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Weekend reading: Is cash kaput post-Covid-19?

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What caught my eye this week.

I have mentioned before my group of friends on an email list who’ve been debating Covid-19 since January.

Well, this same group of friends was previously preoccupied by arguing the future of cash.

I think cash use is doomed to dwindle in the West, probably fast. Most of them think that would be terrible.

Now it seems the streams are crossing. It’s becoming clear from the data that cash use has crashed in the Covid-19 era and the knock-on lockdown.

You can’t touch this

I have shares in a bunch of listed and unlisted fintechs and payment companies that have seen their prospects skyrocket since physically touching anything except a bar of soap became oh so 2019.

Some are seeing higher volumes, such as the automated savings app Chip.

Others are taking a short-term hit to their ‘take’ because overall spending is down – but they are seeing more users turn to their products, which bodes very well for the future. Square and Visa are examples here.

The trend is their friend. Just this week I received another press release suggesting UK consumers are increasingly shunning cash.

The release – from a technology and branding company called Toluna – states:

  • The use of ATMs has reduced by 36% during the pandemic, mostly because of people not being out and about much but also the [perceived] higher transmission risk of the virus when handling cash.
  • Online banking or use of mobile apps and payment methods has increased by 33%.
  • Phone banking is down by 5%.
  • Those visiting their bank in person is also a lot less now than it was before the pandemic, with branch banking experiencing a 34% decrease.

Rather like the feasibility of working from home seems to have astonished half of UK PLC, the infrastructure for the cashless society was already pretty much in place before many people decided to finally try it.

Fintech to the rescue

I agree with my friends that some marginalized – particularly elderly – communities may not be super-comfortable using the latest fintech app to monitor their finances, or to wave their mobile phone to buy a pint of milk.

But where I disagree is the claim that this is an insurmountable problem.

A determined effort by the government and the private sector could create some kind of universal digital option for those still living pre-2005.

Just a State-issued contactless card and monthly paper statements in the post would do in a pinch.

But of course I’d rather everyone got more ambitious. Because where I really disagree with my friends is when they claim that ditching cash is disempowering from a budgeting perspective.

The power of apps like Money Dashboard1 leaves counting out coins from a jam jar in the dust.

Indeed even the most humdrum mobile bank accounts are beginning to boast features that were the cutting-edge from whizzy start-ups in East London just a few years ago.

Three valid fears

I do agree with my chums in three respects, however.

Firstly, the cashless digital society is in need of a back-up plan when, metaphorically, the battery runs out.

This could be because I forgot to charge my phone or because a financial service provider is hacked, crashed, or forgot to charge its phones (/servers).

I can think of various ways around this – solutions using biometrics, cryptocurrencies, and short-term (invisible?) peer-to-peer lending.

But until they exist, the case for keeping a wodge of tenners as an option is strong.

Secondly, digital payments are far more friction-free. And it’s true this could encourage more thoughtless spending. However that’s nothing new. We’ve had credit cards for decades. As I say, at least with digital payments you have the potential to build in all kinds of automated checks and balances that you can’t do with dumb cash.

Finally, to lose the cash option is definitely to lose some privacy.

Perhaps that will be the edge case that finally leads to a Bitcoin usage explosion? Not for buying illicit drugs on an Internet backwater, but for paying for more humdrum items that you’d still rather a spouse or the government didn’t see.


I’ve come around to the view that Covid-19 is going to change more than seemed likely six months ago.

Encouraging the demise of cash is near the top of that list, I reckon.

From Monevator

Our updated guide to help you find the best broker – Monevator

From the archive-ator: Nine underrated tools to help you achieve Financial Independence – Monevator


Note: Some links are Google search results – in PC/desktop view you can click to read the piece without being a paid subscriber. Try privacy/incognito mode to avoid cookies. Consider subscribing if you read them a lot!2

The true scale of London’s economic meltdown – capital faces crisis not seen for generations – ES

Stamp duty cut prompts surge of interest in London commuter belt – Guardian

Chancellor threatens tax raid under guise of a capital gains tax ‘review’ – ThisIsMoney

NS&I net financing target raised from £6bn to a whopping £35bn – NS&I

Trading in misery: beware bedroom Forex traders boasting millionaire lifestyles… – ThisIsMoney

Judging by restaurant traffic, the US is still in a partial de facto lockdown – Calculated Risk

Robert De Niro is broke because of coronavirus, might only make $6m this year – Yahoo

Re-examining diversification: Best/worst performers over four-year rolling periods – Arcadian [h/t AR]

Products and services

Monzo launches a new version of Monzo Plus that pays interest – Which?

Fee war hits its limit with the demise of a [US] ETF that paid you to invest – Yahoo Finance

Want to avoid investing in fossil fuels? Check out the iShares MSCI World SRI Fund – DIY Investor

Sign-up to Freetrade via my link and we can both get a free share worth between £3 and £200 – Freetrade

Zoom mortgages, rates fixed for 30 years, and virtual viewings: the future of homebuying – ThisIsMoney

City flats with outside space for sale [Gallery]Guardian

Comment and opinion

What do World War 2 planes and investment funds have in common? – Bunker Riley

Buy-to-let: It’s not 1994 anymore – Finumus

It took decades – Humble Dollar

Caught in the rain – The Belle Curve

How much should you save? – Fire V London

Merryn Somerset-Webb: Capital gains tax is a ‘stealth wealth tax’ [Search result]FT

The 60/40 portfolio’s returns over the long run [US but relevant]Two Centuries Investments

Seven valuable non-financial assets in retirement – Advance Capital Advisor

Why working from home will not become the new normal – Klement on Investing

The reason equal-weighted index funds have tended to deliver better returns – Morningstar

Wealth inequality and lottery ticket stocks – A Wealth of Common Sense

How a single mum feeds her family-of-three for £9.90 a week each – The Sun

Heads I win [Maths!]Albert Bridge Capital

Gold trading mini-special

“The day I was asked to buy and sell gold”Financial Ducks In A Row

Gold record in sight as ETF inflows skyrocket – ETF.com

Gold timers have rarely been more bullish than they are today, and that’s bearish – MarketWatch

Naughty corner: Active antics

Letting go of investment decisions – Worth

Hedge fund titans grab lion’s share of the industry’s spoils [Search result]FT

Big tech drives the stock market without much US help – Yahoo Finance

You don’t see the whole picture – Party at the Moontower

Covid-19 corner

Hancock orders review of discrepancies in Covid-19 death figures – Guardian

New data on T cells and the coronavirus – Derek Lowe

US shatters coronavirus record with over 77,000 cases in one day – Reuters

New cafe restrictions in Sydney Australia as Melbourne cases spike – Bloomberg via MSN

Stanford doctor: Coronavirus fatality rate for people under 45 ‘almost 0%’… – Washington Examiner

… pre-print from same doctor finds median IFR of 0.24-0.27% using seroprevalence data – medRxiv

There’s apparently a boom in American urbanites buying farmsteads to escape Covid-19 – Modern Farmer

We’re stuck in a lockdown ‘work from home’ purgatory – Wired

Kindle book bargains

The Hidden Life of Trees by Peter Wohlleben – £0.99 on Kindle

The Economics Book: Big Ideas Simply Explained by Niall Kishtainy- £1.99 on Kindle

Alchemy: The Surprising Power of Ideas That Don’t Make Sense by Rory Sutherland – £0.99 on Kindle

When Genius Failed: The Rise and Fall of Long Term Capital Management by Roger Lowenstein – £0.99 on Kindle

Off our beat

“I’ve seen a future without cars and it’s amazing” [Includes cool graphics]New York Times

Four ways to break up the monotony of your workweek – Fast Company

Asia’s ecosystems were buckling before Covid-19. The future has to be different – CNN

Fifteen ways to be happy – Humble Dollar

How we met: ‘It’s 1,300 miles to Romania – the same as the number of pounds my phone bill was’Guardian

Undoing the toxic myth of exclusion and scarcity – Seth Godin

And finally…

“Lost Time is never found again.”
Benjamin Franklin, Poor Richard’s Almanac

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{ 87 comments… add one }
  • 51 marked July 18, 2020, 9:24 pm

    In resp – 50

    35 years ago – not 45 years ago – ageing myself prematurely there!

  • 52 Richard July 18, 2020, 11:03 pm

    @ermine – I agree, I have never really liked that argument. Knowledge is power. I am sure the local Soviet Leader said the same thing to his people, as he ransacked their houses. You have to be pretty confident the justice system is truly blind, you are innocent until proven guilty and that someone in power hasn’t got a KPI to hit or an axe to grind. Of course, you probably will get off if you have done nothing wrong, but the stress and possible expense could be substantial. My experience when it comes to money is it is guilty until proven innocent, threats of possible penalties/court etc from the get go.

  • 53 e1 July 18, 2020, 11:42 pm

    An easy way to see that the probability is 1/3 is to imagine you gather 10,000 2-children families in a big room. Other than selecting for them having 2-children, the families are randomly selected. You’d expect that a quarter of these families will have two boys, another quarter will have two girls, and the rest (half) will have a boy and a girl.

    If you then ask all of the families with at least one girl to stay, and families without a girl to leave, you would expect around 2,500 boy-boy families to leave. You’re left with 7,500ish families, of which only 2,5oo are girl-girl. So there is a 2,500 / 7,500 = 1/3 chance that a 2-child family with at least one girl, will have 2 girls.

    This leads to a personal favoutrite: the Tuesday Boy problem. Similar set up – a family has two children, one of them is a boy born on a Tuesday. What’s the chances that they have two boys?

    It’s not very intuitive, so the following questions help set you in the right frame of mind:
    1. A 2-child family, one of which is a boy, what are chances that both are boys? (1/3, as established)

    2. A 2-child family, the first born is a boy, what are chances that both are boys?

    3. A 2-child family, one of the children is a boy born on Tuesday 5th February 2019, what are the chances that both children are boys? (no twins, adoption, or other funny business)

    4. A 2-child family, one of the children is a boy born on an even numbered day (2nd, 4th, 6th of the month, etc.). What are the chances that both children are boys? Assume half the days are odd numbered, half are even.

    Also, hello from a long time reader and second time commenter. Many thanks to all of you at Monevator, especially for the weekend reading each week.

  • 54 Tammer July 19, 2020, 9:13 am

    I read a post on the reddit Edinburgh sub-forum and it was from small retailers and restaurants who are really struggling with the cashless lockdown as the charges they pay on card payments mean their costs have rocketed during lockdown. Also, the charges by justeat delivery services (up to 35%) have made things tougher for them to have a viable business.

  • 55 The Borderer July 19, 2020, 9:26 am

    Seeing as were having a mathematical bent this weekend, how about this one set by my maths teacher many years ago. What’s next in the sequence?
    1/4; 1/2; 1; 3; 6; 12; 24; ?
    Hint – It was a lesson that not all sequences follow mathematical laws.

  • 56 raluca July 19, 2020, 9:30 am

    Don’t want to sound all conspiracy-ish over here, but a cashless economy would ensure at least a low level of government repression in western societies.
    In less democratic societies, it would automatically mean that governments could squash any opposition by automatically confiscating any property of the targeted group. Would anyone be able to resist if the government would suddenly decide : “the protestants are all heretics and they have no right to property under our laws”? Would the Hong Kong riots be possible if you knew that the government could seize all your money in a moment? And not only all your money, but also your family’s money?
    The witch hunts in Vaduz(Liechtestein) are a textbook example of how this can be achieved: government need money, government spreads propaganda about a minority or vulnerable people, government decides that different laws apply to those people, government seizes assets.
    This has happened countless times throughout our history. A cashless society would make this so much easier.

  • 57 Richard July 19, 2020, 9:41 am

    I think the recent post office scandel is a good example of the danager of financial data. How many lives ruined because the data said they had been false accounting? Nothing to fear if nothing to hide…..

  • 58 Matthew July 19, 2020, 9:43 am

    If you are saying that
    (1)boy (2) girl
    Is a different outcome to
    (1)girl (2) boy
    Then you’re saying the sequence matters, therefore it would matter whether the girl in question was first or second born – if you took the 2 girl-girl possibilities (and the 2 boy-boy possible routes) and treated them as 1 outcome where sequence does not matter then you are treating it differently than you are with boy-girl or girl-boy, therefore the methodology here is inconsistent

    @borderer – what is a sequence if its not consistent in some ways? Is that not the definition of a sequence?

  • 59 JC July 19, 2020, 9:48 am

    “Imagine that I told you that that couple has two children, and that one of them is a girl. What are the odds that their other child is also a girl?”

    Surely the odds are 0 because “one of them is a girl”.

    If “at least one of them is a girl”, the odds change to 1/2
    If “the older child is a girl”, the odds change again; to 1/3.

    I think!???

  • 60 JimJim July 19, 2020, 9:52 am

    The risk of a rogue government action is ever present, be it purposeful or accidental, it is a small risk as accountability is part of developed democracy. Even without cashless, governments have trimmed 10% off savings in bank accounts in recent history, devaluation of a currency would have a similar effect. Being able to see transactions does not mean that the information will (or should) be used. Checks and balances take time to emerge as not all problems can be foreseen. Look at the data protection laws as an example, they get stronger with time. Cashless is coming. How quick is anyone’s guess, but looking at the younger generation and how they transact, it is all but inevitable. Following the money is the hard part of detecting fraud and tax evasion. simplify this and we may not need, as honest individuals, to bear so much of the tax burden ourselves. Get the black market into a taxable economy and the burden is spread even wider. If government want this to happen it could. But, does it want it to happen?

  • 61 Al Cam July 19, 2020, 10:08 am

    @Griff & @Boltt:
    A question for clarification if I may.
    Do you mean multiple of the deferred annual pension in todays £’s that is payable from your schemes normal retirement age (e.g. 65) or deferred annual pension at some other age/”inflation adjusted £’s” (e.g. payable now in todays £’s)?

  • 62 old_eyes July 19, 2020, 10:23 am

    Fascinating to see the number of people who see a risk of government repression/suppression in a cashless society. I am genuinely puzzled by this. I would ask those posters what percentage of their total economic activity (both in value and in number of transactions) is carried out in cash? For me it was pretty low even before the whole cashless debate happened, due to the inconvenience and fear of handling large amounts of cash.

    Yes, if we are a cash-based society, it makes it a bit harder to impose negative interest rates, or seize assets (you actually have to go round to someone’s house), but that means taking all your financial assets out of the normal banking and finance systems. And doing it well in advance of this coup (otherwise it will be evident you have done it).

    Maybe I am wrong, but I cannot see that going cashless for minor purchases makes me any more vulnerable to these bad actions than I am already.

    I can see there are issues with small traders and the fees charged, but these are all soluble.

  • 63 DavidV July 19, 2020, 10:27 am

    @Borderer (55) My guess to the next number in your sequence is 30. With your hint that it is not a mathematical sequence, I think it is the value in old pence of the coins that used to exist. The next valuable coin is the half-crown – 2s 6d or 30d.

  • 64 Matthew July 19, 2020, 10:54 am

    Offshore banks/ crypto/ physical gold might be regarded as havens if a country started actually siezing accounts but I’d think for most people who keep their heads down they wouldn’t be a target of anything more than tax – if you want to be a dissident outside of locally accepted political channels then just leave to avoid making yourselves a target and live in exile where you’d be happier. I think you’d also see some posturing beforehand about asset siezing, ie corbyn, but even he was restrained to percentages as against what you might see in total siezure (ie nazis or mugabe)

  • 65 David July 19, 2020, 11:01 am

    Here’s another simple way of looking at the boy/girl puzzle and how the trick works.

    In our extended friends and family social bubble we have my two daughters (GG), my neighbour’s elder son with a younger sister (BG), my friend’s elder girl and younger brother (GB), and my cousin’s two boys (BB). There are eight children in total and a statistically normal set of the four possibilities (GG, BG, GB, BB).

    Now it just comes down to how you ask the question:

    1. The article asks: “I told you that a couple has two children, and that one of them is a girl. What are the odds that their other child is also a girl?”
    – The couple could be my partner and me, my neighbours, or my friends (but not my cousin, who has two boys). The only couple where the second child is also a girl is me. One out of the three couples. 1/3 or 33.3% – the surprising answer.

    2. Whereas if the question was: “I pick one of the four girls in the group at random. What are the odds that she has a sister?”
    – Both of my girls have a sister. The other two girls each have a brother. Two out of the four girls. 1/2 or 50% – the intuitive answer.

  • 66 Boltt July 19, 2020, 12:24 pm

    @A1 Cam

    “Do you mean multiple of the deferred annual pension in todays £’s that is payable from your schemes normal retirement age (e.g. 65) or deferred annual pension at some other age/”inflation adjusted £’s” (e.g. payable now in todays £’s)?“

    My deferred pension gets inflated at 5% fixed pa. (very generous!)

    The multiple is based on the pensionable amount earned when I left 15 years ago x 1.05^15. Or equivalently the pension I will get in 10 years time /1.05^10.

    My understanding is the CETV multiples are supposed to be Based on the today’s money value of the pension amount that will be paid at retirement age.


  • 67 Griff July 19, 2020, 12:42 pm

    Al my wife retires in September, on that date she reaches the normal retirement age for the company pension fund she is in. The multiplication is the transfer value she has been offered divided by what she can expect to receive as a yearly pension come September.

  • 68 Factor July 19, 2020, 12:58 pm

    My younger son and I are long-term season ticket holders at an EFL League Two club. We aim to attend all of the home games during the season, and also those of the away games which are within no more than three hours driving distance from home. The actual number of these away games can occasionally vary, one season as against another, due to promotion and/or relegation but in the more recent seasons has included a club well known for its Green credentials and located in an essentially rural environment.

    Although arriving at the the “Green” club in good time in 2019, we found the club car park already full, and were directed instead by a steward to join the queue at the entrance to large meadow nearby. Reaching the front of the queue, we were confronted by a well-built lady who identified herself as “oim [sic] the farmer’s wife”, and who replied to my query with the response, “Twill be foive [sic] pounds and none of they cards m’dear, tis cash only!” Luckily, I always carry £50 in notes in my wallet “just in case”, which saved the day!

    Returning to the field to collect the car immediately after the game, I counted six rows of cars, each row with about twenty cars in it, generating a tad more than running the same number of sheep on the land for a couple of hours on a Saturday afternoon, although whether HMRC ever got to hear about is another matter 🙂

  • 69 Matthew July 19, 2020, 1:19 pm

    There are 6 possibile configurations, not 4

    1=B 2=B 2=B 1=B
    1=G 2=B 2=B 1=G
    1=G 2=G 2=G 1=G

    If either 1 or 2 is G then you rule out 2 configuations, leaving 4. Of those 4 remaining configuartions;

    1=G 2=B 2=B 1=G
    1=G 2=G 2=G 1=G

    2 if those configurations contain a B
    2/4 =50%

  • 70 Matthew July 19, 2020, 1:26 pm

    Sorry spacing didnt work
    BB BB
    BG GB
    GG GG
    Who is oldest must matter for BB and GG if it matters for BG and GB

  • 71 David July 19, 2020, 2:01 pm

    @Matthew – You can prove this for yourself. Either go away and toss a pair of coins 1,000 times, or to save time enter a formula like this into Excel:
    Put the formula into two adjacent columns, say A and B. Drag it down to row 1000.
    Put this formula into cell C1:
    Drag that down to row 1000 as well.
    Now look at your random combinations of BB/BG/GB/GG etc. in col C.
    You can even sum them up, e.g. with =COUNTIF(C1:C1000,”GG”)
    There will be around 750 results with at least one ‘G’. And out of these around 250 which are ‘GG’. That’s 1/3 like the article says. Same as I explained in comment #65, see also @e1’s explanation in comment #53.
    Now please don’t tell me Excel has been wrongly programmed by somebody who didn’t understand probability as well as you or @PaulB #41!

  • 72 Al Cam July 19, 2020, 2:17 pm

    @Griff & @Boltt:
    Thanks for the info.
    When measuring CETV’s as a multiple of the pension payable (in todays £’s) at normal retirement age (NRA) – all other things being equal (which of course they rarely are) – the multiple normally increases as you approach NRA. This is because, the discount rate applied to the cost to the scheme at NRA often exceeds the rate of pension revaluation. Thus, as far as the scheme in concerned, they should not lose out if you take a CETV at whatever multiple.
    Also, IMO comparing CETV multiples from different schemes at any age other than NRA can be very misleading, notwithstanding the fact that schemes often have different NRA’s as well as other idiosyncrasy’s.
    The only multiple that might be worth comparing is what size/sort of annuity you can buy with the CETV and how does that shape up to the pension you are forfeiting.

    Fixed revaluation of 5% is extremely generous. I trust you have confirmed this by getting the administrators/trustees to provide you with annual quotes/estimates or similar, since you became deferred?
    Also, and I am just being really nosy now, is the indexation of your pension once it comes into payment similarly generous?

    Lastly, I too quite like the idea of a partial transfer.

  • 73 Matthew July 19, 2020, 2:40 pm

    @David – you’re still differentiating between BG and GB Ie whether Albert is born before Winifred without differentiating whether Albert is born before Archibald in BB or whether Winifred is born before Gladys in GG. If you didnt seperate BG from GB you have 3 possibilities that drop down to 2

  • 74 The Hare July 19, 2020, 2:45 pm

    I’ve kept using cash all the way through. Some shops and cafes only accept cash and others I use cash because cash doesn’t mean a card charges hit for the business.

    There needs to be a big debate about the high card machine and card charges that businesses are charged. Big corporations are one thing but when businesses like the little off licence around the corner are charged several hundred a month just to have the machine, with card charges on top, that’s robbery.

    When I was in California last year, a lot of shops went cash only suddenly as their fintech card provider suddenly increased the card charges (Square) and they would have gone out of business if they hadn’t have gone cash only until they found and integrated another provider.

  • 75 Boltt July 19, 2020, 4:10 pm

    @ A1 Cam – No such luck – RPI up to 5% in retirement!

    Interesting i have the option to take the pension between 55 & 62. Taking before 60 costs 3% pa reduction which is great value, BUT the loss of the 5% fixed means it’s not good value (unless inflation is likely to be close to 5% for 5 years). First world problems…

    Agree CETV are not easily compared unless they are similar distances until the pension payable.

    Finally – I wish I had the magic options ZX has to move money between DB pension Pots and ISA! Perhaps there’s a business opportunity for him in retirement, or even better a JV!


  • 76 Griff July 19, 2020, 5:21 pm

    Al, Boltt
    The wife’s increase is RPI or 5% whichever is smallest.

  • 77 Al Cam July 19, 2020, 6:24 pm

    @Griff & @Bolt:
    Both your indexations sound generous to me!

    FWIIW (and that is not a lot, DYOR, etc) I cannot see why you would want to trade either scheme for cash unless you are really worried about the financial security of the scheme. I gather you both stand to lose relatively heavily if your respective scheme transferred to the PPF. You might be able to get a handle on this via what is referred to as the strength of your schemes covenant. Or, am I missing something?

    Also, are you both sure that the indexation of RPI to a max of 5% covers all of the respective pension? I ask as it is not entirely unusual to have different tranches of service within your DB scheme with different indexation rules applying to each tranche.

    Your actuarial reduction (“…before 60”?) looks rather small to me (which is more good news) – but when coupled-up with your fixed revaluation I can see little rational reason why you would want to take it early. Out of interest, what is the actuarial uplift like if you delay beyond NRA – assuming this is possible?

    Also, it seems that is is not entirely unusual for the revaluation and indexation in a DB scheme to operate differently . I have no real idea why this is so; it may be historic, but …..

    The ZX option looks very situational/exceptional to me – IIRC he did explain a bit more about it fairly recently here at Monevator.

  • 78 NewInvestor July 19, 2020, 8:56 pm

    Probability is highly counter-intuitive at times. The above discussion reminds of when a similar problem was demonstrated/explained in the Royal Institution Christmas Lectures in 1997: see https://www.youtube.com/watch?v=JWV6eHNetZ0

  • 79 JediMaf July 19, 2020, 11:54 pm

    Isn’t the problem with card fees that the wrong party pays the fees? That is, it is not the party with the choice of which service to use. If the fees on every transaction were met by an addition to the customer’s statement, I am pretty sure competition would get those fees to a fair value quite quickly, and American Express out of business almost as quickly. As it is, I get 1% cash back on my purchases because the card companies have the shopkeepers over a barrel.

  • 80 JediMaf July 20, 2020, 12:17 am

    @Al Cam
    “Also, it seems that is is not entirely unusual for the revaluation and indexation in a DB scheme to operate differently . I have no real idea why this is so; it may be historic, but …..”

    In the beginning there was little restriction on how a company’s DB scheme worked, and there was no requirement for increases at all. Most companies didn’t care about people that had left their employ, so no increases in deferment was common. However, they might decide to pay an increase to their pensioners (say 3% pa for an example).

    The law changed so that pension earned from 1 January 1985, provided you left service on or after 1 January 1986, had to be increased in deferment (RPI max 5% pa at the time). This was backdated as a requirement on all earned pension if you left on or after 1 January 1991. Then more recently we had the cap dropping to 2.5% for service after 6 April 2009 and also the indexation basis changing to CPI (2011).

    Back in the day some companies (mainly those whose DB schemes were administered by insurance companies) thought administering inflation linked revaluation was too complicated and so just used 5% pa, thinking inflation is generally that or higher anyway. They probably regret that now.

    Statutory increases to pensions in payment came in from 6 April 1997, and lot of schemes changed what increases they paid at that point if they hadn’t already, but only in respect of the pension being earned going forward. The 2.5% cap (at a different date) and CPI law changes have also happened for increases to pensions in payment. But a lot of companies, due to history, pay more that is strictly required.

    There is lots of additional fun with how the statutory revaluation works, particularly when you throw GMP into the mix, but I think I will leave it there.

  • 81 The Borderer July 20, 2020, 2:06 am

    @DavidV (63)
    You got it:-))

  • 82 Al Cam July 20, 2020, 6:37 am

    Thanks for the explanation of the differences between revaluation and indexation rules.
    As it happens, I am familiar with statutory revaluation and the GMP implications’; albeit primarily as seen through the lens of my own scheme.
    I am also acutely aware of the importance, complexity and often great length of scheme(s) rules, which generally reflect the schemes history/evolution.
    IMO schemes/legislation still favours employees & pensioners over ex-employees – just not as much as they used to!
    A question if I may, with regards to statutory indexation (SI), am I correct in concluding that the PPF schemes increases to pensions in payment are less than SI?

  • 83 JediMaf July 20, 2020, 9:44 am

    @Al Cam:
    My understanding increases to PPF compensation, once in payment, is that they are CPI with a max of 2.5% pa on pension accrued on or after 6 April 1997. Yes this less that the statutory minimum that live schemes have to provide, where the cap is 5% in respect of pension accrued between 6 April 1997 and 5 April 2005.

  • 84 Boltt July 20, 2020, 4:49 pm

    @A1 Cam

    The uplift, or actuarial adjustment, for taking the pension at 62 rather than 60 is 15.8%.

    Initially, and without resorting to excel, this seems good value. Until you start thinking about the break even point – it would probably be in my 80’s.

    I/we tend to obsess about rates of return, but a £1 at 60 buys a lot more fun than £1x(1+i)^20 at 80!

    I suppose I could try and replicate the lost early pension with a loan and life insurance – I’ll save that exercise for the winter (or a keen reader).


  • 85 Al Cam July 20, 2020, 6:09 pm


    I guess this means your schemes NRA is 60. Also very nice!

    In due course I would be interested to hear what you decide to do.
    However, in the mean time I would just point out that a lot of our US cousins wax lyrically about delaying social security with increases at 8%PA simple (up to 4 years max) – so very much in the same ballpark. A credible set of worked explanations is available at:
    However, the US income tax system seems to be somewhat less punitive (especially to retirees) than ours. So, depending on the amounts due from your DB, income tax may also have to play into your thinking.
    By way of comparison: from memory, the UK state pension (SP) uplift for delay changed from over 10% PA (with a choice between a favourably taxed lump sum or annual uplift) to around 5.5%PA (with annual uplift only) with the advent of the new SP.

    Lastly, to my eyes at least, your actuarial uplift for delay seems much more normal than your exceptional fixed rate revaluation, indexation rules and actuarial reduction. But, of course, all schemes are/were different in their finer details and we inevitably tend to become anchored to the scheme(s) we are most familiar with.

  • 86 Richard July 21, 2020, 7:05 am

    @old_eyes – for me it is not about cash per se, but about a single person or organisation having a complete financial picture of me. This is what worries me in relation to fin tech or even my SIPP provider that give you ‘handy tools’ to capture the details of your net worth or capture all your spending behaviours. Maybe irrational, but it is the same reason I haven’t done a DNA test. I don’t know what someone can do with that data today or even worse possible future uses. At the moment, in theory, my bank can see how much I spend on credit cards but not the detail of what I spend on etc and no one has this complete picture although I agree the data is largely there. Plus there is not really anyway to avoid it if you want to be part of the modern world.

    Perhaps my biggest fear (again irrational I am sure) is some algo detects something it doesn’t like and I end up like those postmasters. Maybe it is a risk worth paying, but I am not convinced yet.

  • 87 Al Cam July 21, 2020, 7:38 am

    By my “fag packet” calculation if you delay to 62 you will more than break even (in real terms) by the time you reach 74, assuming revaluation=indexation=inflation. In your scenario (assuming I have understood it correctly) it seems likely that revaluation > indexation, so you would probably break even earlier.

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