Weekend reading: safe withdrawals and dangerous deposits

Hi @TI.
I find it difficult to comprehend why you think the State can ever be more efficient at distributing (other peoples) wealth than a free market of individuals. More socialism / communism has never worked better for society than the free market. Why do you think it ever could ?

It’s almost as if adding a whopping 10 million people to the population of the country over a period of 16 years wouldn’t affect house prices.
But shhh…..we don’t like to talk about that round here.

And I do have a wry smile. People always prefer taxes that others have to pay. No kids? I’d like inheritance tax please… Funny that.

My problem with IHT is that the burden largely falls on the middle class while the rich are able to avoid it. For example the Duke of Westminster inherited £9bn in 2015 (or thereabouts) and paid no tax. I would happily see IHT reduced to 20%, so long as everyone actually paid it. If you just increase IHT without some kind of reform then I fear the feudal system would be back even quicker.

I agree with the above posters that housing wealth is largely a function of extreme mass immigration.

If there is a recognition that we need to take large sums off the wealthy to redistribute to the less well off then it supports the argument that the only immigrants that should be allowed in should be wealthy or high earners, say £50k minimum salary or £80k with a family.

Otherwise you are increasing the number of people to redistribute to, without increasing the number producing the money to take then given out.

I enter this debate nervously, as I am on record in my ‘Fireside Chat’ that I need to provide a lifetime income for my autistic son. But the reason I need to supply a lifetime income is that the state is not interested in supporting the unfortunate (not just my son but millions of others with disabilities, mental health issues, or just plain bad luck). Were the state to offer him the support he needs (and enable him to be a positive contributor), I would be much less concerned about inheritance.

In my observation the feckless and truly indolent are fairly rare, most are unlucky. In fact, I think the proportion of feckless and indolent is higher amongst the offspring of the wealthy. And yet we see inequality growing rapidly in the UK. That is not evidence of a meritocratic system working. The market is not solving the problems we face as societies, and any move towards the mad idea of the ‘sovereign individual’ would make things much worse, since it essentially denies the value of society altogether.

Again, I would be in favour of strict meritocracy providing there is a proper safety net (and no one could argue we have one of those). What used to be called equality of opportunity. I have no problem with people being insanely successful and rich by the value of what they do. I do have a problem when these same people prevent others having the same opportunities. And that is what they do by favouring their offspring and vociferously resenting any attempt to help those with potential get a leg up, or being charged to provide a safety net for those who, for whatever reason, can’t make it on their own.

There are so many people out there in media, fashion, property development and other fields who have no discernible skills except having the right parents. What my parents used to call ‘a waste of space’. Few of them could bootstrap themselves to wealth, but they make bloody sure no one without familial wealth gets the chance to try.

The tax system is a mess, and I have no idea how you could get anywhere sensible from here, but we need action. What evidence we have is that growing inequality is society is bad news. Eventually it spills out in poor health, shorter lifespans, and often violence. Eventually, those who can leave that society taking their skills and wealth with them (cf Russia). A government that sets out to do that is one that has no sense of its responsibility to its polity (and we have plenty of dictatorship that demonstrate that in history – mostly it ends in collapse, revolution and a large number of deaths).

I don’t have a solution, but I fear for the younger generations. They have it massively harder than I did. We have a strain of political thinking in the UK that considers poverty to be a moral failing and that is both wrong and counterproductive.

And to those raising immigration as an issue – just look at the demographics, and then explain to me how we are going to support an ageing population who are “entitled to my state pension – I’ve paid in all these years – it’s my money that the government is stealing from me”. Evidence if it is needed of the terminal self-interest and stupidity of so many people. People unfortunately more likely to vote than the average.

Great reading- I’ve had the chance to ponder this growing inequality between millennials and how it makes an unfair life even more unfair.
I come from a family of 6 kids of teacher parents from a non prosperous background and never expected to get an inheritance (and thus didn’t rest on my family laurels).
I’m for higher inheritance and wealth tax from a bitter point of view – my views chime with old_eyes.
although now I’m in a position of being a rich parent of 2 kids and try not to spoil them.

One big problem with the graph is that if the top 10% of millennials have £300k in housing equity by 37, where does that leave people like me where I can’t have £300k in equity because my house isn’t worth that much and a casual glance at houses for sale around my way, only maybe the top 10% of houses are worth £300k.

The only balm for this burning injustice is that the low house prices (and overall LCOL in Scotland) is that our mortgage is affordable, generally our friends are not hard up, there’s less inequality and whilst house prices can make you wealthy – the truly rich have their money in stocks, shares, ETFs.
That’s where our money is and my belief is that high house prices will only make you feel rich but never deliver because you can’t eat equity.

I can think of the following policies that would help lower house prices (and hence address the problem that this article is trying to fix with inheritance tax).

1. Lower immigration to reduce demand.
2. Build more homes to increase supply.
3. Outlaw/restrict/tax property ownership for non-doms.
4. Penalise holiday home ownership for properties vacant for >x weeks per years.
5. Spread the economy around the country.

Number 5 in particular would be massive. The fact is the country is littered with cheap properties but few people want them because they aren’t where the jobs are. I don’t pretend to know exactly how this policy should be carried out but it must be possible as most other advanced economies suffer less for concentration in one city.

In my opinion all 5 would contribute to alleviating the problem and most importantly they would be POPULAR which means they’d work much better than inheritance tax which would be extremely UNPOPULAR.

It’s like watching the envious dream up the best way to repress fellow travellers who dared to improve their lot, and leave their life of shite.

Perhaps you should look to the unelected House of Lords, all seven hundred plus, who continue to frustrate the electorate at every opportunity, contribute nothing of value, but maintain their own and their beneficiaries’ lifestyles, whilst you debate the best way to suppress your cohorts.

I found the article on ISA being Ineffective Savings Accounts and the broader conversation about Inheritance Tax (IHT) very demotivating. I am sensitive to the struggles faced by millions, but at the same time, I feel that this rhetoric tends to push people like me, who are striving to break the ceiling with hard work, further back in line. I didn’t inherit wealth; I’ve worked diligently to earn and save money in my ISA, resisting the temptation to spend it frivolously on things beyond my means. I’ve made prudent decisions to save and invest my money, all while consistently paying the top tax rate.

In my view, I’ve fulfilled my obligations by paying income tax and National Insurance contributions, and I believe I should have the freedom to determine how to use my assets. The government shouldn’t penalise individuals like me for being financially responsible and sensible, while offering support to those who borrow recklessly to sustain a debt-driven lifestyle. This is another aspect of meritocracy worth considering in the arguement above.

Surprised there have not been more reflections on Simon Nixon’s alarming article about the collapse of the London stock market after Brexit. Of course, it is not surprising that global investors now see Britain as a basket case, borne out in the parade of dismal Tory Prime Minsters we’ve suffered since 2016, but this problem matters for the economic and financial futures of UK readers.

@TomBaker
I wouldn’t panic about your walls collapsing. True this winter has been unusually stormy, but most scientists think the longer-term trend is actually one of lower windspeeds as a result of climate change:
https://theweek.com/news/environment/958900/global-stilling-where-has-all-the-wind-gone

A difficult and complex topic.

Meritocracies don’t really exist, and shouldn’t be strived for as we don’t all start off as equal or have equal access to the best education system, socioeconomic backgrounds, networking opportunities, health, nutrition, appropriate mindsets etc. Nor do we all have the same levels of intelligence, the same developmental pathway which means we can take advantage of the opportunities as they typically arise in the education system. All of which risks baking in a different intergenerational inequality.

I was reminded of this in a small way recently by a middle class parent of my acquaintance bemoaning the fact that a school trip for their offspring was costing as much as a mortgage payment, and that it was unfair on those who couldn’t afford it. As someone who grew up as part of the underclass, it landed as something like a cross between a humble brag and hand wringing. I never went on any school trips if they cost any money – and they pretty much all did so I’d usually find myself left behind with the children who were similarly poor and/or often had behavioural problems. A drip drip of similar missed opportunities meant that even though I was lucky (I went to university), there was already an estimated (by me) 10 year gap across a bundle of measures including wealth, self-confidence, health etc.

Through a mixture of luck, kind mentors, extremely long hours spent on self education, careful goal selection, management and timing of a chronic disease progression etc, I’ve managed to claw back some of that ever widening difference. Compared to my direct peers I grew up with, I have unimaginable wealth as I have my own house, will never go hungry again, never struggle to pay the bills and work as much or as little as I like. But I will never catch up with my middle class colleagues in terms of aspirations and ability to meet them as I’ve run out of sufficient energy due to a chronic health condition combined with getting older.

Like many, I’m generally of a dim opinion of governments as often it’s a place where the most venal or least smart middle class offspring end up – but I cannot see how intergenerational and intragenerational inequality can be tackled without some form of wealth and opportunity redistribution coupled with a sense that by doing so the cake gets bigger for everyone. Some will need more help because they’ve been handed a bad lot in life due to pure accident of birth – and even then it may not be enough. Some elements of structural inequality are so egregious, eg the Royal Family and associated but far less visible aristocracy, they simply need dismantling. There is a lot of work to do.

Surely the issue as to the level of IHT is separate from lack of housing ? I have absolutely no doubt the scales will tip and a future government will go on a massive house building programme- that’s why I invest in the real economy and not property. When today’s 20 years olds are 40, perhaps younger, they will be in the driving seat and they, like we all did, want a place to live !

Assuming that is sorted , I don’t see an argument for a high level of IHT. Why should my accumulated wealth be spent on benefits or hotel rooms any more or less than my heirs ? How is one recipient any more deserving than the other ?

Firstly, this argument “you don’t have kids so you are ineligible to speak on it” is a poor one.
I don’t have kids, but I also live entirely from capital and personally think that capital is taxed too lightly compared to labour in the UK. How is that possible? The answer is that one doesn’t have to be entirely selfish in their outlook.
Re: the Murdoch article, I totally agree with the premise though I felt the representation of it was a little strange
Defining a millennial is one issue. I’m 40, technically a millennial apparently, yet my cohort’s average lot is way better than those who are 30 (also millennials) because we had a chance to buy houses at low interest rates, and houses were cheaper in 2012. Still hard, but nothing compared to young millennials woes.
Second, using the median rather than mean shows a strange result where apparently the ‘average’ 37 year old has £0 property wealth, whilst really all that shows us is that the middle person doesn’t have a house. Which is not *necessarily* an issue, and it could also hide that the 52nd percentile does have much more equity because they *do* have a house.
Notwithstanding that, I’m glad he’s raising the issue. My wife and I have often talked about the impossibility of buying the property we did if we were born just 5 years later, and we were DINKs with decent jobs.

@TI

I’m not an anarchist (yet?), and so am not advocating for zero taxes. If there is a government, then some taxes will be required (preferable over money printing/debauching).
However, we had a ‘State’ before WWI, and as far as I am aware, gross taxation was well under 10% which was plenty to fulfil the governments basic requirement of protecting individual & property rights.

From the comments, it still seems to be coming down to the State vs the Free Market (not incl. Crony Capitalism) at being better for overall wealth creation. I’m not sure what this discrediting of ‘efficiency of markets’ that @trufflehunt alludes to is or what it has to do with it.

For relatively recent takes on the State & Taxes, I’ve been enjoying Dominic Frisby’s books ‘Life After the State: Why We Don’t Need Government’ & ‘Daylight Robbery: How Tax Shaped Our Past and Will Change Our Future’…. And his song ‘Show Me the Way to Ancapistan!’ is most entertaining:
https://www.youtube.com/watch?v=wPQdCaxuNNc

The essay on the decline of the UK stock exchange was interminable and utterly fatuous. It’s argument for the current state of affairs was of course Brexit without offering any rationale beyond a hand wavey “foreign investors are deterred because of political uncertainty” type nonsense. This argument has similarly been mirrored in these columns without any evidential offering. The truth of course is that the UK remains the second most popular market in Europe for FDI and a cursory look at the data in the ONS( which is a treasure trove btw and rarely quoted) states:
At the end of 2022, shares in quoted UK-domiciled companies listed on the London Stock Exchange (LSE) were worth a total of £2.42 trillion.

The proportion of UK shares held by overseas investors (rest of the world) increased again to a record high of 57.7% of the value of the UK stock market.

The proportion of UK shares held by UK-resident individuals fell to 10.8%, down by 1.2 percentage points from 2020.

The proportion of quoted shares held by banks continued to rise and stood at 3.4%, an increase of 0.3% from 2020.

As mentioned by others above, increasingly ALL stock markets are shrinking as the ladder to accessing assets is being pulled up upwards and away from the retail sector.
Further, the UK pension sector, unlike many in Europe in the past, heavily financed domestic equities, so much so that over 60% of their assets were invested in UK equities as recently as 20 years ago. For many different reasons not least regulation around permitted asset/ liability strategies that figure now sits at sub 5%. Despite the many legitimate complaints about Brexit, the current plight of the quoted UK equity sector is just another lazy canard to leave at its door.
I’ve got no idea who the author is of that piece but it was uninformed drivel…. That does sadly have a more than willing audience.

I agree with @TI, that wealth/inheritance article was an eye opener. And I also agree that it should be taxed more effectively than now – though I disagree about taxing the recipient. The beauty of the current system is it doesn’t double tax the individual as some claim (because the individual is by definition no longer alive to be taxed) and it doesn’t tax the recipients because the wealth isn’t legally theirs until tax is paid and probate granted. It would get a lot more messy if the recipients, who are quite likely on PAYE and have never filled in a tax return, start getting chased by HMRC.

It can’t be said to be anything other than taxation of unearned wealth.

However it does need a system where everyone pays the same, you can’t pay an accountant to rearrange your finances to minimise IHT. I am sympathetic to the flat rate idea, or to those suggesting that after death all assets including the principal residence are assessed for CGT. It would need legislation to address the taxation of trusts.

People are often against things like taxes on assets at death and as many posters above demonstrate, suggest ‘their’ wealth was earned by hard work, never good fortune or luck (at best, and more likely, a combination, involving good fortune), they think it is all their own greatness and efforts of course, so why shouldn’t they get to pass that on? Wait until you or your children have twins with special needs or lifelong disabilities, or something equivalent – you wont be calling the state too big then and *rightly*, at that point, you will be expecting the state to support.

Sadly, we need to be more militant about taking wealth to fund the state, the problem is that once you are reasonably wealthy and with good fortune, you can manipulate it more than anyone else. Case in point, the head of the unit I worked in – moved to England to pay lower taxes than Scotland. Fine you think, and he done it all legally, declared residence, comes into office contracted days etc. So what is the problem? He plans to move back to Scotland at the latest point possible so his kids can get free university tuition in Scotland. Again, all legal.

The above example might be a stretch from the points being made about where the tax comes from but the tax system is meant to support and protect those who need it most like the disabled, those who genuinely can’t work, etc, and to be paid to fund services that the country benefits from. Tax systems are not there to be optimised (read: abused) to suit your current circumstance. At the point where you are able to work in a low tax place, retire to somewhere more favourable to you, including your tax arrangements, then die somewhere optimal for passing on your wealth, is the point where you know your life and family has been blessed and you have been fortunate (infinite wealth to pass on does not greatly improve the life of severely disabled children etc, wherever they live, if this happens to you suddenly you will be less interested in optimising tax and less worried about death taxes). However, such an optimised approach to your tax affairs does not look after the genuinely ill and disabled, nor does it fund things we all take for granted. We can’t all operate like this and expect the sick and disabled to be looked after and the essential services to run. You just happen to be fortunate right now that such situations do not impact you.

The state might have problems, but I have worked in both public and private sector, and the only real two differences are the private sector can simply run away from anything that is a money sink and abandon it, and secondly, of course, the grossly higher salaries in the private sector. We see it right now with rail, water, and energy, things that can’t be abandoned, as soon as profits dry up and losses look inevitable, it basically gets handed back to the state (or costs lumbered on the state), no acceptance of failures, and we don’t hear the old chestnuts about needing to pay millions to CEO’s to get the ‘best’ people etc when such happen, despite those millions of pounds of pay to single individuals leading to the state needing to pick up the pieces.

I personally would be putting efforts in place to devise a system that was less open to any manipulation or somehow pro rata-d cost wise by time in the country or something. The sad thing about this is many of the costs we find ourselves dealing with (and what most reasonable, non-racist, peoples problem with migration is) are due to the systems being gamed or being perceived as being gamed eg the perceived abuse/drain of national services/benefits/resources by those who are perceived to have not contributed to, or be deserving of before long twrm residents. I do wonder sometimes if the anti-immigration sentiment would be quite so high if almost everyone who came here to work had to pay for services we take for granted and did not immediately become entitled to the same as the long term residents here. I am purposefully talking about economic migration here and not asylum and all the other variations that are more complicated – basically, the idea that a country should look after its people and provide basic services. These need to be paid for. The tax system simply needs to be better devised so it can’t be abused or trivially optimised by those who currently are fortunate enough not to need many of the expensive services. I say this, as someone who carefully organises my tax affairs and in general, has been lucky with family health etc, but I am honest enough to see many of the problems that need addressed.

If you think you pay too much tax already, and get too little back from the system – congratulations, you and your loved ones are *currently* probably blessed with good health and reasonable opportunities.

The problem with IHT is that only the moderately wealthy pay it. Billionaires don’t. I think what is needed is a shift in focus so that capital and transfers of capital is more properly taxed.

I would base a capital tax on notional return. If the notional return on capital was say 5%, then a 40% taxpayer would pay 2% tax. This tax would be offset by income tax, so for example if an investment or property portfolio produced an income of 2.5% and 1% tax paid then the capital tax would be reduced to 1%.

I would replace IHT with a capital transfer tax, so if someone gave you money or assets you would pay tax on the value of the transfer as though it was income.

To get round evasion by people keeping money offshore we would require that beneficial ownership of assets and businesses are identified. Then a charge could be levied on the business or asset according to the amount of capital and transfers of capital value.

The above is a more concise way of saying what I was trying to get at – the point that taxes are to pay for what is needed, so it can’t be easily manipulated.

I also was trying to get to the other side of the equation about entitlement to services and at what cost. I’d be happier with a flat tax rate of X% and those who spent 100% of their lives here got services ‘free’ whereas those who just entered the country were effectively charged for the services in proportion to their proportion of life in the country. It’s a messy idea and not well thought out but it’s a bit like the new state pension where 35 years need accrued, 10 minimum, and you only get a proportion of state pension if between 10 and 35. These sorts of approaches only really work though if everyone agrees to do them.

It would need proper thought and be done sensibly, but there are two ways to make sure the state has enough money – collecting appropriate/more taxation and reducing entitlements sensibly and fairly. Interestingly, inheritence taxes become a problem under such an approach, and preventing capital flight late in life would have to be a thing, or else taxing it as suggested above.

I struggle to believe anyone can say honestly that it is ‘fair’ to work in a very low tax region but then retire to somewhere else and expect all the benefits and services paid for by taxes, at the point in your life that most people benefit from/need state services most.

BBlimp (#51).
Trying to get a fixed income out of a variable asset, like the SWR is approach is, IMO, not using the right tool for the job.

The historical 30 year SWR for the UK with an allocation of 50% to equities varies from something like 3% (retirements starting in around 1910 and 1937) to about 10% (retirements starting in 1920 and 1981). Of course, this varies with asset allocation, but the variation in time (i.e., good/lucky or bad/unlucky retirements) is far larger (e.g. using 100% equities instead of the 50% I quoted figures for above, the worst case SWR increases to 3.3%). In bad retirements, assuming an a priori knowledge of the worst case, you will scrape by your money running out after 30 years, while in ‘good’ retirements you will underspend by a large amount.

Providing a floor (e.g., state pension and a RPI annuity) means that you can accept some variability in portfolio withdrawals without having to worry about eating the proverbial cat food! In bad retirements, the mean amount drawn from the portfolio over 30 years is, in the worst cases, slightly less, but there is a bit left over, while in good retirements, the mean withdrawal can be much higher and there is less left on the table.

At the moment, RPI annuities are particularly attractive since they have an income rate slightly higher than (single life) or similar to (joint life) the UK SWR.

Algernond (#44)

“However, we had a ‘State’ before WWI, and as far as I am aware, gross taxation was well under 10% which was plenty to fulfil the governments basic requirement of protecting individual & property rights.”

There are some interesting difference between the UK now and before WWI, both economically and socially. As one example, the history of education is interesting (see https://researchbriefings.files.parliament.uk/documents/SN04252/SN04252.pdf)

Some headline numbers: School leaving age in 1910 was officially 12 (but many left at 10) and fewer than 10000 people obtained a degree.

A good question is then how well can you run a modern, technological economy with an undereducated population?

I don’t think I have ever seen a serious argument for defunding schools (even in the US) and besides, in a democracy, it would probably be hard to persuade many voters to vote for it (even those without children).

Another area of government expenditure is health. For example, the 1904 Fitzroy report (see https://history.port.ac.uk/?p=2264) prompted social change because defending the state requires healthy citizens.

@Alan S (#60):
I share your scepticism of so-called safe withdrawals* and also favour, and follow, the floor and upside (F&U) approach. I note from an earlier post that you may (in due course, I assume) benefit from a fully inflation protected DB pension. What, if anything, do you see as the key options for overcoming the drawbacks of limited price indexation of some DB pensions?

Also, do you currently have any plans to develop any further publications about the practical use of F&U in the UK? I ask as IMO this is a glaring hole in the available de-accumulation literature.

* essentially the SWR is unknown and unknowable in advance

Here is who has to pay the healthcare surcharge:
https://www.gov.uk/healthcare-immigration-application/who-needs-pay

Not really something that is highlighted when these topics are discussed, so thanks for highlighting it Wodger

I purposely used UK examples as I didn’t want this to become an anti immigration type argument, as it is not, the problems I am talking about exist even if we only look at movement/legal tax avoidance of UK taxpayers. On the charges detailed above however in the official links, it looks like slightly over £1000 per year of visa, which is relatively nothing in my view. Yes, if your taking 4 other folk with you (all 4 of whom are not working) for 5 years it gets expensive overall, but the truth of the matter is, those other folk are likely to be more dependent on state services than the person jumping up and down about the cost (likely the main earner). As someone with a PhD I have some sympathy with the academic special case that always is brought up, as it is one of the few genuine areas where the person may be bringing truely unique skills and knowledge that we could not readily get in the UK, and most reasonable people would be sympathetic to trying to do what they could to encourage smart unique people being in the UK. Unfortunately it is otherwise a bad example as although universities have been encouraged to raise money via work and many have, the university sector receives vast sums of money from the state as well, so even the main earner salary is being subsidised by the tax payer, while that family likely will be sending kids to schools and using services etc that are already strained at almost no cost to them. This might actually be fine for a lot of people to accept (including me) but the truth of the matter is that the genuinely gifted academics coming to the country are the rarity – we know that sure from the failed super academic visa thing they tried to introduce years ago and an FOI request after it had been running for ages showed only a handful of folk had visas via that route.

We need to stop considering special cases and looking at this as what it is, a ‘system’. The tax system has the pay in side and the cost side. My only real points I reiterate is we can’t allow the pay in side to be so easily manipulated so people can readily pay in hardly anything, whilst the take side is also possible to be readily manipulated in such a way to get as most out as possible. Both sides need looked at – while all of the manipulation is going on, the genuine unlucky (sick, disabled, infirm etc) need looked after, and it needs paid for, and the private sector won’t touch it if its unprofitable.

@ The Investor

Sorry, I’m not remotely interested in what you think or feel about Brexit, I’m interested in facts and your n =1 “I feel this, ergo I don’t need to demonstrate anything” doesn’t cut it.

European stock markets are also suffering a valuation deficit vis-à-vis the US, I suppose that’s also due to Brexit?

Honestly I hope the paid for pieces in these columns display better rigour than apocryphal quotes and puff pieces from the Torygraph.

@Alan S @Al Cam, let’s take a hypothetical where a DB pension covered or exceeded a decent lifestyle, yet you had a decent chunk in ISAs…

You could go pretty hard at it in the years it increased in value if you were happy not to draw from it in bear markets, but if a bear market was five years long it seems a bit pointless to spend a lifetime saving up to not draw from it for what could easily be a quarter of your retirement.

Or you could have a ‘bucket’ of cash on hand to cover you through those years but you run the risk of losing purchasing power through inflation.

Although I’m not advocating it – I’ve gone with a two fund portfolio rather than a BTL – but I can kind of see why people went that route. We all seem to know all the tips for accumulating – low cost, diversified across regions/ sectors, tax efficient- but be none the wiser at the other end ?

@TI – please don’t chuck Brexiteers out, your below the line has more than its fair share of moronic remain comments – I don’t engage with the vast bulk because the greater fool is the one who argues with the fool – but take an objective look at some of them. If you let them think the whole world thinks like them – they’ll be wondering around with their fingers in their ears oblivious to the world around them if they’re not careful

Rather than ban IHT, we need to ban excessive wages, excessive housing etc. We have a minimum wage, and we should have a maximum wage (Japan had this, set at 20X the min wage).

Also all property sales should be taxed (no primary residence relief). Council tax bands should have no upper limit (although houses should have a max size). Also second homes, BTL should incur and additional 5%pa tax on their value. Owning more than 1 car should not be allowed, and more than 1 flight/yr/family should be banned. These policies would actually fix excessive wealth, property bubbles and global warming. Remember 1 flight causes more CO2 than your entire family’s energy usage for a year!

Al Cam (#85)

Agreed about how DB pensions have changed over the years. Not all mine is fully index linked – about 25% of the original amount was capped (rather oddly at 5% + half of that over 5% to a max of 10%). Our largest risk is if the DB scheme falls into the Pension Protection fund where it would be capped at 2.5%. One advantage of the recent turmoil in bond markets is that the funding ratio of DB pensions has tended to increase.

Yes, that was an interesting article on ladders and a good discussion.

@Alan S (#90):
Agree re PPF.
A peculiarity with my DB is that in low inflation scenarios the indexation can exceed inflation (due to part that has fixed indexation and part that has a minimum level of indexation).

@Alan S:

Re PPF indexation:
see: https://www.ppf.co.uk/our-members/Will-my-pension-increase
and in particular note:
a) limited to service accrued after April 1997; and
b) PPF Board has discretion to change this

Re your ~1/N drawdown scheme:
Sounds a bit like an extended version of the US RMD calculation. Assuming that is along the correct lines, are you familiar with the Stanford Spend Safely In Retirement Strategy (SSiRS)?

@BBlimp (#93)
Let’s take an example, for a couple each 67yo and each with a full state pension (i.e. combined £23k per year). Assume their combined pension pots and savings are £200k (using data from the ONS, this is close to the median pension wealth of £100k each for a 55-64yo). According to the Retirement Living Standards (see https://www.retirementlivingstandards.org.uk for the details of what is assumed at those levels of expenditure), a retired couple needs £22k for a minimum standard of living, or £43k for a moderate one. At 67yo, one or other of the couple can expect to live to an age of 100 in about 10% of cases, so 30-35 years is probably a reasonable planning target.

If the first withdrawal was 3.5% of the portfolio that would mean £7k to add to the £23k state pension (i.e. a total of £30k). If the portfolio then had a bad year and dropped in value to £100k in real terms (i.e., adjusted for inflation) over the next year while the withdrawal increased to 3.6% (see comment below), the withdrawal would be £3.6k and the total £26.6k – representing a drop in total income of just over 10%. While the state pension secures their minimum standard of living, perhaps they could eat out a bit less, take a cheaper holiday, or put off replacing their car for a year to two in order to adjust.

Conversely, if their portfolio had a good year, such that the real value was then £250k, they could withdraw £9k (3.6% of 250k) for a total of £32k an increase of 2k or roughly 6% from the first year.

Whether you can stand these fluctuations in income depends on willingness to do so and that your flooring (the state pension in this case) covers the basics (i.e., you can keep fed, warm, and have some entertainment). The advantage over the SWR method is that the portfolio can never run out of money before the end of the planned retirement and spends the portfolio down in good retirements (the SWR method can leave a lot of money unspent). There are various strategies for damping the fluctuations (e.g., Carlson’s endowment formula, portfolio value smoothing, Vanguard dynamic spending strategy, etc.), but these all mean that the money can still run out in very bad retirements, albeit with a much reduced probability of doing so.

As a frugal/careful/tight (delete as applicable) person, I’ve always saved rather than spend throughout my working life without having to go without anything I really wanted. The long-term advantage (which I never really planned for), was retiring relatively early.

Al Cam (#94)

* I don’t want to get bogged down in the mechanics, but in this example, the first withdrawal can be found using the excel function, pmt(1.25,35,-100,0,1), the second pmt(1.25,34,-100,0,1), etc.). There is nothing magic or special about these numbers (despite long arguments over on other forums), if you substitute 0 for 1.25, you get 1/N, while if you substitute 3.5 for 1.25, you end up with something like the Bogleheads Variable Percentage Withdrawal method. Alternatively, if you use 0 for the first number, and substitute your life expectancy (e.g., 21 for a 67yo UK female) for the second number (i.e., ‘35’ in the first year), you end up with something like the US RMD approach.

ps I’ve ignored taxes in all this.

@Delta Hedge #98

Yes, the Norwegian sovereign wealth funds (I think there are actually 2, the one you refer to being the newer/smaller of the two?) are an interesting thing. If only we’d welcomed in that Iraqi refugee all those years ago who advised them! 🙂

That said, the people I know in Norway are saying that the left of centre parties in Norway keep trying to “crack open” the SWF (presumably for the usual expedient of buying / bribing their client voter base with “more shiny”). Doesn’t take much to see who what should be a serious long term investment to provide funding for their old age pensions etc could soon be reduced to a £0 balance by the usual bunch of spendthrift politicians.

Bit like here, where Starmer & Co are apparently eyeing up pensions and ISAs as one of the few remaining sources of cash for them to waste. Presumably they’ll do what Argentina did that time – “nationalise” all pensions and give us all an “IOU” …

Cretins, the lot of them.

@TI – ‘Labour is entitled to take 2pc of our ISAs because of Brexit…’
One of the great economic minds of the 21st Century.

@Alan S – that’s not quite what I was getting at, what if both your income and your pension were higher than that required to provide you a comfortable standard of living – should you save more to spend more in retirement or just spend it on the way ? I guess retiring early is an option savings presents – you glad you did ?

@TI – I think you need to get out a bit old boy, enjoy the fresh air, pick up some publications that aren’t the BBC or Guardian (there are plenty of them – the Sun, the Daily Mail, the Express, the Telegraph – they’re more widely read than the remain press) and open your world up a bit. You’ve jumped the shark with this one, don’t know if you’ve had a couple of glasses of wine but I do encourage you to come back to the real world.

@TI I’m not going to get too bogged down in this because we will never agree, we’ve hashed it all out before and I’m clearly right , but…

… you do make yourself look silly saying the economy would be £100bn bigger if it wasn’t for Brexit because someone told you so. Does it sound like it could remotely be true ? We’ve grown faster than Germany and France since 2016, and your suggestion is we’d have done that and another £100bn on top ?

Doesn’t say much for them does it?
It begs the question – if membership of the single market is so valuable, why are some many members doing so badly ?

I think you might just have stumbled across something you like, rather than makes sense and are sticking to it. This is literally like DH’s stock market round up – it’s so patently not true on the face of it you look silly for believing it

@Wephway, that would hardly explain how they have had higher circulation for the past 50 years or so would it, when everyone read papers. Just think before you comment. Use the computer to look information up. I shouldn’t be replying to someone who thinks the reason the Sun or the Mail circulation is higher than the guardian is ‘only old people read newspapers’ but if I can help you think out things before you say them it will have been worthwhile.

@DH, likewise, I don’t think anyone reading the five or so messages above correcting your first one about stock markets could conclude you have a good grip on the subject.

@Al Cam (#101)

“Not sure if your mechanics comment related to PMT or my pointer to SSiRS?”

Sorry, I meant PMT, not SSiRS which looks rather interesting (on a first glance, there are a few things that would translate less well to the UK – e.g., deferring the state pension is not quite such a bargain that deferring social security in the US is). Another thing to add to my list of interesting stuff to read…

Just looking up the newspaper circulation figures as it is an interesting topic (despite certain commenter’s snarky remarks). The Daily Mirror (a leftwing paper) used to have the highest figures and then was overtaken by the Sun in the 1970s. I’d argue the Sun is less overtly political, famously they switched to New Labour in 1997 (I wonder if they’ll do the same this year). The Daily Mail overtook the Mirror around 2000 (around the same time more and more people started consuming more of their news online), though has seen circulation figures drop from a high of 2.5m in 2005 to about 735k today. According to the Daily Mail the average age of their readers is 56 (I suspect it’s a bit higher judging by the people you actually see buying them). I stand by my argument, older people prefer newspapers, older people tend to be more right wing, and that’s why The Daily Mail newspaper has managed to retain higher circulation figures compared to other newspapers (prove me wrong). But it’s still only 1-2% that read the Daily Mail, compared to over 50% who view the BBC. Obviously I’m comparing apples with oranges but still the difference is quite stark and anyone who says the Brexit media is more widely read than other media is clearly twisting facts to their own ends.

@Alan S – interesting thanks. My partner asked me what I was saving for and I replied to fly business class in retirement – he laughed and replied you don’t fly business class now. He has a very good point – if I can’t prize my wallet open now, what makes me think I will, or will prefer it, in retirement !

@Wephway – I was wrong to engage you and having read your last two comments absolutely happy to draw a line under it. Life is so short, and there are so many interesting people to engage with.