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Weekend reading: The political parties’ personal finance plans

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What caught my eye this week.

A regular listener to the ThisIsMoney podcast, I’ve been waiting for Simon Lambert and his team to get stuck into the election manifestos for three reasons.

First, they’ve been trailing it for weeks and they were clearly ready to go.

Second, I am as curious as any other concerned citizen / consumer / tax-payer / wage slave.

But most importantly, I said I wasn’t going to opine about this election. I wanted to give myself – and Monevator – a break from politics.

Well, I’m half back-pedaling that today. (Hey, that’s politics.) It keeps coming up in the Weekend Reading comments, and, well, it’s obviously something of a big deal.

But I’m still not going to write about it… because ThisIsMoney and the Financial Times have done the job for us:

  • The general election and your finances [Search result]FT
  • What the general election means for your money – ThisIsMoney

Both papers do deep non-partisan dives into the various manifestos. Read them and you’ll quickly get up-to-speed on the personal finance angle of the general election. For me that’s a sideshow with this vote anyway; your view may vary.

What’s that? You want some spice?

Well ThisIsMoney editor Simon Lambert takes on the strange anomalies on the tax bands that produce very high marginal rates:

Labour plans a new 50 per cent ‘super rich rate’ of income tax above £125,000 but high earners will have to pay an even higher rate of 67 per cent before they get there.

A combination of the 45p tax rate threshold dropping to £80,000 and the removal of the personal allowance means that those earning £100,000 to £125,000 would effectively pay 67p in income tax for every extra pound they earn.

Despite outlining a radical revamp of income tax, Labour confirmed to This is Money that it would not remove the quirk in the tax system that sees the marginal rate of tax rocket for those lucky enough to see their earnings go above £100,000. […]

An income tax system where the marginal rate goes 20 per cent, 40 per cent, 60 per cent, 40 per cent, 45 per cent is clearly daft.

Clarifying and simplifying the tax system shouldn’t be controversial, but back in the real world it’s radioactive. Labour told Simon they have no plans to change the system, while the Conservatives didn’t even bother to give (or risk?) a reply.

Meanwhile over at the FT the still mostly wonderful (Brexit cheer-leading!) Merryn Somerset-Webb notes that before we soak the rich, we need to figure out who they are.

Yes, Merryn has plenty of sympathy for the devil – aka £80,000-man:

In fact, his take home earnings are not as much higher than the average as a first glance suggests.

The top quintile of earners in the UK are on an average of about £88,000.

The bottom quintile are on more like £7,900. Add in tax and benefits, and those numbers fall to about £65,500 and rise to £19,000.

That means the top fifth take home, on average, 3.4 times as much as the bottom fifth. That’s significant, but much less significant than the 11-fold difference in pre-tax pay.

It’s a point well-made. With that said, as I wrote a half-a-dozen times last week, I’ve no problem with anyone advancing the argument that he’s taxed enough already.

My despair was over his Blimp-ish reality distortion field. I think it was a man earning £80,000 shouting “liar!” at an MP while claiming he was in the bottom 50% of earners on his £80K that set people off, not the technicalities of wealth distribution.

This is the Weekend Reading to debate the financial aspects of the election, if you’re so-minded. But please keep it civil and as constructive as possible, and ideally focused on personal finance. Have a great weekend!

From Monevator

Help! Analysis paralysis is stopping me from investing – Monevator

The lifetime allowance for pensions – Monevator

From the archive-ator: How to live off investment income – Monevator

News

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!1

Last-minute surge in help-to-buy Isa applications reported by banks – Guardian

House price growth has been running below 1% for the past year, says Nationwide – BBC

HMRC warns over failing to declare annual allowance charges on self-assessment forms [Search result]FT

City investors urge leading UK firms to pay workers living wage – Guardian

Contemporary art delivers returns to rival bonds, says Citigroup report [Search result]FT

UK ‘has particularly extreme form of capitalism’, says author of British Academy report – BBC

How Europe’s installed capacity per energy-related technology is forecast to grow – Octopus IPO prospectus from AJ Bell via DIY Investor

Products and services

Paragon Bank is now the fifth firm to launch a cash Lifetime ISA; interest rate is 1.15% – Paragon Bank

European investors have been slower to move to passive than US counterparts, McKinsey finds – Institutional Investor

Ratesetter will pay you £100 [and me a cash bonus] if you invest £1,000 for a year – Ratesetter

The Royal Mint is selling a 1g gold bar as a £65 ‘stocking filler’ – ThisIsMoney

American Express teams up with Vitality to offer 3% cashback to the fit and active – ThisIsMoney

Five homes for upside down living [Gallery]Guardian

Comment and opinion

All-time highs are both scary and normal – A Wealth of Common Sense

Is the growth of passive investing increasing volatility? – The Evidence-based Investor

The best investment you can make – Of Dollars and Data

Monte Carlo Analysis: Understanding what you’re dealing with – Oblivious Investor

One-year and ten-year FIRE anniversaries – Retirement Investing Today

Passive investors, are you destroying your children’s world? – Simple Living in Somerset

30 selected quotes from 30 of Morningstar’s Long View podcasts – Morningstar

Naughty corner: Active antics

Looking for opportunities? Here are four bear markets you can buy today – Fortune

Capital Gearing Trust: playing ultra-defensive – IT Investor

Cryptocurrency will not die – GQ

“Are we there yet?”: General Election and Brexit

YouGov polls predicts 68-seat majority for Conservatives in general election – Mirror

Brexit MP questions economic nous of economics professor in European Parliament – Channel 4 via Twitter

A late surge in registrations hints at general election ‘youthquake’ – Wired

In the wake of Brexit, Amsterdam is the New London – Fortune

How does Boris Johnson not melt with shame? – Marina Hyde

Kindle book bargains

How to Win Friends and Influence People in the Digital Age by Dale Carnegie & Associates – £0.99 on Kindle

The Wealthy Retirement Plan by Vicki Wusche – £0.99 on Kindle

Radical Candor: How to Get What You Want by Saying What You Mean by Kim Scott – £0.99 on Kindle

RESET: How to Restart Your Life and Get F.U. Money by David Sawyer – £0.99 on Kindle

Off our beat

How online troll factories work to distort our view of the world in 2019 – Rolling Stone

This 32-minute morning routine can make your day more happy and less stressed – Country Living

Elastic thinking for a constantly changing world – Farnham Street

Climate emergency: World may have ‘crossed tipping points’ – Guardian

An artificial intelligence predicts the future – The Economist

The bus ticket theory of genius – Paul Graham

And finally…

“Compare yourself to who you were yesterday, not to who someone else is today.”
Jordan Peterson, 12 Rules for Life: An Antidote to Chaos

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{ 71 comments… add one }
  • 51 Two Shillings and Sixpence December 1, 2019, 12:48 pm

    “Cryptocurrency will not die”

    Will be interesting to see how the Facebook currency develops.
    Not sure about Facebook taking the place of the central bank but I guess this may depend on where in the world you live.

  • 52 William December 1, 2019, 1:15 pm

    As of 1 December 2019 – Vanguard has provided a update in respect of their SIPP (pension) launch, scheduled for early 2020. Information shows 0.15% charge capped at £375 pa (across all accounts – General, ISA & SIPP). Drawdown to be available 2020/21 tax year. Long list of services where no charge will be levied. Overall a competitive offering.

  • 53 Matthew December 1, 2019, 3:07 pm

    If anyone’s interested I read about the idea of “reverse christmas” where you plant a tree instead of cutting one down, I think it could catch on as it ties in with the new life thing of christianity, and it distracts from materialistic christmas expenses for the family, and the environmentals will like it

    You can just pay £3 for someone else to do it too:
    https://uk.virginmoneygiving.com/giving/dailymailtreeangel/

  • 54 ermine December 1, 2019, 4:17 pm

    > Is anyone expecting a ‘Boris bounce’ if the tories win a majority?

    Yes. IGWD is my friend to offset some the relative tanking of VWRL due to relief driven uplift in the pound. Brexiters reduced the future value of my £ income by 20%, so I may as well take some lift from the depths they’ve sent the £ to. They’ve also improved valuations on the FTSE250 IMO. It’s an ill wind and all that.

  • 55 ZXSpectrum48k December 1, 2019, 5:23 pm

    I’m not sure you get as much of a Boris bounce in the GBP/USD as you would have if Brexit had been sorted out earlier in the year. The market is fully aware of the Dec 2020 deadline for the transition period. A fallback to WTO is not pretty so it’s going to remain concerned about that. A big majority might generate a bigger bounce since it defangs the ERG to some degree.

    It’s also worth remembering that GBP/USD is dependent not only on GBP but also on USD. The USD remains strong given still high interest rates of 1.25-1.50% on a relative basis and the Fed seemingly close to done with rate cuts. That USD strength could falter as we head toward the presidential election in late 2020 but that’s another debacle in the making.

  • 56 ermine December 1, 2019, 6:53 pm

    > Boris bounce in the GBP/USD as you would have if Brexit had been sorted out earlier in the year

    Agreed, but nominally I have done well out of Brexit, by roughly about as much a BBlimp and his crew have devalued. I am the guy Monevator talked about here. Well, a little younger, but by rights age-wise I should have voted with Bazza. Globalisation torched the end of my career, and if I had kids I’d be pissed off that they can buy cheap electronic gewgaws and citybreaks but can’t buy houses or afford to have kids like back in the day. That UK house prices are high largely as a result of domestic policy to pander to making my cohort feel good seems to escape. I listened in amazement as one fellow at a party talked about how much he had made on his house and BTL while bemoaning his kids seemed stuck in renting forever before perhaps unwisely ask whether he thought there might be a connection?

    Despite my view that Brexit is the biggest recent unforced error made by any government in recent years – other than in the swivel-eyed camp there wasn’t a widespread groundswell of demand for it, I don’t consider it dreadfully rude to try and preserve some of of the nominal profit. If it doesn’t happen or the US goes titsup next year, hammering both, then that’s the markets for ya, at the end of a 10 year bull run it’s not unsuspected.

    Sadly that opportunity will coincide with the end of my investing career as a net buyer. But I’ve had a good run. And anyway, just to trade smug git chops with Barry, you get your dream Baz, I want to make a bit of money out of the nightmare. Foreign productive assets seem a better place to do that that pure FX which I don’t understand how to trade

  • 57 7upfree December 2, 2019, 11:43 am

    Just on the subject of the DB\DC debate, it is inherently unfair that the LTA effectively varies depending upon which scheme you participate in. As matters presently stand, a £40k p.a. pension (being the maximum permitted under a DB Scheme as I understand matters), translates into a cash value of just under £2m based on index linked annuity rates for the average 65 year old male. Of course, as gilt yields change, the effective cap will change as well. If that is ok for a DB contributory why not for a person with a DC Scheme. The answer, as ever, is political. Most public sector schemes have a DB basis of some sort (and I appreciate that some are better than others). If the maximum DB pension was c. £23k at age 65, there would be rioting in the streets… Of course, it is technically possible to level the playing field somewhat if you own your own business with a DB SSAS. The level of contribution is far higher than that justifiable under a DC scheme. The bigger issue is that unfunded public sector pensions are utterly affordable in the long run but such a toxic issue that meaningful change is largely impossible.

  • 58 Gooey Blob December 2, 2019, 12:00 pm

    This article is a must read for anyone interested in FI. I’m not suggesting you vote in any particular way, but make sure you know what could be coming:

    https://www.thisismoney.co.uk/money/news/article-7716181/How-Labours-manifesto-promises-four-pronged-assault-pension.html

    Personally, I’ve booked the 13th of December off so I can move my money around. Just a precaution, of course.

  • 59 The Rhino December 2, 2019, 12:34 pm

    Apologies in advance for IT rather than finance question. But has anyone else noticed if looking at monevator on your phone, you no longer see the homepage as a list of articles with the no of comments on the right? I am now seeing just the most recent article, i.e. the same as if I were viewing on my laptop browser. Wondering if I’ve inadvertently changed something or its same for everyone? The prev view was preferable.

  • 60 The Investor December 2, 2019, 1:51 pm

    @TheRhino — It sounds like at some point you’ve enabled ‘desktop view’ on your mobile, possibly by viewing the comparison table. Try deleting Monevator cookies?

  • 61 JimJim December 2, 2019, 3:04 pm

    @ 7upfree, being a recipient of a DB scheme, I would argue that we knew what we were getting into when we joined. Salaries in the civil service are not that great and we have to have some reason to endure them. According to the institute for government, I quote “Across the whole civil service, the majority of staff (64%) are paid below £30,000 – with nearly a fifth of civil servants (19%) paid under £20,000” (2018)
    Compare that with the national average across all sectors (a lot of which do not need the qualifications, clean bill of health or talents that it takes to get a public sector job)
    Compare this to the national average wage, which is £29009 or £35,423 for full time work. (ONS) A £23K cap on DB pensions would hurt only the few, not the many.
    JimJim

  • 62 The Rhino December 2, 2019, 3:08 pm

    @TI – nice one, mucking about with cookies seems to have done the trick! delete my comments as appropriate!

  • 63 7upfree December 2, 2019, 3:51 pm

    @JimJim. Of course I appreciate and respect your position: you are simply receiving the contractual benefits of what you are entitled to receive. I also do not seek to devalue the work undertaken in the public sector. There does seem be significant anecdotal evidence to suggest there is little difference between public and private sector pay, so I am a little surprised by your statistics. I will see if I can dig out what I have read on the subject. Someone retiring on a pension of say £23k (to keep it simple i.e. a £1m DC pot). If we assume they are entitled to that sum based on a working career of 30 years and enjoy a 5% return, the sum invested each month to secure that income is £1222 (including the tax relief). A second assumption would be that they have been earning £40k and their career average pension is £23k (not unreasonable from what I have read). That gives net earnings of £2561 per month after tax. There is no way that between employee and and employer contributions you could reasonably fund that level of entitlement in retirement. In effect it is a subsidy from non public tax payers. Many non public tax payers have much poorer pension provision as well. The pension and the salary combined leave many people in the public sector in a much more advantageous position than would be the case. If it is unaffordable to remove the LTA…. All I am seeking is a level playing field; not a reduction in public sector pensions.

  • 64 JimJim December 2, 2019, 4:03 pm

    @7upfree. Yes our retirement benefits are superior, especially in this world of low interest rates, my point is simply we knew that when we signed up and were prepared to take the salary knowing our retirement was secure. It is part of the package. As for being subsidised, again it is part of the package, the deal done with the devil to secure our retirement.
    When I eventually (barring redundancy, I have already lived through nine sets of redundancy and survived) I have 30 years service and reach my normal retirement age, my pension will be less than £15k. and that is with a salary not too dissimilar (a little further south) than the example you quote above. A £23k cap would not even tickle my pension. Factor into this a sub inflationary pay “increase” for the last 10 years, that, taking into account the lower of the two measures of inflation year on year and compounded, equates to a 17% reduction in pay, the words “final salary” take on a whole new meaning.
    JimJim

  • 65 BBlimp December 3, 2019, 8:22 am

    @7upfree – I guess time will tell how correct or not this comment turns out to be – but essentially it would seem somewhat unfair to claim DB pensions are always super expensive based on current interest rates.

    A quick check on best buy annuities gives a rate of c.5pc so a £1m pot would buy 50,000 not 23,000 unless I’m missing something ?

    Someone might be reading this comment in 2030 and if interest rates are 9pc then a £1m pension pot will buy 90,000 and conversely a 23k income would require a pot closer to 300k

    I believe after fees most people would be hoping for growth of closer to 7 or 8pc than 5 over a 40 year period but whether this stands the test of time we don’t know.

    I also don’t think a 30 year working life is particularly realistic now and would be very surprised if you could find examples of DB pensions that paid out their maximum at 30 years that are open to new entrants.

    The LTA is a ‘soft’ ceiling on DB pensions I guess. It’s not a ceiling but once a ‘high ‘ (as we discovered last week one persons high is another’s average/low) income is produced it is subject to an additional rate of tax.

    I actually don’t agree with your solution. Partly for the reasons above, partly for reasons JimJim raises around wages being lower, and also because you’re seeking to create a level playing field by making DB worse rather than DC better. When I look at pensions and policy I usually consider whether it’d be a good thing if people contributed to a pension rather than BTL and if so how can that happen.

  • 66 Tony Edgecombe December 3, 2019, 9:25 am

    @BBlimp If interest rates are 9% then inflation isn’t going to be hovering around 2%.

  • 67 The Borderer December 3, 2019, 10:22 am

    @JimJim & BBlimp.
    The most fundamental difference between a DB pension and a DC pension is that one is guaranteed, and the other is subject to the vagaries of the market.

    What, do you think, is this worth?

  • 68 ZXSpectrum48k December 3, 2019, 12:16 pm

    @BBlimp: “A quick check on best buy annuities gives a rate of c.5pc so a £1m pot would buy 50,000 not 23,000 unless I’m missing something ? ”

    You are missing something. You are looking at level annuities which do not rise with inflation. For an annuity which rises with inflation (and has no inflation cap) you would struggle to get better than 2.0-2.5% (so £20-£25k on a £1mm pot). DB pensions are typically inflation-linked though the precise definition of inflation and whether there is any sort of capping varies from pension to pension. You simply cannot compare level annuities with inflation-linked annuities.

  • 69 JimJim December 3, 2019, 1:25 pm

    @the Borderer, Re; 67
    For me it is priceless, The offset in lower salary has it’s drawbacks (my tax relief will only ever be at basic rate) but it has given me an effective large savings rate towards my pension, (one that is an option for a higher salaried defined contribution recipient) enabled me to see this steady retirement income as bond equivalent and freed me up to use risk assets and cash buffer for the rest (ISA’s). The downside is the effective savings rate is hardly optional if times get tight (four years of spousal sickness nearly had me opting out) and if redundancy strikes, I have to think again about how my final 5.7 years of work will go, or work longer in another job. Not much different to the norm on that front. I remember in the mid 90’s when the market was roaring and annuity rates were high a lot were tempted to jump the scheme… Glad I did not. As it stands when I draw it, it will make up about 38% of our retirement income, a lot less when and if we manage to draw the old age.

  • 70 BBlimp December 4, 2019, 3:14 pm

    @ZX I stand corrected, thanks. That said my point regarding judging the relative unfairness of DB vs DC pensions on current ultra low interest rates doesn’t seem right

    @Borderer – to me, priceless. I’m that sort – I have a ten year Fix on my mortgage for eg. For others less so.

  • 71 Mr Optimistic December 4, 2019, 3:36 pm

    On the subject of DB scheme inflation protection, all the ones I have been in capped inflation cover at 5%. This was one reason I transferred away from one. If the pension is going to cover 30 odd years, I was concerned about the probability that we could see a spurt in inflation significantly above that for at least some period. I think there is a case of taking the higher payout from a flat annuity and investing some of the surplus in something offering some chance of weathering a future storm.

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