≡ Menu

Weekend reading: The LTA is really dead

Our Weekend Reading logo

What caught my eye this week.

The best news this week from the election dog and pony show is that Labour will not reinstate the recently-scrapped Lifetime Allowance for Pensions (LTA).

According to the BBC:

Labour has dropped a plan to reintroduce a cap on how much people are allowed to save into their pensions before paying tax.

Under the pensions lifetime allowance, pension pots over £1.07m faced an annual tax of £40,000 on average.

The cap was scrapped in April but Shadow chancellor Rachel Reeves had vowed to bring it back, saying it could raise £800m a year.

However, her party has now reversed the decision ahead of the release of its manifesto on Thursday, reportedly because the cap would add uncertainty for savers and be complex to reintroduce.

Of course the BBC momentarily gets the LTA wrong – it’s not a cap on savings made, but rather on the total size of your pot before additional taxation kicks in – but that’s all in the rich tradition of confusion about this cursed legislation.

A lifetime of muddle

When Chancellor Jeremy Hunt first announced he’d abolish the LTA from April 2024, Reeves called it: “the wrong priority, at the wrong time, for the wrong people”.

But the LTA itself was a cumbersome shape-shifting bundle of contradictions, which surely did the pension regime more harm than anything it sort to redress.

Even in death it’s a pain in the arse. Last month the FT reported thousands of investors with large pension pots were in limbo due to sloppy legislation:

Though the Conservatives scrapped the lifetime allowance in April, errors in the legislation affected people who relied on the enhanced protection arrangements giving them the right to take out more than £375,000 in tax free lump sums.

In April, HMRC advised those savers to consider delaying their retirement plans until the rules were corrected.

Fortunately Labour now says it won’t add to this confusion.

A welcome dose of common sense which we could do with by the truckload after the fantasy politics of the past eight years.

Seven-figure sticker shock

Indeed, it’d be nice to think Labour’s change of heart marks a new era of pension stability.

But I wouldn’t bet the farm.

Many Labour supporters will still take umbrage at the seven-figure pension pots being ‘favoured’ by the scrapping of the LTA. They won’t think too hard about what size of pots would be required to deliver some of the public sector’s defined benefit pensions either.

So something may yet be done in the quest for ‘fairness’.

In reality, pension income is taxed. Those enjoying a very large pension income – whether from the private sector or the state – will be paying higher rates of tax anyway.

Possibly enough to neuter much of the tax deferral benefit of pensions.

Death is not the end

Where I do find the pension regime too generous is in pensions’ transformation into a vehicle for bypassing inheritance taxes.

Those who die before they reach 75 can pass on a pension free of income tax for beneficiaries. The latter can be heirs who did nothing to earn that money. And here I deploy my usual argument that I’d rather tax them than working people.

With all parties promising us wonderful things funded on the back of ‘closing tax loopholes’ – loopholes apparently left wide open by a cash-strapped State for many years, but there you go – maybe that’s where Labour will look instead?

For now though, the end of uncertainty about the end of the LTA is good news – if a mouthful – and good politics.

Have a great weekend!

[continue reading…]

{ 66 comments }
There are more ways out of the workplace than the Reggie Perrin route

A veteran Monevator reader wrote to ask if I was going to take a victory lap, given that my co-blogger has gone back to work.

The reader was referring back to our 2019 FIRE debate. In it I’d argued that early retirement was probably the wrong goal for most people capable of achieving it.

Well I hope I’d not stoop to gloat, but then again I’m only human.

Perhaps what I’m doing today – republishing one of my favourite articles – is indeed a bit of a humblebrag? Who knows.

However my main concern when I heard The Accumulator was working again was for his mental health.

When TA reassured me that he was still of hearty and sound(ish) mind – it was just that chasing cows would be on hold for a while – I stood down my inquisition.

Also: when TA explained why this latest run in with The Man wasn’t as bad as his previous multi-decade workathon (which at times sounded like it might kill him) I was impressed when he went on to confide that I might have been right to suggest back in the day that he could consider jumping ship to a more bearable job sooner – even at the cost of FIRE later.

As TA said in his recent confession, his new work is fine. Enjoyable even, if hectic at times. Perhaps he could have found something similar a decade ago.

It’s not easy to change your mind. Three cheers for him for doing so.

We can work it out

I’m never disappointed when a very early retiree goes back to work.

Not least because it happens so often we should think of it as the norm. But also because I admire their mental flexibility.

You achieved your early retirement goal? Great! Your Freedom Fund has now got your back.

But maybe you miss the office banter or feeling useful or difficult projects or simply a higher calibre of fun money.

Or maybe now that you can afford some judiciously selected finer things in life, you don’t feel the need to convince yourself you can do without.

Moreover – whisper it – maybe you also don’t consider it your moral imperative to generate some new sense of purpose to replace the ubiquitous 9-5 that everyone else leans on, as your critics would have you do.

You’ve discovered something about yourself – and then you go back to doing some kind of work.

Probably a bit different and less stressful. Ideally a bit more meaningful, however you define that.

Good for you.

My plan: Plan B

Anyway, I checked our website traffic data. Most of you have never read my article on the FIRE-lite benefits of working for yourself and/or from home.

Of course since I published it in 2013, the pandemic has made ‘WFH’ commonplace – mandatory at times – which means the supermarkets aren’t so quiet on weekdays these days.

But otherwise I think my article holds up well. So I’ve left it untouched – original typos and all – to provide a new (old) perspective on how to make your way.

There are no perfect answers. For example, you’ll see me confess below that stepping off the career path (or the greasy pole, if you prefer) will probably cost me dear in lifetime earnings.

Ten years on, and with friends now routinely earning what still vaguely sound like footballer salaries to me (well into six-figures these days) that proved prescient.

Have I changed my mind then?

I have not. Perhaps I’m less mentally agile than TA, but I’m still pretty happy with the path I chose.

Job satisfaction smoothing is how my co-blogger dignified it in the comments on his recent post.

I did it (one of) my way(s)

Unfortunately we never get to live our own counterfactuals.

I won’t get to enjoy life as a media tycoon. Maybe I would have loved it at the top?

Equally I didn’t burn out by my early 30s to do a PhD in Homes Under The Hammer. And I do think it’s possible too many years of rules, commutes, and office politics would have done that to me. I’m just not wired for it.

But you do you. Nowadays I believe that’s the best and only goal with this stuff.

Good luck – and enjoy the journey, whatever route you take.

You don’t have to go nuclear on working for a living

(June 2013)

Today I woke up late and 10 miles from home. What a dirty stop-out, eh?

Not really. I visited a friend, the talk ran on and on, and I couldn’t be bothered to schlep back across London on the last tube home.

Instead we carried on until 2am (aided and abetted by a very nice montepulciano) and then it was spare room sofa-surfing for me.

My friend headed off to work early. I’m not sure exactly when he left, but given I had no intention of getting up at the ungodly hour I heard him go into the bathroom, it could well have still been dark.

I showered and strolled off to the train station much later, going crazy on the way and buying an outrageously expensive coffee from Starbucks, which I sipped lazily as I sauntered along in the sun.

It’s Thursday. What will my boss make of my attitude?

I can tell you he’s absolutely fine about it.

Because my boss is me.

The benefits of working from home

I often read retirement bloggers saying they quit work because they couldn’t take kowtowing to The Man anymore.

I understand – The Man sucks – but it’s not a good reason to quit working. Especially if you’re impoverishing yourself for the rest of your life to do so.

Many of the benefits of retirement are also benefits of working from home:

  • Day-to-day you’re in control of your schedule – this is near-priceless!
  • On an hourly basis it’s up to you what you do.
  • You don’t (often) have to work for anyone you don’t like.
  • You don’t (usually) have to do work that you don’t want to do.
  • There’s much more time for chores in the week – popping on the washing during a screenbreak – without it eating into your evenings and weekends.
  • You can shop / visit the bank / go to the cinema / run around in the park without a shirt on when it’s quiet and most people are kowtowing to The Man.
  • You can still be in your pyjamas at midday if that’s you. Not my bag, but it seems to work for self-employed pharmaceutical vendors.

Most of these benefits are similar to those that people cite on retiring.

They don’t have to slog to the office every day. They don’t have to put up with petty politics. They can busy themselves in the garden when they want to, and they can take to the beach for that one sunny day in September.

All true of working from home.

Mercenary tactics

Another non-nuclear option to get some control of your life back is to make your money as a freelancer or a contractor.

I know two people who work for 3-6 months then take the next six months off. I couldn’t – I’d be scared of coming home and finding my niche had been taken over by squatters – but one of them has been at it for years.

Less radically, my girlfriend does 6-8 week contracts, then has a week or two off.

She’s not in as much control of her time as I am, because she can’t decide exactly when her next gig should start and stop. But she’s better paid than me for it, and if she wants to take a Friday off, she can. She doesn’t have to ask anyone’s permission, provided it doesn’t derail her project.

A definition of being a genuine freelancer when it comes to HMRC is that you’re in control of your own time, which is important for both your client’s and your own tax status.

Handy, if anyone complains!

Working 5 to 9 (what a way to make a living)

Now it’s true these options don’t give you the ultra-freedom of the fully retired.

To make my living working from home, I have to continue to excel for the clients I do work for. There’s no coasting.

I also put in the same 200 or so days of work that most people do (although I’m more productive than the majority, so I can work fewer hours if I like).

And do you want to know a secret?

In truth I do sometimes have to tip my hat to The Man or put up with silly decisions or hare-brained schemes, in order to take on an assignment that pays well or that keeps me on a great client’s books.

But working for myself, it’s never as annoying as in the Kafka-esque nightmare of a modern office – probably because you know you can reach for the ejector lever if you have to.

You also don’t need to have so many existential debates about what all that time spent at work is really worth, because you know what it’s worth.

Your hourly rate, minus tax.

Keeping up with the Micawbers

I used to dream of early retirement, but having lived off my savings a few years ago for a while, I now know it’s not for me.

In fact I hope to always continue to earn some income, although in time it’ll be increasingly from projects like property redevelopment or self-owned micro-businesses.

Maybe this blog will even make me some real money, some day!

I believe there are several benefits to doing some paying work, versus a full-time earn-nothing retirement:

  • You have more money, so you can spend more, save more, and be generally less vulnerable.
  • It keeps you engaged with the world, with business, and with the young.
  • It helps you ward-off that grumpy them-against-us attitude.
  • In my (limited) experience, some people who retire actually do less fun things and become less healthy than those of the same age who keep working.
  • A certain amount of stress is good for you. (It’s called eustress!)

Clearly one can over-generalise. A few people become much more engaged when they retire, perhaps because they can throw themselves into hobbies or communities that they never previously had time for.

But many people find their circles drawing in, and their horizons narrow. I’ve seen it, and I’m sure you have to.

Equally, there are some great examples of people on the Web for whom early retirement is just the start of the adventure of making their fortune.

Mr Money Mustache is clearly having a ball – and making a packet – ever since he retired.

However his form of retirement is to me more financial freedom. I know he hates this sort of semantic quibbling, but for me he’s doing what I’m doing, only I do far more short bits of freelance, and he does far more bike rides between renovation projects and super-successful website creating.

Life beyond Branson

The point is there are far more ways to make a living than Reginald Perrin ever imagined.

If you truly know that the indignity of having to earn money is what you hate about the modern world, then making enough to quit is perfectly rational.

However if you hanker for the freedom to eat ice-cream in the park or to watch Wimbledon in work hours, or to put time into side-projects that the rat race shoves to the sidelines, then it’s worth figuring out if working from home or similar is a better way for you.

Beware! Like not going to university, working for yourself is an option that’s easy to get into but not so easy to make stick.

But for me the rewards have proved well worth it.

In fact, the only real downside is that the scope of your career is curtailed.

If you’re an expert in your field then you can still be part of exciting and/or lucrative projects, as a consultant or in some other part-time role.

This is true even at the highest level – the non-exec directors who make a packet attending a dozen company board meetings a year are in some ways the ultimate example of the lifestyle I’m describing.

But working as a contractor or a freelance, you’ll never feel the excitement of being at the heart of an Apple or a Virgin Atlantic or a Kath Kidston as they roll out across the world. Nor can you enjoy a vocation like heart surgery that inevitably ties you to your workplace.

Still, how many of us really enjoy any of that in our lives?

Exactly.

Clocking in at your nearest Wernham Hogg is hardly the stuff of dreams.

Good reads for your freedom plan:

{ 46 comments }

Is it time to ditch index-linked bond funds? [Members]

Index-linked bond funds were meant to protect us from surging inflation, yet they failed their first serious test. Since CPI took off at the tail end of 2021, these products have been a bitter disappointment – like waterproof trousers that leak or wasp repellent that attracts the blighters like it’s made of sex pheromones.

We’ve previously explained exactly why index-linked bond funds didn’t work during the car crash markets of 2022.

This article can be read by selected Monevator members. Please see our membership plans and consider joining! Already a member? Sign in here.
{ 34 comments }

Weekend reading: the happiness smirk

Our Weekend Reading logo

What caught my eye this week.

How do you feel today? Happy? Sad? Despairing? Joyous?

Can’t believe there’s still a week to go until Euro 2024 kicks off to relieve the tedium of the same old, same old, soggy British spring?

Or dreading football on the telly 24/7?

Hmm… can I ask how old you are?

Age-appropriate emotions

For as long as I can remember, posts about the happiness ‘smile curve’ have been a staple of personal finance blogs.

Perhaps it was because so many bloggers were in or approaching middle-age.

The smile curve theory, you see, came from research showing a person’s lifetime happiness followed a U-shaped curve.

You were happier when you were young and carefree. And you were happier again when you were old and grateful and didn’t give so many tosses anymore.

But in the middle? Loaded down by mortgage repayments, ungrateful children, and job stress?

Not so much.

No doubt the theory resonated in FIRE circles because it gave an extra reason for – and impetus to exit – the heads-down push through the suck to achieve financial freedom.

But – alas – it seems the smile curve has turned lop-sided.

Like this video about unhappiness

In The Global Loss of the U-Shaped Curve of Happiness, David Blanchflower and Alex Bryson tell us new research has…

…shown something astonishing and of global importance: the general contour of happiness across the age-span has changed around the world.

Young adults are now the least happy people, and this broad multinational change began sometime in the mid-2010s, right as Gen Z was entering this age-group.

I’ve linked to other takes on this trend before. It does seem to be well-established.

Of course this being 2024, every faction has a different theory as to why young people (especially young women) are so much more despairing:

  • Progressives blame structural inequalities and a greater awareness of dangerous prejudices such as racism and misogyny.
  • Traditionalists see an erosion of family values that’s left young people adrift with nothing to aim for but satisfying their own hedonistic ends.
  • Environmentalists point out the climate – and our future – is going to hell in a hand basket. Despair is rational.
  • Techno-sceptics warn that smartphones daily pipe a globe’s worth of desire and misery into eyeballs only meant for the surrounding 5km of savannah.
  • Older people think identity politics has given everyone a grudge.
  • Financially-minded Monevator readers might blame sky-high house prices and rents, or how taxes scythe away young people’s incomes even as more bungs go to pensioners.

There is something in all of it. But I do think smartphones should take most of the blame for the specific curve shift.

Some version of everything else was going on well before 2017, after all.

Thanks to smartphones and social media though, young people do appear to be much more aware of both the wider cruelties and injustices in the world, and also the roadblocks standing in their own way.

But of course they learn about most of it through polarised social media and 30-second videos. There’s little room for nuance.

To generalise: I’d say they’re more aware, but less informed.

Student grant philosophising

When I was in my early 20s, talking to the average person at a party about the sort of issues that everyone now has a gripe about usually earned you funny looks.

I know this because I read very widely for a science student – everything from business profiles to Marx to AdBusters magazine – and I actually was talking to people about the troubles of the world at parties.

And it usually went down about as well as you’d expect.

Obviously I like to think I was bit more intellectually sophisticated than the average 90’s kid pining for The Beach without wondering what it meant for the locals or the ecology.

But I suppose you could just see a posturing Rick from the Young Ones.

The point is though, it took some research to even know about much of the stuff in my all-faction complaint list above. You didn’t get a five-second hit when sitting on the loo.

Most people spent little time thinking about any of it, unless they happened to catch a late night documentary on the BBC.

Whereas today reminders are omnipresent.

And at the clear risk of sounding like a curmudgeonly old man, while I’m heartened young people now appreciate the world is a pretty screwed-up place, I wish they’d try harder to understand why.

Regular debates I’m having with a younger friend about the horror show in the Middle East come to mind. But it’s true of many things.

Younger people genuinely do seem to care more than most of my generation did at that age. And they at least say more of the right things about the world beyond their own desires.

But ask them what should be done about any of the issues and there’s often little substance there.

Walking back to happiness

At least 30 years ago the typical person was unhypocritical in not giving two hoots about, say, the plight of indigenous peoples in the Amazon basin.

There was a pure-hearted obliviousness to it.

Whereas now people see a TikTok video, they’re angry, but they seem to not explore what’s even feasible as a remedy – beyond waving their hands at capitalism, men, or wokery, depending on how they roll.

I suspect this blend of being constantly provoked but at the same time feeling it’s well beyond anyone’s control is even worse than when I was young and engaged myself.

And that this is what has pulled down the lefthand of the smile curve.

At least I got happier with time. I guess they will too. Perhaps you get immune to gloom? Or maybe you just get complacent.

Then again maybe it really is all because young people can’t see how they’ll ever afford a house – and yet they can’t follow the old escape route into sex, drugs, and rock-and-roll either because online dating is awful, they know the drugs don’t work, and today’s music is written by robots.

Gosh I feel old. But at least I’m happier than I was!

Apologies to anyone reading who is under-30. Despite my gripes above, you’re actually my second-favourite generation. (After my own Gen X, of course. Slackers forever.)

Please share your perspective below on the fashion for youthful angst. That way we can all learn together.

Have a great weekend!

[continue reading…]

{ 37 comments }