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A few years ago, my co-blogger The Accumulator argued that fears for the future of the state pension were overblown, writing:
Governments stay in power by racking up achievement points with their supporters, neglecting those they cannot court, winning the spin wars, avoiding catastrophe, appearing more credible than the opposition, and kicking the really toxic cans down the road.
Your pension is protected by that political nutshell.
Perhaps it’s because they’ve grown up in an era of almost continual political upheaval, but Gen Z is not so sure. When you’ve seen your birthrights and much of your prosperity chucked overboard for a handful of famously hard-to-find magic beans, watched six UK prime ministers fall in a decade, and witnessed a cage fight held on the lawn of the White House, your political nutshells no doubt crack different.
In his early 20s, Joel tells the BBC this week that:
“I don’t believe that I’ll be a recipient of a state pension. I know a lot of people my age don’t think they’re going to be… There just won’t be enough money.”
Meanwhile 27-year old Conor rightly noted that “the goal posts keep moving”, adding:
“At the minute I’ll be 68 by the time I can retire, but I do think I’ll be probably closer to 75, if I’m honest.”
The BBC article is an unusually deep dive into how state pensions are seen by those still half a century from – potentially – receiving them.
Never mind the bollocks
We hear far more often from older generations about pensions – typically in uproar when, for instance, the sustainability of the triple-lock on state pensions is even questioned.
Meanwhile Gen Z quietly suspects that it will have to foot the bill.
It’s easy to scoff when a 20-something says they’ll invest in crypto instead of a workplace pension. But there’s a sort of everyday nihilism revealed here, too.
I’m from Generation X, the famously fatalistic mini-generation of slackers that (at the margin) worked McJobs – at least until the 1990s tech boom got going and we too got religion about capitalism.
Until then, those of us who thought about it suspected we’d be left behind.
But looking back – not least from the other side of a two-decade long house price boom that took homes from a doable three-times income to a bonkers ten-times-plus – our economic concerns seem modest.
And at least the doomed youth of the late 1970s had the Sex Pistols making headlines for them.
Gen Z turns to ChatGPT for comfort. And we all know it’s coming for their jobs, too.
Have a great weekend.
From Monevator
Help! My passive fund is aggressively tech focussed – Monevator
The Living Is Yield-y model portfolio: one year update – Monevator [Moguls]
From the archive-ator: Can dogs and FIRE go together? – Monevator
News
Britons see sharpest drop in wealth of any developed nation since pandemic – T.I.M.
Halifax brand to be scrapped after 173 years – BBC
Interest rate cut ‘off the table for now’ says BOE’s Bailey – This Is Money
‘Sh*tloads to come’: London takeover spree set to accelerate – City AM
Three in five homes listed in January have failed to sell… – This Is Money
…as UK house prices stall for second straight month – Guardian
How scam refund rules are reducing fraud – Which
Motorists face further delays to £9.1bn car finance refunds – This Is Money
NHS to reward people who walk 30 minutes a day – BBC
Hedge funds BlueCrest loses £200m tax battle with HMRC – Reuters
Bubbles or regime-shifting in gold and Bitcoin? [Log scale] – Econbrowser
Products and services
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Hargreaves Lansdown launches table-topping 4.5% cash ISA – This Is Money
The cheapest ways to get Wimbledon tickets – Be Clever With Your Cash
Get up to £1,500 cashback when you transfer your cash and/or investments to Charles Stanley Direct through this affiliate link. Terms apply – Charles Stanley
Co-Op Bank slashes fees on spending abroad – This Is Money
Santander switch offer: £180 and a £45 Amazon gift card – B.C.W.Y.C.
The cheapest mortgage lenders in June – Which
Get up to £200 cashback when you open an Interactive Investor SIPP. Terms and fees apply, affiliate link – Interactive Investor
Chip shortages set to push up prices for electronic devices – This Is Money
Does marriage affect your home insurance bill? – Which
Homes for sale with kitchens that open on to gardens, in pictures – Guardian
Comment and opinion
Should a fund manager invest their own money differently? – Behavioural Investment
“We had packed lunches every day for 10 years and retired at 40” – BBC
Chauffeur knowledge – A Wealth of Common Sense
The ins and outs of withdrawing a pension early – Be Clever With Your Cash
The cost of status – Young Money
Alternatives in a portfolio: Role, risk, and realism explained – Vanguard
Retirees need a plan ahead of a potential lost decade – Morningstar
Is $5m in Treasury bills enough to be set for life? – Of Dollars and Data
A dirty dozen – Quietly Saving
Managed futures ‘crisis alpha’ is compelling – Tax Alpha Insider
Wall Street is becoming crypto – All Star Charts
Another AI maybe-bubble mini-special
Yes, this market is all about AI stocks… – Morningstar
…and what history tells us about the AI boom – FA Mag
Scottish Mortgage: Tech run can continue with ‘unreasonable prices’ – Trustnet
Naughty corner: Active antics
Don’t quit drinking, don’t quit value investing – Lee Roach via X
When information is no longer the edge – Enterprising Investor
The case for value over growth is building – Apollo
When PE firms borrow to fund ‘skin in the game’ – PitchBook
Social media causes coincident bubbles across different assets [Research] – SSRN
Embracing business failure mini-special
Failure as a competitive advantage – Investment Masterclass
Winning a game of failure – Vixology
Kindle book bargains
The Trading Game by Gary Stevenson – £0.99 on Kindle
Alchemy by Rory Sutherland – £0.99 on Kindle
What’s Your Dream? by Simon Squibb – £0.99 on Kindle
How to Have an Epic Retirement by Bec Wilson – £0.99 on Kindle
Or pick up one of the all-time great investing classics – Monevator shop
Environmental factors
Are crows really our friends? – Audubon
The corals that shouldn’t exist – Biographic
Lundy Island seabird population soars after rat removal – Independent
Robot overlord roundup
We need a way to prove personhood online – Noema
Ford rehires human engineers after AI fails to match quality checks – BBC
Meta joins SpaceX in selling spare compute – Semafor
AI slop is starting to overwhelm engagement platforms – Bloomberg via MSN
Not everyone is happy to see delivery robots in the UK – BBC
Stiffed twice by the AI bubble – Simple Living in Suffolk
Gen AI creates delicious, sustainable, and nutritious burgers [Research] – Nature
Heavy AI adoption linked to more hiring, new study shows – Big Technology
Not at the dinner table
New ‘No 10 North’ plan will rebalance power in Britain, says Andy Burnham – BBC
Burnham also promises to ease cost of living pressures – Guardian
The wheels are coming off Putin’s war – The Bulwark
Trump’s financial disclosures reveal $1.4 billion in crypto earnings… – NBC
…but the White House sees no conflict of interest – Citation Needed
Florida is executing prisoners at a record pace – ProPublica
Off our beat
The surprising power of simple predictions – Tim Harford
Rips, a ghastly new digital Pokémon gambling game [Clue is in the name?] – Wired
How Amsterdam invented the fire department – Works in Progress
A beginner’s guide to cooking with beans – Guardian
Why Scotland is no longer ‘the murder capital of Europe’ – BBC
A super yacht armada left a marine graveyard in Miami – Bloomberg via MSN
Communion by JD Vance review: a strange, poignant book – Guardian
Couple turn mid-terrace garden into a tropical jungle with poisonous plants – BBC
And finally…
“As you gain more wealth, money solves fewer and fewer of your problems.”
– Nick Maggiulli, The Wealth Ladder
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It’s not just Gen Z, though perhaps they have more reason to be fearful. I didn’t believe that the SP would be there (and some part of me still doesn’t quite believe it, as in it could be means tested, explicitly or functionally through the tax system). It didn’t form part of my FI/RE planning at 52, and I have been retired for over a decade. That pessimism probably served me ill, because I felt more skint and probably underspent
So while I take TA’s point, there is a hidden assumption there, which is that Britain remains a democracy, at least in name, so his presumptions hold. I am not so sure about that now, particularly what happened in the US. Happy Independence day BTW good people of America, remember that freedom requires eternal vigilance, it’s not the British King that is your problem now.
Although the expectation would be of a rich fossil to become our future Führer, it is possible that an idealistic green rabble-rouser could take the crown. In the sleep of reason, monsters appear.
As a pensioner, I cannot understand the baseline 2.5% lift.
Keeping the pension inline with average earnings growth or CPI inflation is enough, surely? Why do we receive a 2.5% boost?
A double lock is all that was ever needed IMO.
So I did some pension modelling a while back plotting what income streams kick in as a function of time, and how they stack up. It was quite illuminating, I’m really glad I did it, but possibly the key insight was just how big a part the SP played. It’s massive! So I think the corollary of that is if it gets scrapped then it’s going to cause a huge amount of pain to the country. But I agree that the push to the right of the qualifying age looks similar to just canning it. If it did go to 75 say, then it’s really into diminishing returns territory, average payout 3.6 years. A counter insight was looking into the value of additional qualifying SP years, trying to assess whether OMY was justified in this respect. Came to the conclusion it wasn’t. So to summarise, SP good, additional years bad.
@Barm
The triple lock dates back to when inflation more closely averaged 2%. I’d hypothesise the intent was inflation ~2%, earnings growth say ~2.5% (.5% productivity increase seems a reasonable aspiration), and they threw the baseline 2.5% in there in the expectation it would occasionally increase the pension above wages/inflation and it was felt the state pension was inadequate, that seemed fine.
I don’t think the originators anticipated it becoming an untouchable policy, more that it would exist until the pension was less inadequate and then be revisited.
To me as big an issue is the inflation and average wages increase, as they often average about the same, but tend to be out of phase, so you get say 3% inflation one year, harder pay bargaining the next so average wages go up by ~3% but inflation has fallen and so forth.
Linkage to average wages (along with MP salaries etc) seems fairer long term, and similarly MP salaries should be multiples of average take home pay, to concentrate their minds on the the proletariat’s experience.
@Barm – general consensus is that it was needed to ratchet the SP up from a ‘too low ‘ level, but once it hits its target then that element should be dropped and revert to just inflation or earnings indexing.
Imho they should replace the 15% Employer NI with a 15% mandatory employer contribution to your workplace pension, and then freeze all State Pension accrual where it is today, just up ticking what you’ve accrued already by inflation.
This would give us a great opportunity to scrap all NI and increase income taxes (including dividend tax, and CGT) so that the whole system favours work more.
Because right now work is the most heavily punished way to earn.
Next step: introduce a worldwide tax on British citizens like the Americans do. No more fleeing abroad to avoid paying your dues. Tax treaties can take care of the injustices
“launches table-topping 4.5% cash ISA”
HL & This is Money [now?] show it as 4.3%
(I’m neither clever nor erudite enough to post ‘properly’, so am limited to nit-picking, for now.)
Perhaps we could start by following the Norwegian state pension fund model, taking the tax revenue from hydrocarbon extraction and investing it in a ring fenced account. Since 1999 their scheme has grown to a value of $2.2 T with average annual growth of 6.6%. It would, of course, mean that extraction would need to resume at pace, but I think there is only one voice arguing against that policy.
£2.2T at a 4% SWR would cover about 2/3rds of the annual pension bill.