Given how often we’ve been labelled a front for Vanguard – in reality it’s never paid us a penny to directly1 , more’s the pity – I was reluctant to post a lightweight update on its Vanguard Personal Pension service.

But so many of you alerted me to the latest smoke signals, how could I not?

It’s clear that a pension with the low-cost juggernaut is something many Monevator readers are waiting for.

“Whadayoogonnadoaboutit?” I shrug, like a New York mobster in a mid-70s movie.

The missing link

A pension product was conspicuously absent at the launch of Vanguard’s Personal Investor service in the UK last year.

However it seems Vanguard has been beavering away since then.

The latest:

• Vanguard has obtained necessary permissions from its regulator, the FCA.
• The Vanguard Personal Pension is registered with HMRC.
• The product will be structured as a low-cost SIPP2.
• There’s still no launch date. We can expect an announcement in 2019.
• The service will handle lump sum additions, regular contributions, and pension transfers.
• De-accumulators will have the option of flexi-access drawdown from launch.
• All Vanguard UK’s active and passive funds and ETFs will be available. (I’d expect people to be nudged towards its Target Retirement Funds.)
• Vanguard says its pension will be low-cost and easy to use.
• A dedicated pensions team has been recruited.

Pension perils

Vanguard admits it has taken longer than it hoped to get its pension up-and-running, though it hasn’t explained why.

I’m no expert on launching financial products. I’d guess though it comes down to the regulatory environment and a fear of mis-selling.

[Update: It may be due to software development delays. See comments.]

Because Vanguard will only be offering its own funds through its platform, some critics might argue that savers aren’t being given sufficient choice.

I don’t agree with that – at least not if they’re investing in broad-based tracker funds – but I do have sympathy with the view that putting all your eggs in one basket is sub-optimal in terms of total risk management.

And clearly that’s what will happen with a pension provider that only offers its own funds (a situation that won’t be unique to Vanguard, anyway).

The chances of Vanguard getting into trouble to the extent that your pension is threatened (remember, trouble might include fraud or technical disasters) seems to me infinitesimal.

But the impact on an individual from such a tiny probability event could be huge.

For me, that equation always suggests diversifying between at least two providers.

Of course it’s not a fatal issue. You’re allowed to have more than one pension provider, so such diversification is easily achieved. And as I say this risk is certainly not unique to Vanguard.

Even a major ‘open’ pension platform like Hargreaves Lansdown’s could equally (that is very, very unlikely) suffer some sort of permanent compromise. Brokers have failed. And in the opaque world of pensions there are already plenty of people banking their hassle-free retirement on the health of one company – not least with final salary pensions.

There are of course safeguards against pension failure, too. My point is after a lifetime of saving and with no time to make good any setbacks, you can’t afford to take chances. I’d therefore reduce the potential for catastrophic risks where possible.

A cheap platform is only half the battle

For a clue to the sort of thinking that Vanguard may have been grappling with, see this article from The Telegraph.

A 60-year old with a £420,000 pension pot says he has been advised to split it between two Vanguard funds – a Vanguard LifeStrategy 80 fund and a Lifestrategy 40 fund.

For this advice he’s charged £4,500 – to the apparent consternation of the experts the newspaper contacted.

To summarize, the experts want the money spread across 20-30 funds, including active funds and absolute return funds and “maybe gold”.

They say they’d charge much less than £4,500 for the upfront advice – but they’d charge 0.4% to 0.75% for ongoing advice.

True, £4,500 seems a lot to say “plonk it all in a couple of tracker funds”.3

We’ve often said much the same, for free!

But the average person hasn’t got the inclination to read Monevator for a year to learn why such apparently simple advice is probably the best way forward.

And for that reason, I’m not so sure that paying an extra £2,500 upfront to get the money into these super low-cost Vanguard funds is such a terrible deal.

I’m reminded of an old joke about a plumber who bangs a boiler once with a hammer to fix it and then writes an invoice for £250. When confronted that this was poor value for money, the plumber replies that the charge is for knowing where to hit.

Indeed I’d be prepared to bet, Warren Buffett-style, that a portfolio of the two LifeStrategy funds would beat most handpicked hodgepodges of expensive active funds that amounted to a similar risk profile – not least thanks to lower costs.

But sadly, the IFA who recommended the LifeStrategy funds seems to snatch defeat from the jaws of victory – at least as best I can tell from the article.

He or she will charge an ongoing 1% a year, the article implies, for presumably telling the client not to touch anything. (The LifeStrategy funds automatically re-balance).

If so that’s a travesty, which will undo all the good work of the initial selection!

Anyway, this is the quagmire that Vanguard is tiptoeing towards.

I have no doubt the firm will produce a simple and low-cost solution. But tools are only part of the picture. Education is all-important – and one of the hardest lessons for investors is there is no perfect strategy. Everything comes with compromises.

We’ll keep doing our bit, but I suspect it will be many years before self-directed pension provision is a solved problem in the UK.

• Have a play with Vanguard’s simple Pension Calculator to see if you’re saving enough.

1. It may have bought Google display ads at some point, not sure. [↩]
2. Self-invested personal pension [↩]
3. The LifeStrategy funds are actually funds of funds, albeit all Vanguard funds. [↩]

[A quick update on Brexit thoughts for those who want to reasonably discuss it. For those who don’t, please feel free to skip to the links.]

Imagine having anticipated something for 30 years, finally getting the freedom to do it, and then making a car crash out of it.

But enough about my progress as a mid-life singleton. I’m thinking here of the Eurosceptic wing of the Conservative party.

You know – those 40-odd guys who can’t muster up enough votes to unseat the UK’s most ineffectual leader since Hugh Laurie’s Prince Regent in Blackadder the Third, and yet who’ve somehow managed to send 63 million of us towards an apparently imminent impoverished future.

You might think the World Class farce we’ve endured over the past 30 months would see me smiling.

After all a second referendum is looking ever more likely, if still not odds-on.

But unfortunately, I continue to read and hear abundant evidence that most of the Leave voting contingent still doesn’t get it.

And that means despite the demographic challenges of that faction (i.e. its original margin of victory is literally dying) it’s quite possible Leave could win again.

Especially if the Remain side sticks to the previous policy of dull facts over bus-splattering bullshit fabrications.

No wonder Leave voters seem almost as angry as Remainers:

I’ve seen a parade of #Brexit leaders on news programmes today. Their position boils down to this: We are absolutely sure voters knew exactly what they voted for and, as soon as we manage to agree among ourselves what that was, we will inform voters what it was they voted for.

— Alex Andreou (@sturdyAlex) December 6, 2018

A second referendum is a horrible solution to a stupid problem, with plenty of downsides.

However from my perspective it has the minor virtue of being less terrible than all the other alternatives.

Whose Brexit is it, anyway

Can we not stop this death march? Absolutely no one seems happy with the direction of travel.

Not even the Leave voters, that’s the most galling – if unsurprising – thing.

Blogger Ermine came close to capturing this contradiction at the heart of the Leave vote with a graphic this week. Leavers are represented here by the two Mickey Mouse ears on top of the smug metropolitan elite mug:

What @ermine’s Venn diagram is missing though is the set of people who voted either Leave or Remain to make us poorer.

Perhaps that’s because it doesn’t exist – despite even the Government admitting that’s what we face.

True, a tiny set of Brexiteers have belatedly conceded that a No Deal Brexit will hit us in the national nads.

That, they now say, is a price worth paying for sovereignty / blue passports / the right to negotiate trade deals with Madagascar and Kazakhstan.

But all the leading Leave-supporting players continue to lie to the electorate.

Theresa May herself rounded off her Deal Debate Dodge by harking back to the supposed ability of Brexit to reduce the inequalities and insecurities she spoke of in the aftermath of the vote – despite almost every single analysis of Brexit showing a net negative impact, economically-speaking.1

If you want sovereignty or fewer immigrants from Brexit, fair enough. Own that. Don’t claim the tooth fairy too.

But sadly, the very few Leavers I come across in real-life are still saying things like “The EU needs us more than we need them.”

The same EU that has run rings around us in negotiations.

The EU that has stuck firmly together, despite all forecasts to the contrary, and strangely believes more in its vision of togetherness than in the fantasies of Brexiteers.

The EU that takes 44% of our exports, while we take 8%2 of theirs.

The roughly 450 million of them versus the 63 million of us.

The UK vs the EU is a negotiating position that only looks attractive to Tories of a certain class raised to see greatness in the self-destruction of The Charge Of The Light Brigade.

“C’est magnifique, mais ce n’est pas la guerre; c’est de la folie”.3

Barry Barricades

What I missed when I created Barry Blimp – the archetypal Home Counties Leave voter of not inconsiderable means and more than a few years – was his zealotry.

Because I now see a big chunk of the Leave cohort want Brexit no matter what.

In fact I rather think some would enjoy it if we had ferries piled up outside Dover and food rationing at Tesco.

Obviously I feel vindicated when I think back to the insults hurled at me when I ventured my opinion on my own blog that many Leave voters didn’t know what they’d started, or that this would drag on for years.

But that’s about as satisfying as telling the person in the seat next to you that yes, you were right that the 747’s engine sounded a bit funny as the Captain shouts “Brace, brace!” over the tannoy.

There seems no good solution to this mess now. Revolutions have started over less.

(That may sound melodramatic if you don’t know your history. I suggest you Google the origins of the French Revolution, the English Civil War, or the American War of Independence before you jab your finger in my chest.)

To be clear I’m not predicting revolution – let alone hoping for it, from any perspective – but there’s got to be a non-zero chance.

Currently we are just living through a nationalist coup, and that’s bad enough.

The irony is for many on the right, Jeremy Corbyn is a revolutionary Marxist.

Politics has abandoned the center ground. As a result, lots of people are going to be very unhappy, however this turns out.

Our politicians need to get a grip, fast.

[continue reading…]

1. Yes, a couple of things might be made better for a tiny subset of the population. But as we’ve discussed before, almost every serious economist believes those benefits would be grossly outweighed by the economic negatives. They’d be far better addressed directly via redistribution or government investment. [↩]
2. Or 18%, in a certain light. [↩]
3. “It’s magnificent, but it’s not war; it’s madness” – General Pierre Bosquet. [↩]

The look on my friend’s face was one you might deploy if you were presented with a bill for service at McDonalds. Total incredulity.

“So let me get this straight – you’re putting a money value on your memories?”

“Well I wouldn’t state it so precisely,” I said. “But basically… yes.”

“Wow! That’s so sad! Experiences are worth more than money.”

“I agree,” I admitted. That puzzled look again. “But you’re experiencing something every moment of the day anyway. The question is whether the extra enhanced experience is worth the extra cost. Also – remember that when you spent all that money for those particular memories, you also bought a certain kind of experience you’ll have to live in the future, too.”

“Huh? I don’t get it.”

I topped up her wine.

“Look, neither of us are gazillionaires with infinite money. In particular, you don’t even have a job anymore, depending on whether they’ll take you back – and besides we spent the first half of this evening talking about how the reason you went away for three months was because you hated your work so much.”

“Right…”

“Okay, so you told me you spent half your savings on those three months of traveling. Which now the holiday is over exist only in your head – in as much as you can remember them. Which seems to be to a limited extent, possibly because so much of your holiday took place in various bars.”

“Alright, get on with it…”

“So that’s where we can start. Half your savings bought those memories. I’m not knocking that spending decision specifically – perhaps for you it was worthwhile. My point is you spent the money to buy them. Money that you can’t spend twice. So they certainly have a monetary value.”

“But there’s more,” I added in my winning way that makes me so popular at parties. “You’re in your early 30s – it’s possible you could have quadrupled that same money by age 65 if you’d invested it instead. So we know 65-year old you is going to have massively less money to spend because of those memories you bought and are already forgetting that you don’t think we should think about financially–”

“Yeah bu–”

“–you’re right! Let’s get back to experiences. You usually earn – what – £40,000 a year? After tax and National Insurance that’s going to be something like £30,000 in take home pay. Let’s divide that by 240 working days for easy maths, and say you take home £125 for every day of your life you sacrifice to work. Except since you have to go into the office, you spend more – we’ll call it £6 a day for travel, then add a let’s be honest low-ball £5 for lunch and coffees, and say £4 a day to cover the fact that you buy a certain amount of tidier clothes for work.”

“…”

“Knock that spending off the £125 and we’re at £110 a day or so take home. Really I’d like to take it down to £100 a day to cover stuff like ibuprofen, your inability to take off-peak mini-breaks, and all those late-night Ubers you order to have a mid-week social life while working. But we won’t. Let’s just say you spent £5,000 on your three month travels, which seems about right from what you’ve said.”

“I don’t know – something like that?”

“Well, that’s about 45 days of your take home pay – equal to nine additional weeks of your life where you’re going to have to go into the job you hate to sit in an office you hate because you went on your three-month holiday.”

“Yeah, okay – it does sound worse when you put it like that. But then again I got three months away from the office for another three month’s or nine weeks or whatever spent at it. Seems a fair trade?”

“Um, well sadly I was being gentle on you. The reality is you’re not going to save anything like all your take home pay. You know how much it costs to live in London. You’ve also got to eat, go out now and then. Buy bottles of wine to bring to my house for these thrilling heart-to-hearts.”

“Yeah, I’m really glad about that decision…”

“Hah! Anyway, I’d guess you save about 10% of your take home pay, which means it could take you two years more at the office to get back the money you spent on your three months away from it. But let’s say you manage to save to save 20%. Still going to take the best part of a year more work to pay for it.”

“Okay, okay – at least I have the memories.”

“Good, because you’re going to need them while you’re sitting at work! That’s my point – you’re alive either way and still having experiences. When I said earlier [Editor’s note: I did, different discussion!] that I’m more and more trying to find regular moments of happiness in small things, this is what I meant – that I’m trying to focus on sustainable mild contentment rather than the sort of high-cost roller-coaster you’re on. Honestly, I’m not saying you did the wrong thing – not at all, your trip sounds amazing – but I am saying I personally would totally put a cost on those memories, both in terms of the financial outlay and/or the price to be paid in terms of extra work by your future self.”

“Okay, fine, I spent the money. But that’s what money is for, right, to spend and have a good time? What’s the point of just sitting on a big pile of money like a bloody nerd-dragon, counting it in your cave? Even you bought this flat… eventually.”

“Ha ha, nerd-dragon, I’m stealing that! Yeah, I agree. Remember I think and write about this stuff a lot – I’ll probably even turn our conversation into a blog post! So I know this might all sound a weird way of looking at things to someone who doesn’t. But what I think it comes down to is how much do you value your future over your present – or in the case of memories, your past – and how do you strike a balance.”

“Go on…”

“So personally, I’ve always found it very easy to value the future. I saved some paper round money 30 years ago that went into the deposit on this flat! I’d always rather have most of my money invested, and to know I’ll have more options ahead of me because of that. Whereas we both know you live for the present – you’re a great party girl, and you’ve never thought much about tomorrow. That’s obvious. As for the Past You, I guess that’s where the monetary value on memories come in? Also possibly feelings of life satisfaction, and not having regrets, which is what I have to guard for with my approach. Although thinking about it, I suppose that’s really your Present You trying to anticipate and stop your Future You regretting what your Past You didn’t do and–”

“– stop stop I get it. But I still don’t really see how this doesn’t mean money is there to be spent? Whether you spend it now, or when you’re 90 or whenever?”

“Absolutely, ultimately that’s what money is for. But I think it’s helpful not to always think of it as money but sometimes as something else.”

“Something else like what?”

“Well sometimes I like to think of money as stored power. You build up your power by working and saving, and hopefully your investments charge it up further, too. But sometimes you have to run the battery down – that’s when you spend it. You can spend it on something now, but that means you’re going to have to work more in the future to charge it back up. Or you can try to get to the point where you have enough power stored away that it sort of auto-re-charges. And then you have maximum flexibility to spend it how you like indefinitely.”

“…”

“Did that make sense?”

“Err, sort of. You know this is why you’re single again, don’t you?”

“…”