these DB pensions will have to also be burdened with…

  Having say 80% of appointments as minor health issues, many self inflicted such as skiing, means that GPs on average roughly £100k/pa (including pension benefits) are taking 80% of appointments which require little to no skill that any nurse can easily handle (at a much cheaper rate) and should really just be paid for by the patient. That is a complete waste. Which is why I say that GPs have and are continuing to milk it because 80% of their job is an easy tick box exercise requiring little to no skill at all.
• 53 Factor July 5, 2020, 1:42 pm

  @ Onedrew #32 & xxdo9 #35

  Redundant from a public sector finance job, aged 52 and with the usual stuff, i.e. youngish family and mortgage, my “leaving present” gave me just enough working capital to survive for a year, sink or swim, and I started my own private practice in a tiny, rented, single room, office, in a small market town – just me, a desk and chair and my desktop, and not a single client.

  Deciding that the key to success was going to be not so much technical prowess but “bums through the door”, I made a point of making myself known, visiting each of the bank managers in the town and even the local tax inspector, paid for some advertising, walked the walk around the local small businesses, and slowly began to pick up clients.

  After eight years, working literally seven days a week, for literally every day of the year, I
  had a two room office with a kitchen etc, two permanent staff and a couple of part-time sub-contractors, and over 250 clients, companies, self-employed workers, and private individuals (including a Lottery winner!), and I sold the goodwill of the practice to a larger firm.

  Then, having started paid employment aged sixteen, and with the reasonable if not as good as had once been hoped public sector pension due at age sixty-two and albeit shared on divorce, a life of leisure seemed like a good idea and I considered what to do with the practice sale proceeds.

  Knowing, in all honesty, next to beggar all about investing at the time, but being advised about Monevator by the eldest of my offspring, who is in the know, I read through all the back articles here to get a general idea of the “what and how” for the money burning a hole in my pocket, read a relevant book and then felt confident that investment trusts were the way for me to go, to contribute to the income that I was seeking.

  Ever an individualist, I then decided to ignore the standard advice about the “which”, and instead chose to buy those which were trading at a substantial premium, reasoning rightly or wrongly that they must be “good” if people were prepared to pay over the odds for them.

  And so here I now am, happy as sandboy 🙂 .

  https://www.theguardian.com/notesandqueries/query/0,,-197902,00.html#:~:text=Sandboy%3A%20As%20happy%20as%20a,a%20prime%20source%20of%20sand.
• 54 Factor July 5, 2020, 1:53 pm

  @ #53

  It seems that my link gets fire-walled, so this one is hopefully better!

  https://www.urbandictionary.com/define.php?term=happy%20as%20a%20sand%20boy
• 55 Al Cam July 5, 2020, 4:56 pm

  @ZX:
  Re: “Compare that to £43bn/annum in pension tax relief, £28bn in main property tax relief, £22bn in IHT nil band relief. Or £105bn in personal allowance tax relief and £56bn in tax relief due to NI primary/secondary threshold and lower profits limit.”
  Thanks very much for this info – this is the first time I ever recall seeing all these figures in one place, and I assume they are all per annum?
  Also, is it not the case that some fraction of the reliefs for pensions and NI are clawed back via income tax further down stream?
• 56 Onedrew July 5, 2020, 5:40 pm

  Hi Factor, can you give us a clue about the ITs you have bought to generate 5% income? Thanks
• 57 Factor July 5, 2020, 6:13 pm

  @ Onedrew #56

  Not being an authorised investment adviser, and certainly not claiming any great expertise, I prefer not to go into specifics but I can tell you that each of my ITs covers a different sector of the market, and thus includes a REIT.
• 58 ZXSpectrum48k July 5, 2020, 6:34 pm

  @AlCam. Those numbers are estimates from the HM Treasury for 19/20. I can’t now find that doc (I downloaded the pdf but not the link) but the numbers to 17/18 are here:
  https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/737597/Dec_17_Main_Reliefs_Final.pdf.
  The pension number is the combination of income tax relief to employees and NI tax relief to corps.

  I was bored and at some point decided to work out how many tax reliefs would need to be cut to pay for UBI for every worker at the same level as the state pension (about £270bn would be required). It was surprisingly easy …
• 59 Brod July 5, 2020, 10:12 pm

  @ZX – thanks. Very interesting. I think some low hanging fruit there.

  Property tax is simple. There are 3 bedroom semis in something like 90% of LAs, so you can just compare values across and within LAs. The mythical “poor” little widowed Granny in her £2m house living on the state pension? Roll it up to when the house is sold / transferred plus 1 or 2% p.a. over base rate (to incentivise paying it) and Bob’s your Uncle.
• 60 Richard July 5, 2020, 10:32 pm

  @Brod – I actually think it is the highly leveraged first time buyer who will hurt most from council tax changes. Plus a dramatic increase in those trapped in high interest mortgages as they now fail the affordability checks preventing remortgaging. Though by comparing do you mean you baseline the rates to say the council with the lowest valued housing and apply that to all similar housing in other councils (so if the equivalent £2m house is only 500k in the cheapest council, I only pay tax on 500k valuation). That could protect against too dramatic a change at the lower end of the market (type of property, not price).

  Also, I would expect the cost of services is pretty much the same all over (probably a London premium), so need to make sure some councils are not swimming in cash while others are destitute.
• 61 Simon T July 6, 2020, 7:53 am

  I am actually moving to a country that has a wealth tax. You get main residency exemption (up to a point), but this can be doubled as a couple. Pensions are out of scope. 700k Euro starting point.
  Here is an idea of the rates
  https://www.blevinsfranks.com/news/articles/spain-wealth-tax-rates-and-allowances
  If it came in here, it would crucify the BTL as a pension concept
• 62 Al Cam July 6, 2020, 10:39 am

  @ZX: thanks
  Now if you compare the revenues raised, see, for example, Table c.5 at
  https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/871799/Budget_2020_Web_Accessible_Complete.pdf
  with the reliefs available, some of the issues become apparent.
  For example, alcohol duty, vehicle excise duties (tax disks – as was), capital gains tax, and insurance premium tax (IPT) all individually raise more than inheritance tax (IHT). IPT was first introduced in 1994 at a standard rate of 2.5%, which since risen to 12% – with little, if any, pushback; but on the other hand, IHT is rarely out of the press!
• 63 Andrew July 7, 2020, 4:12 pm

  “Like a vasectomy, it’s a matter of cutting the outflow and redirecting internally”

  Whaaaaat ???. That is an unexpected sentence in a financial block..and factually inaccurate too.
• 64 Tony Edgecombe July 7, 2020, 8:57 pm

  >If it came in here, it would crucify the BTL as a pension concept

  I suspect the public would be OK with that.
• 65 Sparschwein July 7, 2020, 11:34 pm

  @Simon T – good luck with the move. We like Spain too. I’d be interested which pension and ISA providers you chose, to keep full access while abroad?
• 66 Simon T July 8, 2020, 11:46 am

  @Sparschwein
  Everybody but Vanguard allows this.
  I have my funds in ii, my trusts in AJ Bell and a small amount – £30k in HL.
  A number of reasons for the splits. (just in case in drawdown one of wither AJ or ii has payroll problems, HL is there as backup my wife’s small pensions is in HL as well and their admin responses are excellent)
• 67 phil July 8, 2020, 12:27 pm

  @ No Free Lunch no.52

  Your comment just shows that you have absolutely no idea the workload and what GP’s do. Also that out of their salary they have to pay for their own insurances and courses to go on. Your suggestion would result in the US situation where wealthy people have great health care and no worries, and the poor have rubbish to no healthcare and avoid going to the doctor for months and years because they cant afford the bills and their health problem gets worse and more serious till its diagnosed too late and a treatable illness is now fatal or hugely life impairing.
• 68 No Free Lunch July 8, 2020, 1:51 pm

  phil:

  The average GP works 42 hours a week (80% of the time probably going to minor health issues). The EU restricts working hours to 48 hours a week. The exception is partners who are self employed – you have to work long hours given the responsibility if you want the upside like any business.

  You seem to have completely missed the points in my previous post. I said socialize healthcare for life threatening illnesses and, for the rest, let the free market deal with it. It is probably a bit too late though with the NHS liability being equivalent to a third of the national debt.

  Unfunded inflation linked liabilities like DB pensions and state pensions will be one of the main factors in the next crisis. The private sector will not take too kindly to having to bail these out when the time comes (either via inflation of taxes).
• 69 Vanguardfan July 8, 2020, 2:30 pm

  Great idea, we just need a way of determining which symptoms are suggestive of life threatening illness and which are self limiting….maybe some kind of first point of contact to assess which people need referring to hospital specialists…oh, wait…
• 70 Matthew July 8, 2020, 6:45 pm

  Some illnesses are not life threatening, but debilitating, and getting workers repaired as it were has an economic purpose (ie I’m on an expensive new medication that enables me to work – without it I become virtually disabled in pain). I’m thankful to both the private and public sector – my meds would never have been developed without there being a profit motive but also I could never have afforded it without the NHS (at least not for a few years)

  Regarding whether db pensions would cause the next crash – not in of itself as numbers are dwindling but I could imagine stagflation due to all this printing &spending generally working its way through. Luckily there’s nothing I’m aware of like Bretton woods and we do this spending carefully
• 71 Phil July 8, 2020, 6:53 pm

  I can assure you the recorded hours a gp, nurse or doctors in hospitals vs what they actually work bare no resemblance to each other. I have many friends working in all these areas, in charge of rotas etc and the hours they work are insane.
• 72 Matthew July 8, 2020, 10:16 pm

  @phil – what would you say consumes their time most? I always got the feeling that it was:

  Look up notes
  See the patient
  Type up a long wordy report
  (Repeat)

  But I could be wrong. Like solicitors and fund managers a professional job demands a long jargon filled report (why could nobody make a translater for legal wording?!!) – as soon as you reduce it to a box ticking you’re on the road to automation.
  Truth is though that you can’t really be affording to give that level of quality service and report writing to every Tom Dick and Harry

  The shift of more and more tasks to nurses and HCAs, and prescribing power to nurses is surely a good thing, nurses are like the new doctors, doctors are the new consultants for the judgement calls, consultants are the new researchers
• 73 Sparschwein July 11, 2020, 12:47 am

  @Simon T – I’m with AJ Bell for an expat-compatible SIPP.
  Aegon (company scheme), Vanguard, Fidelity and other providers using the Fidelity platform were all a no-go. I think for HL it mattered if EEA or not. Good to know about ii.