Given how often we’ve been labelled a front for Vanguard – in reality it’s never paid us a penny to directly ¹ , 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 SIPP ².
• 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.[↩]

What caught my eye this week.

Hey Millennials! Top tip time! One of the best ways to improve your chances of owning your own home is to make sure you’re born into a family where your parents do, too.

Take a look at this graph charting new data from the Resolution Foundation:

As reported in the FT [Search result]:

Those with the richest parents are the most likely to own a house by the age of 30. Roughly a third of people in this category were homeowners themselves by the time their 20s were over.

They are followed not far after by those in the second two quartiles who both had about a 28 per cent chance of owning a house in their 30s.

Then, much further behind [are] those whose parents did not have any property wealth at all, who had just a 13 per cent chance of becoming a homeowner.

So there you have it – be lucky babe!

I mean it’s sweet that you’re skipping your avocado toast and all.

But as any old Barry Blimp will tell you, he too once ate an avocado in 1977, but that didn’t stop him buying a terraced house in London in the early 1980s. ¹

Of course he didn’t have to pay for an iPhone or any similar nonsense.

But he would happily have gone without such frippery and stayed in counting his bedrooms for fun instead if he’d had to.

Because that’s just how tough we were back then.

[continue reading…]

1. For barely four times his salary, compared to over 10-times today.[↩]