What caught my eye this week.
We’re nearly a year into Covid in the UK. The novelty has long worn off – you hear much less about finding inner peace or baking sourdough – but on the working from home front, the revolution revelation continues.
Even the most lunch-is-for-wimps office junkies seem to be finally coming around to the reality that you can get plenty done from home.
In fact I’m getting tired of entrepreneurial types on my LinkedIn and Twitter feeds declaring they’ve seen the future and it’s here.
These guys remind me of dads who trumpet a hot up-and-coming band to their kids because they saw them last night headlining The Other Stage at Glastonbury on BBC 2.
Better 20 years late than never, I suppose.
Working from home works
The potential to work from home was never a secret. I’ve been at it most of my adult life, and I’ve shared the benefits before in articles like:
The start-up I co-founded 15 years ago mostly ran without an office, too.
Revolution? Retread more like.
I guess it takes a global pandemic for some people to try sending an email from a spare bedroom.
How did they manage before?
Perhaps I’m just bitter that the queues are going to be longer in Waitrose forever if so many of these weekday incomers stick about.
I’m probably also chippy thinking back to how hard it was to chisel days of working from home out of even supposedly flexible employers.
Most bosses believed staff were far more productive in offices. Really they meant they liked to keep an eye on them.
Generally, managers are pretty terrible. They’re not good at empowering their underlings or managing projects or workflows. Too many come across like that enthusiastic kid in school who would try to run from his goal line to tackle the ball halfway up the pitch and then maybe get a shot on goal.
These – ahem – midfield maestros saw the office as their playing field.
The last thing they wanted was for the metaphorical ball to be picked up and taken home.
Work from home to work less
Traditional employers’ productivity calculations never paid much attention to the hours it took for the employee to get to work, either.
Nor all the time it took to recover at home afterwards.
Let alone the maths of shuffling kids or pets or cars or anything else along the way.
These huge time sucks drop away when you’re working from home.
Indeed I recently read one blogger – and I presume recent convertee – claiming it could make a 50-hour work, split over a couple, the new normal:
Work from home has the potential to restore better family life for some without reducing net income.
With two parents working a total of 50 hours at home, they’ll be able both to care for their kids and be as productive as they were when nominally working 80 combined hours in the office and commuting to boot.
They won’t be materially worse off either. Both parents can have careers.
Even single parents will benefit from a shorter WFH week, although certainly not as much.
Well, maybe.
Whose hours are they, anyway?
I’m as big a zealot for flexible working from home as they come.
But expecting societywide benefits like this from a nation doing business in its sweatpants seems to me fanciful.
For one thing, if employers cotton on to all that extra capacity and time freed up, they’re going to try to reclaim it.
More perniciously, people have been claiming productivity gains will set us free for hundreds of years.
In reality people who could have worked fewer hours just tend to work longer to buy more stuff.
As I say, this lifestyle option isn’t new. For those who can do it today (brain surgeons not so much) it was always available if you made some sacrifices.
I don’t think working for just 25 hours a week will come naturally to yesterday’s commuting salaryman or woman.
Time to burn
I’ll tell you another secret about managing your own work and time from home.
It’s hard to stay so efficient forever.
When you first get off the commute-office-commute hamster wheel it’s nirvana. Not only are you fresh and productive, but you get tons of other stuff done in your screen breaks. Popping on the dishwasher, say, or a trip to the Post Office via Tesco Metro for a little shop.
However most of us can only get so much work done in a day. If you’re paid to work the same traditional hours anyway, I guarantee your efficiency will flag.
(If you’re a freelance or contractor paid for results, happy days. Get your stuff done by 2pm and take the rest of the day off. Or work a four-day week.)
Finally, I haven’t got kids but I hear they’re still popular in some parts and I can’t imagine how they fit into all this. Any parents want to weigh in below?
Have a great weekend, anyway. Try not to work too hard!
From Monevator
How to invest in sectors, themes, and megatrends – Monevator
Some ridiculous ETFs that we might as well market – Monevator
From the archive-ator: University has become an unaffordable luxury – Monevator
News
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MPs reject call to speed up regulation of new ‘buy now, pay later’ providers – Which?
Vanguard’s assets hit record $7 trillion [Search result] – FT
Blackrock holds $85bn in coal despite pledge to sell fossil fuels – Guardian
Record number of buy-to-let landlord companies set up in 2020 – ThisIsMoney
Another day, another IPO surges on its debut on the US market – CNBC
Iconic boot maker Dr Martens is getting a listing in London – NPR
Managing your personality in your portfolio – Incognito Money Scribe
Products and services
What investment pathways mean for pension drawdown – Actuarial Post
Santander latest lender to make life harder for the self-employed – ThisIsMoney
Sign-up to Freetrade via my link and we can both get a free share worth between £3 and £200 – Freetrade
UK fintech offersworld’s ‘first’ net zero pension fund [Search result] – FT
Covid has upset the funeral business – Guardian
Homes for sale to escape to the country, in pictures – Guardian
Comment and opinion
Just take the money – Of Dollars and Data
Merryn: Why house prices may dip but won’t crash [Search result] – FT
Previous attempts to improve on index funds have not delivered – Morningstar
How Covid-19 rebooted retirement [Search result] – FT
Simplistic – Indeedably
Ramit Sethi: How to land your dream job [Podcast] – The Art of Manliness
When and how should investors make forecasts? – Behavioural Investment
Drawing it down – Humble Dollar
Cullen Roche talks sensibly about inflation and money supply [Podcast] – TIP
A clear Signal of market insanity – Compound Advisers
Everything in one place – The Evidence-based Investor
The [mostly UK] FIRE blog cemetery – The FIRE Shrink
Naughty corner: Active antics
New bullish themes are emerging – All-Star Charts
Something of value [PDF] – Howard Marks
A thoughtful review of a UK dividend-focused portfolio – UK Value Investor
The quality margin of safety – Intrinsic Investing
Billionaire Chamath Palihapitiya could be the next Buffett – Business Insider
How Apple won the share buyback debate – Above Avalon
The case for takeaway marketplace roll-up Just Eat – Value and Opportunity
Stocks valuations are fine because starting yields are low…right? – Meb Faber
An interview with that chap who has all $11m of his net worth in Tesla – Ramp
Bitcoin bits and pieces
Lost passwords lock millionaires out of Bitcoin fortunes – New York Times
One chap has only two password guesses left to access £175m wallet – Guardian
A graphical overview of the crypto landscape – Visual Capitalist
Bitcoin prices are likely manipulated, says Research Affiliates – Institutional Investor
FCA warns Britons to be prepared to lose all their money – Guardian
Bitcoin is dead as a currency, but it could still be an asset – Medium
Covid and politics quarantine zone
UK to close all travel corridors from Monday – BBC
Infections may be peaking in England; R could be 0.6 in London – Guardian
PM says Britain targeting a 24/7 vaccine rollout as soon as possible – Reuters
Does vitamin D combat Covid? – Guardian
Universal vaccines and other research to stop the next pandemic – Wired
The Covid vaccine is now a dating app flex – GQ
Brexit hassle: ‘Most difficult week I’ve had in this job in 20 years’ – BBC
Trump’s election lies were among his most popular tweets – CNBC
Kindle book bargains
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Essentialism: The Disciplined Pursuit of Less by Greg McKeown – £0.99 on Kindle
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Off our beat
CRISPR and the splice to survive – New Yorker
This post reflects why I moderate every comment on Monevator, too – White Coat Investor
Why people won’t change their mind – A Wealth of Common Sense
Can oysters save our seas? – New Republic [h/t Abnormal Returns]
Think twice before you fly to surprise your other half [Sweet!] – via Twitter
And finally…
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> “it could make a 50-hour work, split over a couple, the new normal”
At first glance I chuckled at this.
Then I thought about it some more. How many knowledge based workers (of the sort who can work from home; those who make their living by talking, typing, or in exceedingly rare cases thinking) can honestly claim to have 25 productive hours in any typical working week?
Not presenteeism.
Not what the boss believes.
Not what gets recorded on timesheets.
But actual hand-on-heart productive working time.
I suspect the answer is not many. Anyone who attends more than the occasional meeting can rule themselves out for a start!
One of the seldom discussed advantages of working from home is the ability to shed the pretence of being super busy all the time. The output of a working week remains largely the same, but gets delivered in something like the 25 hours discussed here.
The rest of the time is simply freed up from looking busy.
Unless you have an insecure manager who installs key logging/remote camera monitoring software. Or imposes policies making it compulsory to sign-in to chat programs, which display the duration since last active to expose the idlers.
I dunno
Working from home on a Friday was a common thing at a couple of companies I did work for even a few years ago
That was code for very little got done on Fridays
Latest new WFH policy I saw from a European multi-national was now… drumroll … working from home up to two days a week, hardly revolutionary
Humans are political animals, pretty soon office politics drives them all back to the office
The big beast just get to choose where the office is
I can think of at least four quoted companies I’ve done work for where the location of the head office was chosen just because of its convenience for the CEO
It’s certainly going to be a discussion in every middle management away day for years to come..
I’m an NHS consultant. And I have two kids. I work around 60 hours a week in the hospital, and a further 20 ish at home. I sometimes put my kids to bed. And I think I remember what my wife looks like.
AND I’m being hit by the evil annual allowance pension tax being (unfairly) applied to DB schemes.
So tonight, Matthew, I will be Grumpy McGrump-face.
Hi,
Somebody summed it up well, early in 2020: ‘we are not working from home, we are at home working’
I agree with this philosophy. The longer we stay away from the office, the more our homes turn into the office. We are also missing out on office culture. To understand the values of the company you work for, you need to see the senior management and your colleagues. The longer you stay away, the further away you get from what it is you’re apart from.
My role is in an industry that you can, for a short time, be at home working (management consulting). However, for new relationships to be made, for new ideas to come along, for people to feel part of something again, we need to get back into the world of the commute.
I’ve always been one of those that likes to keep his work life and home life separate. I really don’t like having to have turned my bedroom into half sleeping area, half office.
The current circumstances will make a lot of positive changes and I do hope they stick. More flexible hours, more understanding management when it comes to working parents and their children, and a focus on companies sponsoring wellbeing programmes (which are genuinely being taken seriously!).
Funnily enough (but not really funny at all for the people it’s going to affect, such as the poorer, uneducated, unskilled workers/ parents/ minimum wage earners of the nation), the biggest change to working arrangements, workers rights or just plain old pay and benefits, won’t have come from this government’s response to the pandemic, but from a choice some people in this country made 5 years ago in June to give the UK government carte blanche to do what it wants with workers rights (note to self: re-read Margaret Thatcher’s autobiography again as I’m turning into a socialist).
OK, I’m going to get off my soap box now (this is what being at home working does to you, that, and developing an over reliance on the use of commas and parenthesis )
Goodnight, God bless and have a great weekend.
@indeedably
‘Unless you have an insecure manager who installs key logging/remote camera monitoring software. Or imposes policies making it compulsory to sign-in to chat programs, which display the duration since last active to expose the idlers.’
Your naivety is touching. From a recent Harvard Business Review article:
‘The company has reached deep into its security tool kit and is deploying some combination of the following commonly available tools: keystroke monitoring, screen capture, email monitoring, and tracking traffic over the VPN connection, including what nonwork programs or software may be operating over it.’ HBR, 23 Dec
For most ‘knowledge workers’ your company is already doing it.
Your only hope is most IT departments are usually busy feuding with the rest of the company over their workload and won’t share what they already collect.
@Jon
Many, many people in the UK would be glad to have the option a defined benefit pension to have a ‘evil annual allowance pension tax’ applied to
A SIPP in the private sector will only buy an annuity worth 50-65% of the same value as the LTA equivalent value of a defined benefit pension because of the way the calculations are done
Furthermore your pension is backed by the entirety of the UK government as opposed to a poxy private sector insurance company
While I might ‘thank you for your service’ as the Americans put it you are more ‘Whiney McWhiney’ face in respect of your pension
Agreed on the family life, with WFH I now spend more time complaining to my wife about the people I work with rather than the opposite.
@Neverland
As I understand it, the problem with the annual allowance pension tax is that it acts as a strong disincentive for senior hospital doctors to work extra hours. They lose more in tax on their pension’s nominal growth than they earn for their overtime. At a time when the NHS is understaffed, this is a problem for all of us.
Working from home. All well and good if you have the facilties to do so – a spare 4th or 5th bedroom or a garden office. I had staff working from home and received a report with dried egg on one of the pages – obviously either produced or reviewed on the kitchen or dining room table.
For average Joe working on the dining room table with 2.4 (or whatever) kids screaming around the place whilst he’s (or she’s) trying to produce a really important report!
I’m never going to buy that it’s more efficient than a proper office environment.
I do sympathise with @Jon – he’s breaching the LTA because he’s rising up to the dire need for a consultant with a lot of overtime, not because of excessive pay. The NHS pension is generous, true, but we wouldn’t be saying that if rates were rising, and his choice to do over time rather than optimise his tax is a charitable effort on his part.
You have to weigh things up, he probably gets less on the nhs than he might privately or locum, the pension is just a different from of pay
As for working from home, might be better when people are self employed so they are their own boss and responsible for their work rate. For some they won’t want to take work home with them or the presence of children might make it impossible. People might also collaborate more creatively when physically together
Perhaps I’m missing something. The only issue doctors have is the fact that their tax bill is uncertain and money that could pay it is locked away in a pension so they have to pay it out of other money (which I can see is a major problem)? But they pay the same amount of tax as anyone who earns the same equivalent package right (and at that level – equivalent of at least 150k I think – I am pretty sure those in the private sector are working all hours, probably with less job security).
So options as I see them
1) Change the rules for everyone earning this sort of package which I can’t see with a push to higher tax on the rich
2) Move away from DB schemes in the public sector so they have control over what money goes where (but like in the private, don’t expect much of a pay rise to compensate)
3) Apply the tax to the pension itself in some way and calculate a lower annual increase in benefits – seems the most reasonable approach to me
The chronic shortage of staff is interesting. These high pay / tax issues are perhaps a result of chronic shortage. Train more doctors and the shortage goes away, but so does the high pay and job security as labour competition increases. Depends if you think the doctor shortage is due to not enough people wanting / capable of doing the job or due to a lack of throughput on the training schemes. But then if job security and salaries were impacted would people want to go to medical school for years? I expect not.
There used to be a response from management when requesting to work from home – “we don’t want to set a precedent”. I am not hearing it now, the precedent is well and truly set! I think anyone who has wanted or needs to work remotely for whatever reason and can do so effectively should be in a better position now. Or will things revert to the old ways?
@Duncurin
Swings and roundabouts. Bottom line is the calculation of the value of a DB pension versus current annuity rates is absurdly generous
Age 65 single life annuity, RPI escalation = c. 2.7%, https://www.hl.co.uk/retirement/annuities/best-buy-rates
Equivalent for DB scheme = 1/20th = 5%
You don’t hear about that when doctors complain about their pension charges
@Richard
Its symptomatic of the UK that thousands and thousands of words get devoted to the tax problems of doctors, but no one gives much of a toss that almost everyone working in the care sector is on minimum wage and many are on ‘flexible’ contracts
Who gives more actual care, the NHS or the old age care sector?
It comes down to circumstances.
Do you have a spare room you can shut the door on and leave work behind at the end of the day.
Was your original commute long or short.
Is your WiFi good.
Do you have the correct equipment to prevent you spending all your commute savings on physio therapists.
On the family front let’s remember that in normal times the kids will be at school giving a rare moment of quiet and stillness you never normally get to experience.
The things I miss from my commute are the alone time to listen to a podcast, read, nip to the shops, go to the gym (because it’s on the way home) or the spontaneity of an after work drink or a small diversion to go and have a cuppa with my mum for those all-important brownie points.
On balance I’d settle for 2 office days.
I’d also like to get rid of one of our cars in that case.
Hands down I prefer to WFH even with some homeschooling thrown into the mix. Like for many my office is open plan, so there are endless distractions and interruptions. Added to that office politics and pointless meetings. For someone like me who is not a corporate warrior willing to stab anyone in the back to get to the top, but instead just wants to do an honest days work, WFH allows me to do a better job with less stress. One day a week in the office is fine for me but it’s not my choice at the end of the day because I’m an employee. No doubt the bosses will want everyone back so we can go back to the normal pointless merry go round of modern office life.
@Neverland – I do think doctors have a valid point in terms of a large part of their renumeration comes in the form of pension and there isn’t really negotiation option to transfer that to salary. Which someone in the private sector / DC can do. So while they both pay the same tax, the doctor has to reduce his take home at the expense of the pension while the private employee can reduce pension to maintain take home. Doctors could also argue that they are taxed twice, on the way in and on the way out. But this is weighed against how generous the scheme is overall. But the way it is administered could certainly be improved.
But I do agree, this is an issue for those whose package exceeds 150k, which is a dream world for most people. The question of whether this is a reasonable amount to pay is usually not part of the discussion.
Monevator has discussed the Annual Allowance previously:
https://monevator.com/the-annual-allowance-for-pensions/
In the NHS, consultants have been getting tax bills of 10s of thousands, after receiving their incremental pay-rises, or doing an additional clinic/theatre list per week. A marginal tax rate of 500+%.
Bewilderingly, for some consultants, dropping a day or two of work to go part-time, results in earning more money.
For reference, consultants’ pay-scales (England) here: https://www.bma.org.uk/pay-and-contracts/pay/consultants-pay-scales/pay-scales-for-consultants-in-england
It’s not a whine @Neverland, it’s a legitimate frustration – AA just doesn’t make sense for DB pensions (in much the same way that LTA is unfair for DC pensions.) Every pensions tax expert agrees. Even the Office for Tax Simplification agrees. [https://www.gov.uk/government/publications/ots-life-events-review-simplifying-tax-for-individuals] It’s a punitive penalty, not a tax.
@Richard whilst the tapering comes into effect at the very high salaries, which is really awful, and has results in 6-figure tax bills for some consultants, the AA hits doctors at much lower salaries, if there is perceived pension ‘growth’ from one year to the next. Because of the way they calculate that ‘growth’ as a multiple of 16x the value of your future pension. So if your gross pay goes up a lot in one year, you hit a massive charge.
Such a ‘pay-rise’ occurs when you go from being a registrar on 45k to a new consultant 82k. That ‘pay-rise’ breaches the AA for many. If a consultant has a year off, or goes on maternity leave, or some other reason the gross pay drops for a year, when they return to the full-pay of previously that is counted as a massive pay-rise! even though it is just returning to the previous salary. Another massive tax charge. There are consultants who have reached 9 years service, and see the incremental pay-rise of 92k to 98k coming, and have tried to ask HR not to give them that pay-rise, because they know it will result in perceived pension growth of over 100k (due to the silly growth calculation). AA is 40k. 100-40=60 *40% = tax charge of 24k to pay that year, thanks to 6k gross/3k net pay-rise.
@Jon – maybe I am wrong (not the first time). Your annual pension increase is calculated as some % of annual salary? Like 1/40 per year. And this is x20 to get the AA figure. So, using these figures, if you earn £80k your pension increase would be £2k and the AA number would be £40k. Total package value (to compare with DC) is £120k. In this case, no extra tax. If it was £90k then it would be £2.25k extra pension and £45k AA. So you pay tax on £5k over. Your net position is the same as if you paid in £40k and took £5k extra salary.
The main difference (and where I see the argument) is you can’t make that desicion around where the £5k goes. It has to go into your pension while the tax comes from take home. So overall your paper position is the same but you have more in the pension and less in the take home. Which is where things can get wonky if you put a lot into your pension due to high earnings it means you have a rich tomorrow but a paupers today. I totally agree that this is a problem.
Sorry, I should have said your position is the same if you paid in 40k for only £2k of additional pension and took £5k as additional salary instead of the extra £250 a year pension.
@Jon, Richard
I think Richard’s right about the increase in value. One needs to deduct the value of the pension at the previous year.
If the accrued pension payable at 1 April 2019 was, say, £43000 and by 1 April 2020 it had become £46000 then the increase would be (46000 x 16) – (43000 x 16 x 1.008 CPI increase) = £42,496.
I found this article helpful in which there is discussion of the annual allowance and the lifetime allowance: https://www.accountingweb.co.uk/tax/personal-tax/how-to-value-final-salary-pension-benefits
No, your initial assumption that the pension increase is a percentage of your salary is not the whole story. The calculation of the ‘pension input amount’ is ridiculously complex. It’s not related in any way to your pension contributions, in the way that DC pensions are. And with the different methods of calculation depending on whether your previous service is in the 1995, 2008 or 2015 schemes. Yes, my 1995 accrual rate is 1/80, and that’s the (yes, very fortunate) final salary scheme. So a small relative pay-rise between years an create massive growth in the ‘value’ of that scheme, even if it only increases my future pension by a small amount. And that includes my example above, of spending one year at a lower salary, and then going back to what you were on before. Because they don’t allow negative ‘growth’.
This includes the car ‘salary sacrifice’ scheme. You give up some pensionable salary for a few years, and get a car with a cheap monthly payment. The figures look tempting up front. But when you end the salary sacrifice scheme, and your salary goes back to what it was, you are hit with a massive AA charge, that far outweighs the benefit discount you received on the car payments. So it ends up costing you far more overall.
@NewInvestor almost, except they also include the value of any lump sum increase in your ‘growth’ figure to create your pension input amount for that year. And because some parts of salary are not pensionable, they can create a breach, but for no actual pension benefit. Such as a taking on a management role for a few years, or doing waiting list initiative clinics/operating, to help with long waiting lists. Another crazy rule. And one that is going to become quite relevant later this year as we see the NHS waiting lists for treatments already becoming obscenely long, and consultants reluctant to do these waiting list initiatives as they could cost considerably more in tax than the payment received for doing the work.
“which display the duration since last active to expose the idlers.”
Easy, just take off your watch, put it on the desk and park your mouse on top of it. Permanently active 😉
@Jon – sorry, I shouldn’t have used the term %, I meant some fraction of salary. I think most people believe the multiplier of pension increase to AA is incredibly generous for DB schemes. Show me an annuity that will pay £2k every year for life, index linked, spouse benefit for £40k (though I appreciate over time the notional £40k will increase in value if invested so it is not the whole story).
My point is the total money is all the same. It is just were it sits in the cashflow columns. You feel it because it hits you directly in today’s wallet. But you are getting a great value pension in return (but that is years in the future so you are ‘blinded’ by today’s loss). Another option is to say capping your DB pension at the AA, or 2k increase per year, and letting you decide what to do with any cash above that (taxed of course) . But of course that would look like a big pay rise today so I can see why that may not be politically desirable.
Maybe I am feeling crabby in the New Year, but there’s much wrong with this, it’s hard to know where to start.
Having children still seems to be a majority interest, though the attraction still beats me given all the mithering about the associated tribulations these days. However – the assumption of a spare room is definitely something that is easier for the child-free, but having said that I still know a few people of varying ages who live in a rented room That used to be known as a bedsit 😉 It happens… I would say having a spare room is an indication of significant wealth in 2021 Britain.
Not all professional jobs are bullshit jobs or produce pure mind. I was(am?) an engineer. I am following your example and messing with drawings in CAD, and most of the time that’s fine from my privileged spare room. But sooner or later we need to get this made by real men in a real factory, and then get it delivered, then drive to the lab, assemble this thing and ask ourselves the question ‘does this work in real life’, and then get some of these in front of customers to solve their problems/make their lives better. That’s not happening from a spare room any time real soon.
Additionally, as is being very clearly shown in the pandemic, an awful lot of jobs that keep the wheels running so that some of us can sit in our spare rooms and push bits around need to be done in real life by real people. This includes the guys keeping the lights on to power your computer, the people keeping the water flowing so you can make your skinny lattes at home, and the good people who drive the trucks that deliver your Waitrose shopping 😉
Having said that, I agree totally that most of us don’t have 5 days of 9-5 work in us. I personally came to the conclusion two days a week is too much, one is as far as I want to go. That’s not enough to build a life on as a young pup, even earning an hourly rate close to what I did when working, but it’s fine as a FIRE retiree, but only because my younger self did put in the hours, and some of the money stuck to the sides. Even that one day is done in an odd pattern of furious activity and then long periods of idleness, or going for a walk when some thread in the back of my mind seems to rotate the CAD bits and find a way to make ’em fit. That sort of working pattern would have had me out on my ear in my working life, and fair enough – Where’s Ermine? We pay that damn mustelid good money and he’s not there! Even in my working life, when there was something that needed to get done, if it was people on a workshare I usually found it easier to do the job myself than waste my time going through the pain of getting the right half/third/whatever of the workshare.
So I disagree with you on a privilege aspect – really, most Britons aren’t going to be able to benefit from WFH, though probably most of your readership will. Your Waitrose delivery wallah can’t sit at home and drive the goods to your door from his spare room.
But I absolutely do agree with you on the hours worked if you have the privilege to be able to work from home. That’s what’s generating the K shaped recovery, and most folk on here including this mustelid are on the upper arm of that K. The scary thing is that most of the people who are doing the things that really matter seem to be sliding down the lower leg of that K, and at some stage they are going to look at their lot in life and be very, very pissed off. I have no idea what the answer to that should be, but I suspect it will be messy.
Yeah, it is a good pension overall. No question.
But the total lifetime money is not the same either way, for the reasons I mentioned above – negative growth in the 1995 section does not offset growth in the 2015 section*, and members can receive charges for income that is ultimately not pensionable. The LTA is adequate to cap tax relief on pensions in DB. The AA just throws penalties at doctors that don’t have very smooth very small incremental salary growth.
*most consultants in their 40s/50s have service in both schemes. The pension growth is calculated separately for both, and then added to apply against AA. As a accrual is closed for the 1995 scheme, the only way it can grow is a rise in pensionable pay. And as you said, pension is first adjust for for inflation by adding in CPI. Consequently, in years of sub-inflationary pay rises, the value of your pension actually falls. Negative growth. But for AA this is counted as £0, zero growth rather than negative growth, so does not offset any positive growth in the 2015 section.
@Jon – people in industry receive non-pensionable bonuses that could cause the triggering of an AA tax charge (via tapering). How are doctors non-pensionable earnings different to this?
I do see your point on pensions increasing year on year. Though that increase is still money you have you didn’t before. If you breach the annual allowance your pension has increased significantly . So I don’t see how it penalises sudden wage growth, you have a ton of extra pension. Happy days. The issue is you have to pay tax today on money you can’t touch for years. This is the issue, you need to be able to pay the tax today and this could be handled much better.
Now AA vs LTA is interesting. DC investors would probably prefer AA and not LTA. Perhaps the whole thing is DB should be assigned to the scrap heap (and public sector workers should get a pay raise to compesnate)
@Ermin
‘The scary thing is that most of the people who are doing the things that really matter seem to be sliding down the lower leg of that K, and at some stage they are going to look at their lot in life and be very, very pissed off. I have no idea what the answer to that should be, but I suspect it will be messy.’
We just had round 1, result Brexit. Indeed very messy. And no more evil EU to blame now.
@Jon
‘So if your gross pay goes up a lot in one year, you hit a massive charge.’
Thats kind of the way the tax system works at certain cliff edges, ask anyone on tax credits, the child benefit ceiling or on just under 100k where the personal allowance tapers.
‘There are consultants who have reached 9 years service, and see the incremental pay-rise of 92k to 98k coming, and have tried to ask HR not to give them that pay-rise’
Those consultants are in the top decile of earners in the UK, even ignoring the value of their defined benefit pension entitlements and assuming no one else in their household works. Source: https://www.statista.com/statistics/813364/average-gross-income-per-household-uk/
In a progressive tax system people in the top decile of households pay a lot of tax. That’s a feature not a bug.
Sorry but your issues are really are #firstworld problems
When we started working from home, I was in a honeymoon phase and enjoyed the lack of commute, ability to do chores/errands while on breaks, spare time in the morning/evenings and improved productivity.
Now that we have been at it for the last 9/10 months, the cracks are beginning to show. The line between work & home has become incredibly blurred and I am much more likely to work late. Relationships with co-workers & clients are harder to maintain & even harder to build new ones.
I think wfh 2-4 days a week would be a sweet spot with days in the office focused around tasks/activities that benefit from being in person together – Brainstorming, training sessions, inductions, client meetings, lunches and some drinks after work.
Lots of comments which is great.
As a family man and contractor who had a long commute for the last 9 years, hours a day on average – I hated but put up with it.
2020 was the best year for me personally as I had so much more of my time to myself. Not perfect by any means but being under house arrest is better than being under office arrest with a commute on both sides.
Do I want an 5 day a week office job? Never again and I’ve not worn a shirt in almost a year now – bliss
Re: WFH – my colleagues fall into three camps:
Some never want to come into the office again. WFH works.
Some really don’t like WFH. They are the social animals and the new starters who haven’t built their relationships in the company yet.
Most are somewhere in the middle – hoping that the new normal will strike a balance – perhaps 2 or 3 days WFH.
I love WFH. I’m much more productive. But I’ve got a strong network of relationships, space, and score high for ‘introvert’ on psychological quizzes.
If we ever returned to normal then I’d go in 2-3 days a week to maintain a strong team ethic and for high-intensity, all-hands-on pumps situations – think Das Boot for knowledge workers.
A friend of mine thinks everyone will head back in 5 days a week because the social gravity and sense of ‘that’s where the action is’ will be too hard to resist.
I hope not. And I know plenty of people who don’t give a toss about that. My company have already shut down some regional offices so many won’t get the choice.
Never mind managers, many of my team previously resisted working with people who couldn’t commute in because they wanted to be able to talk to someone directly rather than on Slack. Our ability to recruit the right talent expands exponentially if that ‘need’ disappears.
As for the time – mostly I just work longer instead of commuting. But I’m much happier for being able to check in with Mrs Accumulator when she’s on WFH.
I worked from home for years before this. I have mixed feelings. Work life balance is amazing. If you are proactive ‘go-getter’ it doesn’t really impede you. But you can very quickly feel cabin fever. And networking is tough. If you work at a very political company, the politics can be hard to deal with (can’t just pop to someone’s desk, have to hope they answer Slack or agree to a meeting). Also, out of sight, out of mind so when the redundancies inevitably come you need someone fighting your corner or else you find yourself high up on the list.
I certainly subscribe to the 2 or 3 day a week in the office, the rest at home.
@TI
20 years WFH? Ha, you are a newbie.
I was WFH in 1995, and (mostly) ever since. I had to use bonded ISDN circuits to get a wonderful 128kbps.
A bit worried about Blackrock’s virtue-signalling on future thermal coal investments.
I bought their Mining & Resource IT recently (BERI), and was thinking of the mining only one (BRWM) also. Will have to give it second thoughts.
Can anyone recommend an IT in mining / resources that doesn’t have such qualms?
I’m loving working from home full time, when office reopens will probably just try and go in once a fortnight for obligatory face to face team meeting
No more one hour commutes each way
I can pick up my kids from school each day (so saves cash on wrap around care)
I probably work a bit more, but overall I gain as get 2 hours back from no commute.
What’s interesting about the current situation is for many places (as there was where I work) there would be many people both middle and upper management who had a idea that you could only possibly be working while in the office. If you weren’t seen then how could you be working.
Now that their businesses haven’t fallen apart (from a productivity aspect) I wonder how many have had a change of mind.
I used to make things with large machine tools and design/supervise others to make things for me in a building full of machine tools, aka the workplace or a factory.
There are actually people who do ‘stuff’…
@Neverland – I don’t think it is a firstworldproblem. Doctors have a genuine grievance. If they accrue a large amount of pension for whatever reason, they get hit with a massive tax bill that could in extreme cases wipe their entire disposable income creating hardship today (even while having a fat pension and impressive headline salary). My point is more that we should recognise they get these tax bills because they have accrued an incredibly valuable pension. The system in place is currently designed so people earning large amounts (and this includes pension value) pay a certain amount of tax and can’t just hide it all in their pensions. Doctors should 100% pay this tax the same as other high earners. The issue is they can’t convert pension value to salary so are forced to pay the tax out of existing salary which can cause hardship. The system needs to change so they can, either by removing DB pensions, reducing the DB pension accrued each year by the tax amount, capping the DB pension etc.
And Jon was correct in that there are multiple quirks in the system where there are tax bills for alleged pension growth that does not translate into actual pension growth. So it is not just a case of paying more tax now rather than later. Or paying fair tax on large predicted pensions. It’s genuinely a bizarre and punitive way of limiting tax relief on pension contributions. There are so many better, and more transparent ways, that this could be done. And we kind of need our NHS consultants to be willing to work a bit extra right now and in coming months..!
@CasW @Jon – could you provide specific examples of these quirks, with example numbers? I would certainly be interested in understanding them and adjusting my position appropriately. Where the pension does not increase in value yet you get hit with a tax bill? The examples so far have been things like a big salary increase due to promotion, coming off a long period of unpaid leave or salary increasing due to the ending of a car salary sacrifice scheme – all of which will increase pensionable salary and thus increase pension value.
I fully agree there are better ways to handle this. But these pensions are incredibly valuable and the rules should be the same for all high earners, baring a few quirks that will always exist. And think about it for a min. To hit a tax charge you need to have more than £40k accrual. To hit a significant tax charge worth complaining about, you must either have accrued significantly more than £40k or you must have such a high salary tapering etc is in effect. Now I am starting to agree with @Neverland on firstworldproblems…..
@Richard
Not quite. There is a partial solution known as ‘scheme pays’ which results in a lower pension being paid. See https://www.gov.uk/guidance/who-must-pay-the-pensions-annual-allowance-tax-charge
Specifically for NHS, this pdf:
https://www.nhsbsa.nhs.uk/sites/default/files/2019-02/Scheme%20Pays%20FAQs%20%2802.2019%29%20V3%20%282%29.pdf
After decades of working away from home, the past year I worked from home, then I retired early. Bored, I do miss the hotels. Weird
Ambitious people are unlikely to be satisfied with WFH. Office politics and the FOMO will lure them back in I reckon. After that the majority will slowly follow as the proportion WFH declines and their commitment and motives are questioned.
@Newinvestor – interesting thanks. It looks like there are a few possible points of failure, but in principal this removes the main argument I see for saying it is unfair and makes it look more like doctors just don’t want to pay the higher tax rates everyone else has to pay (either directly or through reduced future pension amounts).
@Richard @NewInvestor ‘Scheme Pays’ is a loan from your future pension, to pay the tax bill now. And that loan is charged interest at around 4.85% (actually CPI + 2.4%).
While it takes the burden off paying the allowance charge yourself and might be ideal for some individuals close to retirement age, BMA modelling predicts that some consultants might harbour a £1M loan if they continue to work and contribute to the scheme until state pension age. Some of the costs of scheme pays are outlined : https://www.nhsbsa.nhs.uk/sites/default/files/2019-04/Annual%20Allowance%20%E2%80%93%20Estimating%20the%20cost%20of%20Scheme%20Pays-20190329-%28V4%29.pdf
@CasW – that is one of the points of failure I can see. Though while £1M sounds scary that is not inflation adjusted and so would be a lot less in todays terms. It is also paid for out of the pension which itself is currently up-rated by CPI + 1.5% making the effective interest rate only 0.9%. Though 0.9% is still a hit and I agree this looks unfair. Align the inflation increase with the loan amount and it looks good right?
Even so, it appears this only really starts to become an issue for a doctor once they hit 110K base salary. Based on a 1/54 accrual rate, 110K is the point the AA breaches 40K and also the overall package breaches the 150K mark. If doctors are not able to make the payments out of salary, they may have a spending problem. I don’t disagree that this can make them question why they are working more when they take home the same (even though their pension continues to increase so it is not true they are taking home less) but this is the same across all industries and professions with high earners (and cliff edge tax brackets).
@ermine #27
Before I respond, can you quantify what you regard as “significant wealth in 2021 Britain”.
Let’s not fool ourselves here: if an employer has noticed that a role can be done competently and efficiently away from head office, why can it not be done from a cheaper offshore location?
@Factor
Having a spare room?
During the first few months of lockdown#1 when people were getting furloughed, others were (surprisingly) just let go at our company.
A chat with the IT manager revealed (without naming names) that some people were found to have been only logging on in the morning to show they were ‘online’ and then probably nipping back to bed – keystroke activity and lack of email response (read or sent) proved this apparently…
Since I’ve been WFH, I’ve mostly kept to my 9-5 routine so there’s a proper start and finish to my working day – more flexible hours are offered to those with young offspring.
I’m not sure that I’m any more productive than when I was in the office – both have different kinds of benefits and distractions. The social aspect of work (and being out of the house) is definitely missed but I certainly don’t miss wearing ‘office attire’.
In the future, I’d probably settle for 1 or 2 days in the office a week, that would give me my social fix.
@Factor # 50
> can you quantify what you regard as “significant wealth in 2021 Britain”
Since you asked, say beyond the 6th decile in this ONS survey for starters? which seems to be the cross-point where aggregate financial wealth exceeds aggregate physical wealth.
I should have added the relevant chart is
Which is interesting in itself, although having a spare room is arguably property wealth, which from that chart is the first aspect of wealth Britons sort are they rise up the distribution.
@ermine
‘Since you asked, say beyond the 6th decile in this ONS survey for starters? which seems to be the cross-point where aggregate financial wealth exceeds aggregate physical wealth’
You are looking in the wrong place. Take a look at Figure 9 c. 25% of households over 55 are millionaires in assets. That’s the place to go to find the tax money to dig the government out of its hole. National Insurance Contributions on pensions, gift tax on handouts to the kiddies, proper inheritance tax and means testing on pensioner benefits just for starters.
https://www.ons.gov.uk/peoplepopulationandcommunity/personalandhouseholdfinances/incomeandwealth/bulletins/totalwealthingreatbritain/april2016tomarch2018
> Generally, managers are pretty terrible. They’re not good at empowering their underlings or managing projects or workflows.
They’re not even good at knowing what staff do; and readily believe any harmful rumour that comes their way. I believe the best thing I could have done mid career is sue a bunch of people the minute I found them lying about me. That would have been better for me than trying to make the company succeed.
@Weenie – were they not doing their work? Or was there no work to do? It can often reflect poor management or objective setting (even more important in remote work situations) as I know few people who actively ‘skive’ but also who won’t do anything if they are not given proper direction / responsibility / ownership. This is also where politics starts to creep in, esp if you are not good at networking you can quickly get sidelined and end up with nothing to do.
Of course if there is no work then redundancies of those not doing anything probably makes sense.
Sorry, just to go back to the doctors. I didn’t realise the taper had already been increased to 200K / 240K from 110K / 150K. So this really is only for super high earners. Lets look at the worst case before you hit that 240K threshold. A salary of 170K gives a pension increase of 3.148K (1/54 accrual). This gives an AA of 63K. So total package is 233K. Tax is paid on 23K of the 63K. So the additional tax (between 170K and 193K) is ~10K. And you have an extra 23K in the pension. This bill drops as the salary drops, to 110K were you pay no extra.
Of course I don’t blame doctors bringing their strength to bear to get better pay terms. I just don’t buy the narrative that it is such a woe is me, we are being singled out and treated so badly. And this does not mean that I do not think they do a fantastic job – but should it be an open cheque book?
Anyway, I have said more than enough on this subject for these comments. I will leave it there.
@Richard
Some of us never bought the ‘woe is me narrative’ to begin with
British Medical Association is just a registered trade union with a fancy name. The 2015 changes to NHS pensions that bought doctors on strike still left them light years ahead of anything available in the private sector
Doctors are really well paid and don’t let any of them tell you otherwise
In terms of inputs the NHS is pretty cheap to run compared to most public health services and its outcome are sightly worse than average usually
Fun fact:
NHS UK 1.6m employees (Kings Fund)
People Liberation Army – 2.0m employees (Wikipedia)
@Richard – I’m not sure if it was because there was no work or if they were just not doing their work – perhaps the lack of keystroke activity was evidence that they weren’t even present at their laptops when they were supposed to be.
@Richard, as someone who has been an interested follower of this conversation (never been at those sorts of salaries, but know quite a few hospital consultants) I hadn’t realised either the taper thresholds had been changed. Which is good since it will affect fewer individuals – though don’t underestimate the number of consultants on high merit points (see @Jon’s link) and very vocal. And most will be on hours that take them above the listed basic scale.
But the issue earlier, even if to a lesser extent now, is that there were people who wanted to do extra shifts for altruistic reasons relating to Covid, who found that extra work gave them a tax bill – it wasn’t even neutral.
Ultimately the issue is a poor decision of government, even if a few years ago. The idea of a Lifetime Allowance is understandable, and an Annual Allowance. But they were set up to prevent extremely high corporate earners exploiting the tax lows to pocket pension benefits in lieu of taxed earnings, not PAYE income earners in regular jobs. The reduction to £1M LTA was too much, ditto AA.
Really you help lower earners if you can make skilled services like the NHS cheaper, so if you make rich-favouring tax changes that increase the labour supply of doctors you can ultimately keep that wage a little more competitive – like for example if you incentivised skilled builders you’d make housing cheaper for everyone
Helping the lower earners isn’t simply raising their wages, but keeping their costs under control
Also I loled at how “scheme pays” can avoid “hardship” at higher wages. Do think though that they should have at least the option to have pay not through pension and be on defined contribution, but I suppose they do – private work
@Jonathan B – I said I would leave it there, but it looks like we are moving towards the AA and LTA.
Firstly on doctors. These doctors worked extra hours. They got paid for those extra hours and paid 40% tax. They also got paid additional pension and the value of that was also taxed at 40%. So they received a package and they were taxed 40% on that package. No extra tax beyond everyone else getting paid at those levels. Now I get the issue. It looks like they were taxed 60% on what they earned and everyone conveniently forgets that the pension increase, pocketed away for the future, has value as well. So I struggle to see how their overtime was penalised in anyway, they paid the same tax as if they had taken all of it as cold hard cash rather than split between the pension and salary. I do see not letting them have this choice as a problem, but then you head towards DC territory and it is interesting there is nobody shouting for that.
I agree the LTA and the AA are not the best. I personally have always had more issue with with the LTA. But I guess they do a reasonable, if somewhat crude, job of what they were designed to do. If you subscribe to the idea that there should be limits on tax relief it is hard to see alternatives. One option is to significantly increase them, a nice bung to the already rich (heading to Ermines point on wealth inequality and social upheaval). Scrapping of DB pensions probably opens more options, like flat rate tax relief, but that just feels like moving numbers around. If we work from the position that we can’t just scrap tax revenue streams, would you be willing to substitute AA and LTA for a wealth tax on all assets instead (and these doctors will be well in the firing line, but it may feel less unfair to them)?
As someone who has wanted to work from home for years but never known where to start until pretty much Covid hit, I am definitely #teamhomeoffice. Asides from the fact I got to quit a job I absolutely hated (worst timing ever, but it worked out – so win win!), there are so many benefits to it, especially in the current crisis. I am more motivated, I have more time, I won’t infect an entire office if I catch a cold (or worse), my mental health is better. But the biggest reason is because I can now work from ANYWHERE in the world, from my spare room. Which means the opportunities are endless, if you look hard enough!
I think that, from my experience of WFH, it is the managers that seem to have the hardest time adjusting. Their workload increases and, the nature of management changes. Bullying in the workplace has, by it’s very nature, got to be absent as there is a written or witnessed record of daily interactions so that style of management is pretty much negated. Also management by default bears a similar witness trail I.E if it was not asked for, how can it be reasonable to expect it to happen.
In our organisation, it has only highlighted the inadequacies of the communications of middle management, a problem that we have ignored for too long. The work, as it can be, is getting done. But at this time the pressure to perform has shifted up the chain.
From my point of view as a “worker” the job has not deviated significantly from normal, the expectations of what I can achieve from my kitchen table are perhaps unrealistic but this is a problem for the future as my work cycle is about 2 years long and heavily dependent upon hands on work with people. I can see me being stupidly busy in 6 months time trying to cash the cheques that management are writing now.
JimJim
@Richard Here’s a document, admittedly from the BMA, but it does give a bit more detail on the ‘pseudo-growth’ issue, whereby a large tax bill is received for one year ‘growth’ that does not translate into actual growth.
https://www.bma.org.uk/media/2002/bma-briefing-on-the-impact-of-pension-taxation-jan-2020.pdf
@Richard, the doctors’ problem last year was that if overtime increased their pay in the £100-150K range, there was not just an extra pension value to be taxed, but they were in the taper range where the overtime simultaneously reduced their AA and meant it no longer covered pension earned through their regular hours. That was what led to a total tax liability exceeding 100% of overtime pay. In practice they suddenly received a large HMRC bill which they hadn’t budgeted for, and which was totally unforeseen by them when they signed up to do extra shifts to deal with Covid pressures.
However I learn from one of the posts above that the issue has now been largely dealt with by changing the thresholds for the taper reduction in AA.
WFH with young kids is torture. Incredibly inefficient, nigh on impossible to focus for longer than a few mins. Effectively one parent has to entertain the kids full time to give the other parent the opportunity to do any work.
All of the parents with young kids I know of are desperate for schools to re-open.
@Jonathan B – the issue was resolved in April 2020. I guess if doctors are just doing their tax returns for 19/20 they are still feeling raw from it but it has been resolved. My problem is people are still even now saying doctors have a real pension problem. Most of Covid it has not been an issue.
But you can make the exact same arguments for company executives with unknown bonuses coming in. I get the issue of doctors looking at overtime and saying they don’t want to do it as most of what they earn vanishes. But is this an argument to give very well paid doctors special tax breaks? Or to look at why they are having to do so much overtime / getting paid so much they are having these problems?
COVID and lockdown has had zero impact on my work. Worked from home, typically 2-5 day/week, for about a decade now. I only went into office to gossip and for meetings with external analysts. This can be done over the web. The team I manage is made up of experienced people (i.e. people who don’t want/need to be managed). I’ve always allowed them to do what they want, when they want, whatever suits them. I only care about risk and P&L, not the hours they work or how they present themselves.
My children seem to work well remotely. We set one up in my wife’s study, the other in a spare bedroom with PCs, a couple of monitors, headphones etc. They Zoom with friends in the break periods. The remote learning curriculum is better since more time is being placed on the key subjects (English/Math), not nonsense stuff like Drama or “Topic” (some humanities mumble). It’s allowed my eldest child to focus on 13+ entry exams, with less distractions. I’ve been able to tutor her face-to-face.
My wife is probably the least happy. She’s lost her study and has to make them lunch. It’s probably for the best though. It’s lockdown so she can’t go to the gym anyway and all those lattes and cakes with the other mummies would only make her fat …
@ermine #55 and before
Forgive me, and absolutely nothing personal I assure you but I triage your response into my obfuscation folder, and that’s where I shall leave it.
I’ve been working from home (2-5 days) for 5 years now. Before Covid, I used to travel abroad for work every other week, and that was probably the biggest change (both positive and negative) to my work life last week. I would never like/want going back to office 5 days , but I feel that cannot succeed in my role or enjoy it completely by always working from home. I love interacting with customers, colleagues, meeting new people, visiting new places. A big part of what I do requires collaboration and rapport building, and I can’t wait to go back to my old routine of 2-5 days WFH.