What caught my eye this week.
According to the BBC, the Great Resignation in the US is ‘over’:
Since the Covid-19 pandemic took hold in 2020, millions of workers have left their jobs.
In the US, 47 million people quit in 2021, and 50 million more in 2022, according to data from the US Bureau of Labor Statistics.
The continued exodus was so significant that in May 2021, Anthony Klotz, then-associate professor of management at Texas A&M University, coined the term ‘Great Resignation’ to put a name to the trend.
The Great Resignation was unprecedented – and particularly striking against a backdrop of incredible global uncertainty. Now, however, economists say it’s over.
Something similar happened in the UK to a lesser extent too. Employment has remained surprisingly resilient. And in a strong jobs market it’s obviously easier to switch jobs.
I’d also suggest inflation is an incentive and a driver. A company constitutionally equipped to give maximum pay rises of 5%, say, can quickly find most of its workforce disgruntled and playing job Frogger when inflation is nudging 10% and salaries at rivals have been re-calibrated accordingly.
Scrabble
What has apparently been distinctive with the UK’s post-Covid workforce – or otherwise – though is the rise in people too sick to work.
In November the ONS said 2.5m people cited long-term sickness as the reason for their economic inactivity. Before Covid that number was two million. Both the half-a-million increase and the total look pretty chunky, even in the context of the nearly nine million economically inactive overall.
Nobody seems quite sure what’s going on. Long Covid was blamed a lot at first, but a House of Lords committee recently concluded that early retirement among older workers was a bigger driver.
Either way, it’s interesting how the narrative has developed in the US versus the UK.
While older workers certainly left the workforce at an increased pace in the US too, the bigger spin was “Covid made me reevaluate my career and switch up” rather than the “Covid made me realise life is too short for more work so I quit” pieces that I’ve read many times in UK coverage.
A political take could be even our stretched welfare state better supports quitters than North America’s. There, poor, unhappy, and/or underpaid workers maybe have to job hop rather than drop out. Many of those who do want to quit can’t afford to – not without a generous state at their back.
A seductive theory, but there are plenty of ways to push back. Not least that many over-50s in the UK who did quit work early due to Covid now seem to be much poorer as a result.
Game of Life
I’ve a hunch that a deep dive into the statistics might reveal the bigger difference lies in the kinds of stories our two countries prefer to tell to and about ourselves.
Interestingly, some pundits believe US workers have stopped resigning because jobs have actually got better, thanks to a combination of working from home flexibility and the one-time job switches.
From the BBC article again:
Job satisfaction is now higher than it’s been in nearly four decades, according to survey data from the Conference Board, a non-profit think tank that has tracked job satisfaction since 1987.
In a late 2022 survey of nearly 2,000 US workers, more than 60% reported being content with their jobs, and some of the most satisfied are those who quit one job for a better one during the pandemic.
That would be an awfully happy outcome from a pretty terrible period. And a bit of a shame that the reluctant quitters amongst those over-50-year-olds in the UK couldn’t find a happier last hurrah. One that left them better able to retire eventually in more comfort.
But what do you reckon? Did you quit work outside of your goals or expectations over the past few years – or know others closely who did? Please share your thoughts in the comments below!
Have a great weekend.
From Monevator
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News
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Bank of England raises rates to 15-year high of 5.25% – BBC
UK capital gains tax-payers up by a fifth; new receipts record – This Is Money
Fears of food inflation rise as UK harvests hit by cool, wet summer – Guardian
Surge in ‘ISA millionaires’ to more than 4,000 individuals – This Is Money
Fitch downgrades US debt on debt ceiling drama and governance worries – CNN
There’s [arguably] odd logic behind the timing of the Fitch downgrade – Axios
World’s shrinking AAA debt options still include Singapore, Norway – Yahoo Finance
Seven ‘rust bucket’ cars found in shed after 50 years fetch £200,000 – This Is Money
Why the US economy is so resistant to rate hikes – Axios
Products and services
Shawbrook Bank launches new best buy easy-access and ISA accounts – This Is Money
Lenders cut mortgage rates despite latest BoE rate rise [Search result] – FT
Open a SIPP with Interactive Investor and pay no SIPP fee for six months. Terms apply – Interactive Investor
AJ Bell’s new free pension tracing tool: how does it compare? – Which
Open an account with low-cost platform InvestEngine via our link and get £25 when you invest at least £100. Also, if you set up a savings plan to regularly autoinvest with InvestEngine before 31 August, you’ll be in with a chance of winning £1,000 (T&Cs apply. Capital at risk) – InvestEngine
Are you paying £850 too much for Premier League TV? – Be Clever With Your Cash
From Bip to Zopa: five credit cards you might not have heard of – Which
English country homes for sale, in pictures – Guardian
Comment and opinion
Seven things deemed surplus to a portfolio [Note: I Bonds are US-only] – Morningstar
The yield curve is still inverted – The Irrelevant Investor
Benjamin Graham versus Zero Hedge – A Wealth of Common Sense
Are younger investors too conservative? – Morningstar
Set your future self up for success [Podcast] – Art of Manliness
Why 72% of retirees are happy – The Retirement Manifesto
How much of the market’s return could you get before index funds? [Research] – SSRN
Naughty corner: Active antics
Trading for a living – We’re Gonna Get Those Bastards
Japan in demand (sort of) – Verdad
Don’t bail on Baillie Gifford’s technology trusts – Motley Fool
Fidelity’s suspension of RIT Capital “a good reason to find another platform” – Trustnet
Corporate demographics: birth, death, and wealth creation [PDF] – Morgan Stanley
Kindle book bargains
Factfulness: Ten Reasons We’re Wrong About The World by Hans Rosling – £0.99 on Kindle
How to Avoid a Climate Disaster by Bill Gates – £1.99 on Kindle
Doughnut Economics by Kate Raworth – £0.99 on Kindle
Trillions [Inventing the Index Fund] by Robin Wigglesworth – £0.99 on Kindle
Environmental factors
What if we just stopped fishing? – BBC
The galaxy in the woods – Bio Graphic [h/t Abnormal Returns]
US asset managers are behind on their own climate goals – Institutional Investor
Red Admiral butterfly population soars thanks to UK’s warm winter – Sky
Robot overlord roundup
Who gains from AI? – Dror Poleg
Neeva: the little search engine that couldn’t – The Verge
Off our beat
The Brexit ‘red tape’ illusion has been exposed by the CE Mark climbdown – Guardian
Product and process – Seth Godin
The UK is the work-from-home capital of Europe. Let’s do it right – Guardian
Atomic accountability – Raptitude
How a once-controversial theory of trauma explains how we make sense of our lives – NY Mag
US Republican’s death rate spiked after Covid vaccines arrived, study finds – NPR
Why do so many new songs sound familiar? – Vox
Happiness is bullshit [Few months old] – Everything is Bullshit
And finally…
“We demand rigidly defined areas of doubt and uncertainty!”
– Douglas Adams, The Hitchhiker’s Guide to the Galaxy
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Thanks gang!
I suspect many in the US will have decided to continue working for the healthcare benefits (ie, employer sponsored health insurance) and even more so, if facing chronic conditions which may not be covered if switching insurers. The cost of buying insurance in the marketplace can be exorbitant and forgoing it isn’t really an option for those with substantial assets, which could be quickly depleted from a health incident. Whilst we don’t have the incomes in the US, we don’t have the cost burden of healthcare, which surely contributes to tipping the balance in favor of early retirement in the UK relative to America.
Well on the basis that comparing USA to UK is apples and oranges. I had a quick look at Europe.
https://ec.europa.eu/eurostat/statistics-explained/index.php?oldid=449635
It was mildly interesting. Not least at the relatively high numbers of over 65s working in agriculture or forestry. I would not broadcast that, lest the Tories suggest lumbetjacking is better late life career than pizza delivery.
Another interesting difference between US and UK workers is that in the US productivity per worker has increased compared to pre-pandemic whereas in the UK it has decreased. Not sure of the reasons for this, but perhaps it is suggestive of a broader malaise in the UK?
There is no doubt about the numbers, but, anecdotally, I never saw any uptick in early retirement during COVID. If anything, in my area of finance, I’ve seen people coming back to work. The attraction is a) the ability to work from home b) higher compensation. To be fair, some of those people are not coming back to work in London or even the UK. Some are choosing lower tax regimes or just places with better weather.
It’s definitely meaning that many are extending their careers into their 50s. I was also looking at a hard stop at 50 but with the employment market so buoyant and WFH totally accepted, it’s too attractive to retire right now.
I saw a mass exodus of early fifties folks from my employer during Covid – senior-ish IT peeps. All seem happy. One got a job as a Santa at the local garden centre at Christmas 🙂
Well perhaps it’s not a coincidence that NHS waiting lists are also apparently at a record high? So it may be that it is the NHS itself that has “long covid”, among other things – inability to provide timely healthcare that is putting people out of work. And if people are off work sick for long periods, it might be harder to get back in. Especially for older workers. Would that explain why the UK is different from other countries, post-covid?
Sometimes it feels like retirement ages are put up – to reflect longer life expectancy – but nobody looked at how healthy people are and how many are fit to work longer.
Fewer workers in turn means less tax revenue to pay for the NHS. A vicious circle?
I’m quite surprised there are only 4,000 ISA millionaires
I remember we went through this on this board about a year ago and nearly a dozen people self outed as ISA millionaires
I expect if this was based on up to date data the figure would be much higher now
– contributions
– consolidated couples ISAs
Pretty soon there will be so many the ISA gravy train will end
@Neverland #8: 4k figure is for Apr 2021. PEPs (1987-99, with £64,200 maximum contributions), TESSAs (1991-99, £9,000) and ISAs (limiting to 1999-2021, £266,560) gives a maximum of £339,760 of possible contributions by then (PEPs became S&S ISAs after 2008, and you could TESSA into an ISA via a TOISA). So, even though the early years had lower contribution rates (at least nominally), with 34 years in total & if people made maximum contributions each year putting them into diversified global stocks where possible (as soon as possible), then even with no more than average luck I guess it would be quite undemanding to get to £1mm level now, although in practice it probably needed slightly more than average luck as there were higher fees on equity products in the early days for investors to get over.
@All: the Dror Poleg article linked to this week hits the mark, as did his 2022 AI piece here:
https://www.drorpoleg.com/rise-of-the-10x-class/
This echoes what @ermine said in his post #7 on the “Old Dogs, Old Tricks” 20th July 2023 Monevator thread: “now it is probably easier for the really exceptional to get ahead. The downside is that it is harder for those closer to the average, even those moderately above average, because competition is drawn from a much wider pool”. It’s the big ‘middle’ which is going to be most under threat from AI and remote working. As most of us are in that group, that’s not good. I don’t want to see the world ending up in a cut price, low tech, dystopian mashup of Elysium and Neuromancer; a 21st century digital feudalism.
@TI:
Thanks for the links.
Will be interesting to see what the “rust buckets” achieve at auction in a couple of weeks.
Are house prices responsible for some of the differences between the US and UK? If you are in your 50s and bought a house in London in the 90s you may well have a £1m+ house with no mortgage. Sell up and buy an equivalent house in Devon for £500k and along with your pension and ISAs you have enough to comfortably RE. That’s broadly what I did, although I sold up a large house in the southwest and am renting (by choice) before buying a smaller/cheaper property
I am someone who changed jobs during the pandemic. There were multiple reasons but the one that is most relevant to this article is that working from home made it easier to switch to a remote-only company. Before the pandemic I always looked for jobs that had an office close to where I live. After the pandemic it doesn’t matter!
Please ask me any other questions if you want to know more.
By the way: I love the site! Thanks @TA and @TI
IR35 is a strong encouragement for those with the means to retire earlier than they otherwise would
I left my quant job in the summer of 2022 and had a well planned break until the start of this current financial year. I’m now about to start a new job outside finance in a proper Physics industry (not education) where I hope to be giving a bit more back to society.
I’m also looking forward to enlarging my network in academic physics research through this new job. It’s way more interesting and exciting than working on financial models. The maths is much more varied and advanced than that same old boring stochastic calculus used in quantitative finance all the time 🙂
I’m in the process of winding up my software business. At 59 and with an unusual career path I can’t see anybody taking me on. I’d do a bit of consulting but IR35 makes that harder than it should be. Also most of my customers and contacts are in the EU which is also more difficult now.
Given the choice between a nice leisurely bike ride around the Cotswolds and flogging myself to death for Deliveroo I know what I’ll be doing each day.
Great round up as always, thank you. I enjoyed the “Are you paying £850 too much for Premier League TV?” article.
Knowing how much it costs for Sky Sports etc I am always surprised how many friends & acquaintances subscribe to it. For some, it would be the last cost they’d look to cut if the proverbial hit the fan.
Personally I prefer to go to the local pub to watch the games I fancy on the TV. Gets me out the house, it’s more sociable and supports the ailing pub trade. It’s probably only 1 or 2 games per month.
I’m with ZX Spectrum on the change in view on early retirement. Hybrid working has noticeably increased the enjoyment of work for me, although it has coincided with working on an interesting project.
So on balance I will continue the drive towards financial independence as you never know what can change (bad bosses, restructuring, alien overlords takeover etc)
@Ducknald Don #15: looks like being an over 50 Deliveroo rider ain’t a barrel of laughs:
https://www.theguardian.com/business/2023/aug/05/im-57-im-just-shattered-the-reality-of-being-a-deliveroo-rider-over-50
@Tom-Baker Dr Who #14: Good luck in your new career in physics’ research. As a non-physicist, I greatly enjoy listening to Sean Carroll’s foundations of physics “mindscape” podcast. You can now use your enlarged network in academic physics research to help solve the ‘crisis in physics’ 🙂
https://music.amazon.co.uk/podcasts/bb552289-9d7b-43b8-b861-2a91b5d2e839/episodes/62422922-6013-48f0-96af-f60383afb52a/sean-carroll's-mindscape-science-society-philosophy-culture-arts-and-ideas-245-solo-the-crisis-in-physics
@All: on Trustnet link: not really sure what’s supposed to have changed with RIT Capital Partners that would have caused Fidelity to delist it. Already, way back in 2009, @TI was pointing out that RCP had some 20% in unlisted companies.
https://monevator.com/how-to-invest-with-the-rothschilds-via-rit-capital-partners-rcp/
RCP’s no Woodford fund with a liquidity mismatch. It’s an IT, so it’s got permanent capital. Delisting it from Fidelity platform is inexplicable, IMO.
@TLI. Even ignoring PEPs and TESSAs, as of 2023 you could have put in £306,560 to your ISA. At a 10%/annum, that is £1mm. That’s somewhat better than a bond-equity portfolio would have produced but it shows how £1mm is not going to be special for very long. Those Junior ISAs are also starting to rack up. I’ve put £71,836 into both and they have doubled in value.
More money goes into cash ISAs than S&S so it’s only been costing the government £2-3bn/annum in lost tax revenue. With rates at 5% now, rather than sub 1%, that calculation will change. A form of LTA seems possible. Plus I can’t really believe I’m still allowed to shovel £58k/annum into ISAs (2 S&S and 2 Junior). Surely that takes a haircut at some point?
I don’t know anyone who either left work or changed jobs during/post pandemic, nor is the possibility something that has ever cropped up in conversations with friends and family.
An interesting UK statistic is doubling of people of working age and of good health who choose not to work, not all over 50. It’s only 1.5% of the workforce but enough to make government wonder what’s going on. I believe I am one of them. I am in my early 40s. I relocated from London suburbs to East Anglia, left corporate office work and after 3 years of mini retirement on and off I am now working from home pursuing my dream jobs – writing and healthcare. Covid helped re-evaluate what’s important and it’s not just money. I sacrificed pay for location freedom and doing something interesting that I wanted to do for a long time. YOLO
I see all these articles about early retirees being ‘forced’ back to work, but I wonder how many of them intended to retire permanently, and how many of them just had vague ideas to quit a job that they weren’t invested in, take a break, and then pick up some flexible, low-stress work when needed? I don’t think that the statistics and the odd cherry-picked case study in the news are telling the full story.
I suspect that people are just realising that the ‘work hard, get rewarded’ attitude of previous generations is over, unless you’re near the top of the company food chain. Instead, there’s a mindset that companies that are getting bigger aren’t going to look after them, and the companies that are getting smaller can’t afford to. For many, their chosen response to that is apathy and resignation, in all senses of the word.
I retired post pandemic, age 50+. The company I was working for was on a downward trajectory, exacerbated by Covid. Some colleagues voluntarily left for better jobs, some got transferred and I quit. I’d reach FI, paid sufficient NI for a full state pension, and wasn’t enjoying managing the dying embers of a business, and now am not interested in the effort of finding a new role. If I was still enjoying the job I’d probably of stayed for another year or 2, and if a part time opportunity lands in my lap I’ll consider it. Certainly not interested in retail/deliveroo etc.
Interesting links I too would imagine there’s more isa millionaires but I suppose statically the number of people who can actually fill the limits is vanishingly small in this country
@TLI #9 Digital Feudalism. There’s a word for that, soon to be a book: Techno feudalism.
I was/am one of Dror Poleg’s also-rans. I could add value in the old world in industrial research and engineering. No way am I bright enough to work for Google or ZXSpectrum48k’s joint. I ejected myself from the rat race at about the right point. I have gained some big picture perspective on how the accident happened since then. None of them added up to a useful way to avoid it, were I starting later…
@Fatbritabroad, you are right about the number of people making full use of ISAs and their predecessors. They were designed to encourage people to save, but in practice the only people who can make the most effective use out of the annual allowance are those who already have enough wealth to move some into the favoured tax-free status each and every year. Very few people saving from current-year earnings are likely to able to benefit fully.
So great for the few, but not really benefitting the many.
While like many here I take advantage of the tax system as it is, ISAs could have a lifetime allowance and still act to incentivise current non-savers.
@9Time like infinity
I imagine (as above) that people,who can fill their ISAs (or equivalent) tend to be older, with more spare money to invest beyond pensions. Therefor, many of those filling their ISAs, PEPs etc back at the beginning are now retired, and, if not actually selling down, are taking natural income. Thus reducing growth.
Also, a couple who’s combined ISA portfolio is > £1m would only be 2 x half million £ ISAs.
I suppose that people who split their ISA among two brokers would not show up as ISA millionaires, even though they might have more than 1M total. Even filling up the yearly 20k allowance is a challenge if you’re not in the top 5% by income or 10% by net worth.
AndyP, doing the same as you, an earlier than originally planned downsizing move and trying to time the market to a degree. I’m already in the far south west as had moved from the south east a few years back. Lets see if what were £700-750k houses drop to £500-600k by next summer. Rent is expensive though, so I doubt we will wait longer than 1 year even if this turns out to be a multi year 1990s style slump.
Look forward to a Monevator piece on the forthcoming UK house price crash. I am currently following Moving Home with Charlie with the Housing Stig on youtube if there are any fans here.
Meanwhile back on topic I did job hop quite recently when it became clear the firm I was at was not capable of hiking salaries. The decision was perhaps 40% about money, 30% job satisfaction/career stalling, and 30% concerns about prospects of the firm and likely more redundancies down the road.
Going into 2024 i think the economy will slow and hiring freezes & culls will take the froth off further salary jumps. Which in turn could feed back into the house price slump.
@pikolo
When you sign up for an ISA you have to prove uk citizenship status, eg a NI number
So you would hope HMRC can put those all together, not least for the central database to make sure people don’t subscribe more than 20k each per year
@SemiPassive – I’m in an almost identical position to you. Currently renting the very far west of Cornwall and likewise waiting for prices to drop as (hopefully) per Moving Homes with Charlie. Our landlord has put our house on the market so we are going to travel for a year before buying – AirBnB abroad is cheaper than our rent/utilities. Incidentally, I think house prices in Cornwall are dropping fast. Our landlord has had only 3 viewings in 6 weeks for what is on paper a very desirable house, but I suspect listed at last year’s going rate. I use the PropertyLog toolbar which shows the rightmove price listing history -it’s very interesting in that there are quite a few houses that are reduced 5-10% within 1 month of initial listing. I suspect that if you had a house previously ‘worth’ 750K in West Cornwall you’d have to list it now at 600K or less to get many viewings.
Good stuff AndyP, and you may actually get some sun abroad. We got out in the nick of time, selling with a decent (first quarter valuation) price. I was praying we wouldn’t be gazundered as the process took a few months and the media were starting to sound alarm bells.
Our estate agent told us if we relisted now it would have to be significantly lower to get viewings.
They also mentioned people are typically offering 10% under the asking prices (a year ago it would have been more like over asking price).
Anyway we will see how things pan out. Be warned, the authors of this blog hate market timing! 😉
@Neverland: You write:
That’s a very good point, must admit I always lazily thought the same as @pikolo.
Maybe someone should do a Freedom of Information request to see how this data is collated for sure, just out of curiosity. 🙂
@TI #32 & @Neverland #29: my basic understanding of this is you can subscribe to an ISA if you are UK tax resident in that same tax year. The NI number I suppose is evidence of paying tax in the UK and being tax resident here. If you cease to be UK tax resident (there is a UK statutory residence test now) then you can continue to hold the assets in the ISA and still continue to benefit in the UK from the tax wrapper protection, but you may possibly then be subject in the foreign jurisdiction where you are resident to tax on either the gains and income accruing in the ISA or on amounts remitted from the UK to that jurisdiction even if they’ve come out of the ISA. This will all depend on the tax laws of the jurisdiction concerned at the relevant time and if the UK and that jurisdiction have a Double Taxation Agreement (DTA) and, if so, then what it precisely stipulates.
When the UK was still a part of the EU we enjoyed the benefit, under the Treaty on the Functioning of the EU (‘TFEU’) not only of the freedom to establish elsewhere within the EU (including the right of families to settle with workers), but also of the free movement of capital within the EU and, in certain situations, between the EU (including then the UK) and ‘third countries’ outside of the EU. This freedom under TFEU could sometimes give rise to tax advantages, as it was not contingent upon either the existence of DTAs or their contents.
For reasons which completely escape me, the US does not tax it’s citizens upon the bases of residence and domicile but instead upon the basis only of citizenship. This has forced many US expatriates to disclaim their birth citizenship (the US State Department has an expensive process to do this at its Embassies) in order to try and avoid juridical double taxation (the same income being taxed twice in the hands of the same person) where no DTA exists.
The only other country than the US, I believe, which taxes based upon criteria of citizenship rather than residence or domicile is Eritrea, which somehow manages in most sudies to contrive to score even lower on human rights than North Korea.
@ Jonathan B #25
I think yours is the clearest explainer of ISA uptake. For those with excess income it may be a no brainer to fill allowances to the max each year (and indeed as I started to get more serious about RE I have lamented the lack of a lifetime allowance to catch up somewhat) but I don’t think from a policy perspective it really works.
The reason people don’t fill them is quite simply they lack the free cashflow, after all the prior demands of mortgages, kids, pension contributions etc. Plus a bit of general “there be dragons” around S&S or excess fees paid on highly marketed ISAs and a shrug when it came to poor cash ISA interest rates.
Introducing an LTA to ISAs is just going to re-inforce the idea in the british public’s psyche that property is the only valid investment, given the huge benefit primary residency receives by way of tax relieve of capital gains.
Have we not by now realised that its a bad idea to funnel the majority of our collective investment into land/property?
With regards to the calculation of the numbers, i thought that in the past when it was discussed, it was one particular broker projecting out how many ISA millionaires there might be based on their own books.
@flatiron
Here are the actual articles based on April 2020 and 2021 HMRC data obtained through freedom of information requests
https://investingreviews.co.uk/blog/uk-has-2000-isa-millionaires/
https://ifamagazine.com/isa-millionaires-hit-record-high-the-openwork-partnership/
It’s not at all impossible that if you measured the numbers today there are 10,000 ISA millionaires in the UK
When couples die the survivor inherits the ISA
Meanwhile 40% of the uk population have less than £2000 in savings …
… so obviously money well spent
@flotron
Perhaps a lifetime limit for capital gains on Residential Property is a good idea too.
£1m pension, £1m ISA, £1m Property would have been ok (if index linked)
Personal, I think the ISA should cap out at £250k – it’s just tax relief for the wealthy at the moment
@Boltt. As of 20/21, the government estimated that in terms of non-structural tax reliefs, the three biggest were pensions (£52bn), private residence relief (£37bn/annum) and VAT relief (£36bn, of which food was £20bn and new properties £16bn). That compares to £3.5bn for ISAs. See https://www.gov.uk/government/statistics/main-tax-expenditures-and-structural-reliefs/non-structural-tax-relief-statistics-january-2023#headline-statistics.
I cannot see any valid reason to allow such generous ISA allowances and with higher rates I would the impact of lost tax revenue to rise (the above numbers were still with rates at zero). Nonetheless, it’s not a whale in tax revenue terms. I suspect that Labour just reduce the allowance and then allow inflation to slowly erode it.
If they do put an LTA type cap in place, I would expect some form of fixed protection for those with higher value portfolios in return for no further contributions. I took fixed protection in 2012 on my pension to fix the LTA at £1.8mm and haven’t been able to contribute a penny since.
If the readership of a high quality personal finance website is debating the pros of limiting ISA’s in someway shape of form, it’s not hard to anticipate the direction of travel in the next government with regards to taxing wealth!
I would be very keen to hear reasons from people as to why they think house prices won’t crash. Rents rising? Further Government interference as per previous decades. Me I can’t help but feel we’ll see a 10 – 20% correction real so possibly 30% nominal over the next 18 – 24 months. But I am generally wrong in such matters.
Used to think ISAs would be safe from a cap/LTA and/or inclusion in a wealth tax. However, with deficits still at 5.4% of GDP (£137 bn p.a. out of £2.5 tn p.a.) and with no sign of reducing, with inflation likely coming back down such that the real value of debt won’t erode, and with no economic growth to speak of on the horizon; well, the pressure on public finances will be tremendous. Sooner or later something will have to give. Might not be in Labour’s 1st term, but can easily see a wealth tax and ISA LTA in any 2nd one.
I feel a little guilty setting the hare running over a lifetime allowance on ISAs.
But speculation about what Labour might do is just that, speculation, they haven’t got policies on the topic. But it is reasonable that given where we are in a position where tax is higher than it has been for 70 years while public services are worse, that they might look at ways of rebalancing the economy. I think a wealth tax would be quite difficult to bring in but there are things they might conceivably look at, and an ISA limit that is relevant to the average income is one.
So if Rachel Reeves is a reader of Monevator, that is an idea for her. But if I was her my main target would be changing the balance of taxation which with the freezing of personal allowances is proportionately much higher than it used to be on lower and average earners, and higher on PAYE income than other sources. The country doesn’t need more taxation but for the majority (around the median income) it should be consistent with the public services provided. I think that is probably possible, but will be a hard job.
@ZX (#38):
Thanks for the latest version of this report – which I struggled to find.
AFAICT, this report estimates the annual cost of the [tax & NI] reliefs. That is, it makes no allowance for down-stream income taxes paid by pensioners (hopefully for many years). I recently did some [albeit back of the envelope in nature] calculations of this sort for my own DC scheme and the net figure was, to say the least, interesting and nothing like as alarming from a government perspective.
IMO costing pensions tax deferral is not just the cost of the reliefs.
@ZX /Al Cam
Agree the ISA relief cost looks smallish currently.
I do wonder what the future “Steady state” cost is when we’ve had 50 years of £20k (real or nominal) contribution limits. My gut says 5-10x by the time it been in place for 50 years and fully earned through. Anyone have the data to hazard a guess?
That NI number looks large too (£24.7m) – if that’s NI relief on pension contributions then it looks tempting too!
We all play the game as it’s currently written – but I’d rather the system was simpler eg all income (earned or otherwise) is taxed at x%, perhaps with a starter rate for low earners.
I will avoid the temptation of expressing views on govt spending and benefits..
@Boltt (#43):
Re: “That NI number looks large too (£24.7m) – if that’s NI relief on pension contributions then it looks tempting too!”
IIRC, that includes relief to both the employee and the employer.
@boltt
It’s in the IFA magazine article I linked at post 37. 22 years of 20k contributions will typically get you to a million and n an ISA
Then factor in all the avid JISA investors, all the widows inheriting their husbands ISAs as the boomers die off …
It’s just a question of how soon we have hundreds of thousands of people with million pound tax free portfolios
We could get to six figures in this decade
@SeekingFire. With regard to housing, channeling a Few Good Men: “I want a property correction”, “You can’t handle a property correction”. Property is a stock vs. flow problem. Rents are driven by stock, prices by flow. As a result, the primary driver of higher house prices over the last 30-40 years has been lower real yields.
The BoE finally came to the same conclusion in 2019. https://www.bankofengland.co.uk/-/media/boe/files/working-paper/2019/uk-house-prices-and-three-decades-of-decline-in-the-risk-free-real-interest-rate.pdf. Notably they estimated that if the relationship since 1985 reversed, that every 1% move higher in 10-year real yields should result in a 20% downward correction in real house prices. With 10-year real yields 3% higher than in 2019, where is the 60% correction? Of course, we know how well BoE models work … Frankly, however, the market may be overvalued by 50%. Yet neither the UK economy or voters can withstand such a large sized correction. It’s all we have.
So it’s a property market correction or a nasty recession that saves the property market with zero rates but damages the economy, costs people their jobs and increases inequality. We know which way people will vote. The Englishmen’s home is his castle, right? So, damn the economy and peoples’ lives. Just vote in any politician who will manipulate the property market back up again.
@ZX: Bit worrying that the BoE’s model is so broken. Rest assured though, we’re in safe hands with Andrew Bailey 🙁
Other ‘rules’ now being challenged by QT:
– US PCE inflation falling towards 2% with little rise in unemployment and with the SP500 still close to its ATH.
– UK fixed mortgage rates over 6.5% and US at around 7% but house prices only slipping a little here and if anything rising Stateside.
@ZX Seeing as in my part of London house prices seem to have gone nowhere over the past 5 years, or even slightly down, and inflation is up 25% or more over the same period with another 10% at least to come over the next couple of years, isn’t that part of the way to the correction you mention? Inflation is very good at hiding house prices crashing.
Re: weekend reading link, “Be Clever With Your Cash”: £1,271 p.a. for standard price Sky and Sky Sports package: Oh my word! If your doing that, then why not go and save yourself over a grand every year by simply ditching the cable/satellite package entirely, make do with Freeview/Freesat, then go and become a Monevator subscriber from just £30 p.a. (Maven), and – instead of Sky fare – go spend c. £13 p.a. (usually from $15 p.a. + VAT) on the documentary streaming service Curiosity Stream.
Re: house price corrections, the discussion is very south of England-centric. In Scotland and, I suspect, large swathes of the North a 15% correction would kill the new build market stone dead (and hasten a recession given construction is a significant contributor to economic output).