How important is a steady income flow to retirees?

When I was working, I got a steady income. As two decades rolled by The Firm shifted about 10% of pay towards an annual bonus predicated on a stupid bunch of metrics to reduce pensionable pay, I always treated such bonuses as windfalls for investment – primarily in reducing the mortgage or as ISA feed later on. So I lived off a steady income.

Reading Monevator’s post on investment trusts there is an assumption that retirees need a steady income flow. I’ve always made the same assumption, but on reflection I think this assumption should be challenged, because a retiree’s life is different to their working predecessor. Two things change in a big way:

No dependent children

Retirees don’t usually have dependent children under 18, though this assumption is probably more true for people coming up to retirement now that those planning it in 20 years time. In this country people tend to have children between 20 and 35, with a peak at 30 according to the ONS. People 1 had children earlier in the past, often in their 20s in the 1960s and 70s. It surprises me quite how nonchalant some people aiming for FI are about phasing this. For all the joyful Kodak moments etc, most people don’t deny that children are a big financial cost, and the sooner you get started the sooner you’re done with it – and indeed you will enjoy their company for longer too. A 25-year old having children will be 43 when the child reaches 18, a 35-year old will be 53. For the common two kids with two or three years gap that spans 46 to 56.

people are having children later in life (Jefferies, 2008, image linked to source PDF)

people are having children later in life (Jefferies, 2008, image linked to source PDF)

There seems to be a recent tendency for children to remain financially dependent beyond 18 2– if they are dependent through university these ages move to 46/49 and 56/59. The early starter will be more employable, while the late starter could be well finished at fifty and in trouble financially if they want to retire early. They will need more money compared to the early starters just at the start of early retirement, at a time when money is particularly short because they can’t use pension savings – the earliest call on a SIPP is drifting up to 57 from 55 now. There is of course the opposing case to be made that having children impacts one’s career early on so you might accumulate more by delaying. If you’re okay with slightly early retirement (60 and up) then this may work out well, as you are into SIPP territory then.

Lower general running costs including housing

One of the things that clobbered me in my twenties was moving so often from one rented place to another – the Guardian’s Jenn Ashworth griped about this but I also had 14 addresses between leaving home and this house. I preferred flat/house-sharing, but that gets less possible as time goes by, because your pals tend to pair up, work elsewhere and so on. The instability of young life is expensive – you can’t accumulate tools and kit and you are always having to adapt – one place has enough kitchen paraphernalia, another doesn’t, all this incidental Stuff adds up.

Then acquiring the first house – you need tools, you need to learn a modicum of DIY, everything is dear. I have all this stuff now – I don’t need new lawnmowers and saws and shit except to replace what’s worn out. With housing I’ve paid down my mortgage. The costs of running Ermine Towers is so much less than it used to be, because there’s little capital spend. Depreciation on a house is about 1% of the capital value or a bit more – if I factor in that about £2000 of utility falls off the house every year in terms of Stuff that Wants Fixing or upgrading it is about right, whereas renting it would cost £7000, though obviously the landlord would get to eat the £2000 operation and maintenance costs 3

When I left early I looked at what my pension was going to pay after working for 30 years for The Firm (I made nearly 24) which was half final salary and targeted that as The Number I had to make up. Half to 2/3 of salary was a typical assumption of DB pensions and presumably this came from some acknowledgement that retirees would not have some of the big costs of their working selves. Often the pension commencement lump sum was there to clear the mortgage, though along with the kids dragging on their coat-tails into what used to be considered adulthood is a knock-on trend for people to have bigger mortgages later in life.

Does all of  this income need to be steady?

Up until very recently there was a big assumption built into the UK pension system that a pension needed to be steady – hence you had to buy an annuity on retirement. In Broke, I read that this was the historical way the middle classes dealt with the income on retirement problem – the destitute poor ended up in the poorhouse.

Of my pension income I’ve lost about 25% by leaving work 8 years early. Unthinkingly, I fixated on a target income set by other people a long time ago. I lost my way in the details, and accepted two hidden assumptions, simply because that was how retirement was meant to look. One was that the amount needed to be half my final salary, and the other was that this needed to be a steady income.

And then I went on a crash course on how to eliminate unnecessary spending between 2009 and 2012 because I wanted to get out and never have to work again. Freedom was that much more valuable to me than consumer doodads and rushed experiences. It was tough, but in that experience I learned what mattered to me and what didn’t.

Discretionary spending

Discretionary spending. Nice, but not essential

I used the experience to drive waste out of my non-discretionary spending 4, but there has been a corollary – it skews the ratio of discretionary vs non-discretionary spending upwards. The former is more than half of the total. I have no income, so I am running down some cash savings. If I knocked out some of the discretionary spend I can easily meet TFS’s £10,000 a year target – this is largely because of the reasons given earlier – my running costs are lowered by fossil savings from my working life, particularly in terms of housing. I don’t have to pay rent and I don’t have to pay 32% tax and NI on earning the money to pay for the rent.

Despite this I am going to invest in delaying my pension to secure a more fixed income, front-running it with a 5 year SIPP. The 5 year term means I can use cash for that rather than equities, which then takes me to the thorny question of my equity investments. They were designed to make up the difference, but my HYP has already reached the target amount thrown off as dividends 5. The surrounding globally diversified passive index shell I can’t qualify in terms of productivity – it increases my networth but it contributes little to my investment income. Theoretically you can take income either by natural yield (the principle behind a HYP) or by selling off units from a fund that is giving capgain, but the problem is ‘how much of this damned volatile capgain may I spend this year’ which is a tough call to make.

Greybeard describes one way of smoothing the income across the business cycle. This is attractive to me, but since it turns out my equity holdings are entirely aimed at the Wants and not the Needs I wonder if I need the stability. Because I am child-free I have an option not open to those who want to leave money to their children, and that is of taking a joint annuity in 20 years time. Annuities get better value when you take them older because they’ll be paid for less time. This would address the stability problem, I would be in my seventies.

On the other hand, I might want to leave money I haven’t consumed to better the world somehow. There shifting to investment trusts in 15 to 20 years may make sense – it is a low-maintenance approach, something like luniversal’s basket of eight would work. Yes, I would be paying something for the management and the income smoothing across the business cycle. But not paying  as much as for an annuity, which destroys all the capital in the interests of a steady income.

These are not decisions I have to take now. In general, in finance, I’ve come to the conclusion that it’s best to keep options open. Things change over time, unforeseen shit happens.

what I'll see as I go out of the park to reach the library. Beats wrangling Excel for a few years IMO, not everything going wrong stays wrong...

what I saw as I went out of the park to reach the library. Beats wrangling Excel for a few years IMO, not everything that goes wrong stays wrong if you keep your options open…

After all, I wrote this before wandering through the park to go to the library to pick up a copy of Nate Silver’s the Signal and the Noise precisely because shit happened but it broke me out of a rut where I could have been spending the next six years at The Firm staring at screens and every quarter having to dream up meaningless crap and lies to keep the performance management system happy because the top brass decided to manage by numbers and wouldn’t trust my boss to know if I am doing a good job or not. After leaving, had I closed off other options drawing my pension early, I would have been sore when Osborne’s changes altered the landscape giving me the front-running opportunities I can take now. Options are good, as long as they don’t depreciate the asset too much.

Or split stable and volatile incomes – and spend electively going with the flow

There’s a case to be made that a retiree should look for lower volatility income for their needs, and let the wants go with the flow. On a 100% DC pension that might favour investment trusts (and later on an annuity) for the needs part of the portfolio, with a decent amount of headroom for the unforeseen rises – after all any retiree quitting now really ought to allow for an increase of about 10 times in the real cost of the oil price across a 30-year retirement, with a corresponding knock on cost in domestic fuel.

The wants part of your income could be invested with a higher equity exposure – anything from stockpicking to a world index tracker, and here you sell off units/shares each year to cover your next year’s elective spend. If the stock market goes through a rough patch then go on fewer holidays and more staycations, if it does well then salt away a bit to live larger in future and take more exotic holidays and eat out more. A retiree is in a great position to vary their wants spending according the the volatility of the stock market – to some extent you can also manage needs by shifting running costs along the Châteauneuf-du-Pape with caviar 6 <-> tap water and ramen axis.

This sort of thinking probably benefits the extreme early retiree – quitting the rat-race at 40 or mid-forties. If you can live with the volatility, and let’s face it most UK extreme early retirees had some connection with the finance industry so are probably better qualified for this than the likes of me, you can probably do better spending electively with the ebb and flow of the market than going for stability across the whole income stream.

Smooth the volatility with a 3 year cash pipeline

If you don’t like the investment trust option you can soften the ‘how much of this damned volatile capgain may I spend this year’ question by pipelining it through a multi-year cash buffer. The only indicator you have is the market value – tie your elective spend to x% of that 7 and one year you are partying in Sydney, the next you are in a tent in North Wales.

Lovely place, Wales, but I still don't want to have to use a tent to save money ;)

Lovely place, Wales, but I still don’t want to have to use a tent to save money ;)

I could use a three-year cash buffer and drip x% of the market value in at one end and spend a third of the buffer each year – that would make a three-year boxcar average which would probably soften the worst hits (bear markets tend to fall faster than bull markets crawl out from the wreckage, but three years is a long bear market. Just don’t mention Japan, okay?). That would be a lot of dead money if this were three years of my entire income but if it’s a part of it that’s not so bad.

Using Ishares ISF as a proxy for the FTSE100 a 3 year buffer gives me an easier ride in the year on year change

Illustration of buffering using Ishares ISF as a proxy for the FTSE100 a 3 year buffer gives me an easier ride in the year on year change – a 15% variation rather than 30%. Note ISF is not a total return fund, but the dividend yield is a lot less than the YoY variations. I have deflated the ISF share price by RPI relative to 2001

Does the three-year pipeline being in cash cost on average more than the investment trust premium? Say you start with £1,000,000 8 Your cash buffer, at three years of 4% SWR is £120,000

After all, let’s say on average equities give a real return of 5% and you lose 1% to the extra IT costs giving you a 4% p.a. real return with no cash buffer, or a 5% return on 88% of your capital, let’s be charitable to the Bank of England and say inflation is 2%, so you eat a 6% loss on the 4% going through your three-year buffer as it falls out the end. You therefore have to put 12.7% into that buffer, so in reality you’re getting 15% return on 87.3% of your capital.

Each year on average the ITs turn your £1M into 1,040,000 and you get to spend the 40,000. With the buffer, each year your index funds returning 5% p.a turn your £878,000 into £921,900, of which you now take 4.2% to top up your buffer, leaving you with £885,000. Although I confess it wasn’t the answer I expected, you’re better off using the cash buffer and keeping fees lower, as your capital slowly creeps up in real terms or you could spend a little more. Over two decades this ends up in a doubling of capital reserves taking the buffer route as opposed to the IT route.

Of course you can spend your retirement opening a bazillion current accounts and yomp the cash through the latest best paying account du jour to improve the return/lose less to inflation. Or pass the cash buffer through Zopa and a couple other P2P joints – don’t reinvest what your borrowers pay back but keep adding every year – this makes a pipeline well suited to the 3 year term and you will get your money from 3 years ago back, with interest.

Decumulation is a bastard to get my head round. Initially I am going to decumulate cash, and that isn’t particularly challenging. In the equity part I can take the natural yield of the HYP section easy enough. But working out what to do with the foreign index stuff I’ve used to diversify the HYP isn’t clear to me at all, so far the 3 year pipeline through 1/3  Zopa 1/3 some other P2P operation and 1/3 cash 3year term account is the best I can come up with for that. Fortunately I don’t have to start doing this on equity savings for another 5 years, some clarity may come out of the murk by then.

Notes:

  1. these people are women, the stats don’t track the guys
  2. The torygraph is pumping this up a little bit. In the 1970s many more children left school at 16 and could find decent jobs, it isn’t so surprising that more children were financially independent when they start earning at 16 rather than at 21 – 11% of school leavers went to university when I was 21 compared to about half now. It isn’t so much the dependent children at 25 that flabbergasts me, it is the late twenties to early thirties crowd
  3. These costs are shockingly lumpy – you need about five years of savings to smooth the costs. Presumably this afflicts BTL landlords too, particularly amateur landlords with just one BTL property – the statistics improve as the number of owned houses rises
  4. non-discretionary spending is on Needs, discretionary is on Wants
  5. This is because I won’t draw the pension early, so the difference to make up is less
  6. yeah, I know you’re a barbarian if you have Châteauneuf-du-Pape with caviar, but sod it, being your own person is one of the joys of getting older – if Jenny Joseph can wear purple and red then if you want to drink red wine with caviar just do it
  7. where x is your SWR of choice – typically 4 to 5%
  8. to make the numbers easier, for illustration. Consider paying an IFA if you start with that much – your time is worth more than mine

front-running a DB or State pension with a new Osborne style SIPP

I’ve written about this before, but it is getting close to doing it for me, hence a worked example. This is particularly useful for people with a legacy DB pension although the technique also works to smooth your income between retiring and getting the State pension, which is another defined benefit pension 1.

A DB pension is defined only at a particular retirement age, usually 60 or 65, or use this calculator in the case of the State Pension. With a company DB pension you can often retire earlier, but you will take an income hit called an actuarial reduction if you retire earlier than the scheme NRA. In my case the NRA for most of my DB pension is 60, I will eat the loss from ‘retiring five years early’ for the last three years accrued when it was shifted to 65.

When these schemes were designed in the 1970s and early 1980s there was more goodwill between companies and their workforce which was seen as more of an asset than now, the pension was part of aiming at staff retention, which is largely gone in a faster-moving, possibly more efficient and definitely more dog-eat-dog employer/employee relationship now 2. The actuarial reduction is rarely defined, and gives companies wiggle room to reduce their costs. As a result it’s usually best to take a DB pension at NRA, because it’s nailed down what you get. Individual circumstances can sometimes mean you’re better off to take it earlier, but that’s usually more to do with paying off debts with any tax-free lump sum.

What to do if you want to retire before NRA?

What you ideally want is a short pension to front-run the main pension until its NRA. This pays out between the date of your early retirement and the DB pension NRA. If you want to retire before 55 you also need to save enough money in an ISA or unwrapped to  pay your way to the earliest date you can draw pension savings, currently 55 but scheduled to rise to 57 and further – a gotcha to watch.

When I retired in 2012 a short pension wasn’t an option – if I had used a SIPP I wouldn’t have been able to draw it down, but all this has changed now. So the question is now how much can I save into a SIPP such that I can run the SIPP flat in the (for me) 5 years between getting hold of it and the pension NRA, without paying any tax. There’s not much mileage 3 in a basic rate taxpayer saving tax on the way into a SIPP only to pay tax on the way out, although any sort of higher rate taxpayer will gain a useful amount drawing down a SIPP even above the tax-free personal allowance up to the 40% tax threshold.

Put another way, I want to know how much can I put into a SIPP, such that I can withdraw the 25% tax-free lump sum up front and then a personal allowance worth each year, for (in my case) five years, from 55 to 60. With a NRA of 65 that would be 10 years. It’s reasonable to hold a five-year amount in cash, a ten-year amount would need to have some investment component for inflation protection – either some exposure to equities or some fixed interest bond-like stuff.

more »

Notes:

  1. a company DB pension is defined after each year you work for the company – they can change the terms for future accrual but not retrospectively for defined benefits already accrued. Whereas the State pension is defined by government and can be redefined – as has been the case recently
  2. until you get to the parasitic executive level, which seems to featherbed a ‘because we’re worth it’ layer of scum to loot shareholders more and more, because of course you have ‘pay the going rate’ to recruit top talent despite the fact that CEO pay used to be about 40 times that of the grunts (US study, Table 6), compared to over 200 times now and there’s been no notable increase in company profitability since then
  3. but there is some – even if you pay 20% tax on all of your SIPP income the 25% pension commencement lump sum saves you a quarter of the BR tax you’d otherwise have paid

of savings rates, metrics and goals

Over the last couple of years the UK personal finance blogosphere has expanded massively – it is a great thing to see many more people taking their financial future into their own hands, and asking themselves what they want out of the whole work-eat-play-sleep tradeoff offered in a post industrial consumer society. One of the great things is that there is more awareness of these options – and that there are choices to be made, at least for some of us.

Most PF bloggers seem to be in the accumulation stage, although there are a few who have passed across the event horizon to the other side like me – The Escape Artist for one, and I greatly enjoyed Living A FI’s post on crossing the Great Divide. My summary of the changes looking back on work to non-work is here. I feel different to most writers, not only because I am looking back from the other side, but also because I lack much of the laser-like analytical focus. It’s been just over five years since I started. I have changed, the world has changed, perhaps my work is done here.

Of measurement, and metrics, and goals

Many of us are quite analytical employing metrics and goals, tracking progress against these goals reviewing them and keeping score. In particular the notion of the savings ratio clearly works for most people. I’m a lazy barsteward and don’t do any of that. I had no idea what my savings ratio was – all I knew is it wanted to be as high as possible to shore up the defences against an earlier exit from The Firm than I had planned. I guess I took RIT’s £0 target and considered anything else a fail.

Metrics never worked for me steer savings. For starters the whole goals and metrics things was one of the things that really pissed me off towards the end of my working life, I have no desire to gamify my life, and I lose the big picture easily if I focus on the details. I have never forward budgeted like you are supposed to – I have always tried to satisfy the Micawber rule by looking in the rear-view mirror and the shape of the road behind me in what I have spent, and adjusting the direction to keep the line on the right side of the Micawber threshold.

The one exception is I track investment dividend income and capgain, benchmarking total return against VGLS100 and the FTAS, unitising every year. I probably need to rethink the benchmark as I am diversifying geographically. Maybe benchmark the HYP against VGLS100 and FTAS and the overall portfolio against some sort of passive world index fund.

It’s difficult to work back and see what it had been when I was working – it was probably in the order of 80% for the three years as I ran out. This was easier for me than most because as I had discharged my mortgage. In theory saving has now switched into reverse – I don’t have use of pension savings yet and I don’t use the proceeds from my ISA. And yet one thing puzzles me – I look at how dramatic the contributions of Saving Hard make to RIT’s networth and wonder what is different. It might be as simple as I am ten years older and therefore the stock of accumulated resources was higher than the flow of savings, but on the other hand I didn’t have huge savings when I started in 2009 because I had favoured paying down debt in the form of the mortgage. I don’t count the value of my house in my networth because its value is more income-like in the rent I don’t pay. Shona Sibary is the cautionary tale of considering home equity as networth and spending increases in it. If you want to make money from residential property do it on other people’s homes, as a BTL landlord. I don’t do BTL and I don’t eat the seedcorn, so res property doesn’t show on my networth chart.

I only have investment gain at the moment to carry things forward until first my SIPP gives me an income that I run down over five years and then my main pension comes in, paid at the normal NRA of 60 for The Firm for the vast majority of my time there.

Ermine networth

changes Ermine free cash and investments networth – ignoring house equity and any pension savings

The stock market has been on a tear pretty much from when I left work, I have been lucky with that. This would have been tough had things gone the other way – as I crawled from the crash-landing of my career it would have been difficult to look at a gradual networth decline and not extrapolate that to a feeling of general wipeout and fail 2.0. Personal Finance is as much about the personal as it is about finance. The numbers circumscribe what is possible, but what matters is how you feel about the numbers and where they are going. That’s not always acknowledged – this is symbolic, it is part of the myth 1 of one’s lifestream.

Not everything that counts can be counted, and not everything that can be counted counts.

Albert Einstein William Bruce Cameron

About half of these assets are in cash – I would have reached the other side (getting to 55 to use pension income) before the cash ran out even if the market had wiped out. But it’s as much about how it feels as about how it is. I fought against the fears of a fall in networth as I retired, but in the end Lady Luck smiled upon me – governments pumped stupid amounts of money into inflating asset classes, the oil price fell holding the inflation that would normally create at bay for a few years. I was fortunate enough to have invested in the right things, though over the last few years you just had to show up in the market and be reasonably spread out across sectors. Of course I would like to say that I was a stupendously brilliant investor. But that would be bullshit. So thank you, madcap governments who pumped up asset prices with fistfuls of funny money – I feel better set to face the coming crash than I did in 2012 because I will soon have pension income and once again an answer to that Micawber fellow…

1505_this-too-shall-pass-bracelet

Some of the government activity that made things look better in the markets may turn out bad in the end – perhaps as the decades roll by the centre cannot hold and it will all fall apart in a doom and death spiral. But so far, despite endless prognostications that the world was going to end including some of my own it hasn’t. Maybe it will end with a series of whimpers rather than a bang – after all the middle class is slowly being destroyed in the West and the whole experience of work is getting increasingly insecure, ugly and marginal for many 2, although a small number are making hay. Indeed, apparently by taking my engineering skills out of the workforce, I am a hazard to the economy and destroying Britain’s productivity. 3 To which I can only say f**k that – if you want humans to work longer then stop being stupid with metrics – as Liz Ryan summarised

To hire talented people and hobble them with bureaucracy is the height of stupidity and poor management to boot.

In the long run this too shall pass, indeed. More and more jobs are being controlled, measured and rammed into a rigid structure. I rose four levels up the greasy pole at The Firm – when I started as a young pup I could authorise £500 spend before needing authorisation from the next level up, when I left as a greybeard I had to get authorisation from two levels up get a train ticket to London. The only correct response of humans to that sort of ossification of processes and systems is to get the hell out, and let the devil take the national productivity :) Work is supposed to sustain your life, not replace it.

I am an outlier – much less analytical, and I don’t subscribe to some common PF shibboleths

Maybe because I never worked in a management consultancy, I’m weak on the whole PDCA thing here. Philosophically I just don’t have the faith in in it when it is applied to complex and interactive systems, because it is hard to separate the variables properly, and also you are typically an observer rather than an active experimenter (unless you’re the Fed). As for the check part, the problem here is the dreadful uncertainty of some key variables – obsessing about the exact value of a variable with an inherently massive uncertainty leads to short-termism and massive over- and under- compensations. Lord Kelvin is all very well in his place but mistaking precision for accuracy can turn meagre knowledge into precisely incorrect beliefs.

I’m with Mr Fox here rather than the prickly one – read widely and cover much ground, and read lots of stuff I don’t believe in (the efficient market hypothesis) as well as echo chambers of my own predilections and prejudices. I should know why I disagree with something, what the counterarguments are and I should have the humility to accept that I may be currently believing something that’s wrong simply because sometimes I know jack shit and sometimes see things wrong. I try to  at least do common memes the honour of trying to understand their premises. Nevertheless, I’m big picture fellow rather than streetfighting the details. I leave it to others to determine the details worth fighting – lower fees, yes, all the way, but I still can’t get excited about trying to win a return on cash.

There are a number of common tenets in the PF community – passive investing, an ultimate ~4% SWR, the efficient market and some of the consequences of that hypothesis, that I don’t find common ground with. So be it, I have no desire to push what may simply be my ignorance onto others. So far I have survived six years of investing reasonably well. That’s still not a huge track record and it doesn’t span multiple market cycles. The job I had to do was much simpler and lower risk that for many – I wanted to top up my works pension to compensate for the missing eight years of working, which is easier than establishing a complete retirement fund for 30-40 years of working. I have largely done that now – the HYP pays enough dividends now to make up the shortfall, and being tax-free as ISA savings the target was 20% lower. I will half split future funds, half to build the HYP and half to built a more globally diversified index ETF section of the portfolio to insure against something currently unknown about the HYP philosophy going bad in the decades to come.

The trouble with networth is while financial stock and flow are related, they aren’t locked together, and the variation is called volatility, and afflicts the stock value – the income flow is much less volatile. It was with great difficulty that I finally broke out of the instinctive association of volatility with risk. At some point, to become a successful investor, you have to do the Dr Strangelove thing with volatility 4 and learn to love it. It gives you your opportunities as well as your challenges.

How I Learned to Stop Worrying and Love volatility

How I Learned to Stop Worrying and Love Volatility

Although volatility is sometimes associated with risk, it doesn’t stand proxy for it. For someone with a high proportion of capital in equities the volatility makes the savings rate/rundown rate unknowable over short time-scales of less than about five years, particularly if they are adding to their equity holdings.  I exchange some of my cash savings for equities rate limited by the annual ISA allowance. It is possible to derive some statistical estimates for the income from equities – after all the 4 or 5% SWR principle is derived from a Monte Carlo analysis of historical (US) data. However, the history of statistical analysis on equities is littered with some extremely big fails.

There’s an implication that I have a positive savings rate at the moment despite having no income, because the networth is still rising, though the value is volatile. It’s a bizarre carry-on that investment capital can increase at a faster rate than I spend it, I guess this was the thesis of Piketty’s Capital in the 21st Century, and of course there should always be the memento mori that the stock market has been going absolutely bananas for three years and really cannot go on like that. It’s not like the world has suddenly become free of financial hazard. Presumably it would also be possible for a working saver towards FI to have a negative savings rate even if he were saving as much as he could, in the event that his investment capital were high enough for a stock market crash to diminish his networth faster than he is saving.

This seems to be a problem with some of the common PF metrics – they start to fail you and become noisy and erratic as you approach the destination, because of the uncertainty of the value of equities. The rising uncertainty of the value can be seen as the increasing erratic trace of my networth as time goes by. This is characteristic of any equity based DC pension savings – and mine are buffered by about half the holding in cash.

There will be two more jumps in the networth when my DC pension savings appear in the total – one when I get to 55 and the other when I get to 60. After that the fossil savings from my working life will be mined out, other than my pension after 60 which is deferred pay, a flow not a stock. The implication of that networth chart is that once I get these extra funds/income I will be underspending. That’s what happens when you shoot the demon of consumerism. There are many people who fixate on replicating their income when they were working, and want to be able to buy a new car every three years etc because that’s what a prosperous middle class lifestyle looks like, and good luck to them. My income will be less than when I was working, though it is possible that my disposable income will be a little bit more. The working me put a lot of money into the mortgage, and a lot into spending on rubbish, and the focus needed to get out in three years still serves me. The lesson stuck – consumerism involves a lot of spending that doesn’t necessarily lead to enhanced quality of life. One of the metrics the consumer sucker uses is comparing their Stuff and lifestyle with other peoples Stuff and lifestyles, rather than their own requirements. Busting out the TV and other instruments of consumer mind control like Facebook and social media in general help shift the balance closer to following my own needs and wants rather than those of the admen.

Notes:

  1. myth as in psychological legend, not the alternative usage myth as in fictitious
  2. Lousy and Lovely Jobs: the Rising Polarization of Work in Britain, Maarten Goos, Centre for Economic Performance, LSE
  3. there seems to be much head-scratching as to why Britain’s productivity is falling, and early retirement isn’t fingered by Peston, for example, who seems to point to governments spiking the guns fired by Schumpeterian creative destruction
  4. hopefully without the drastic ending!
10 May 2015, 1:43pm
personal finance
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    This course may be of interest to readers,

    https://www.futurelearn.com/courses/managing-my-investments/

    Or not, but it’s free and apparently from the OU. I’ve never been educated into matters financial other than by my parents and by that fine Monevator fellow so I figured I’d take it for a spin.

    1505_learn

    9 May 2015, 6:41pm
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  • England’s shy Tories take the day

    Surprise result to the election it appears, well a surprise to the punditry though not necessarily to the odd canny investor :)Shy Tories turned out in force and David Cameron is back in No 10, without the moderating influence of the crybaby Nick Clegg, who marched his party to their greatest success and their greatest doom all in the same action. I had a temptation to go with the headline England goes John Galt but that’s probably taking it a little bit too far, even in search of a decent headline. Why are shy Tories shy? – presumably because of the Scruton doctrine

    ‘Leftwing people find it very hard to get on with rightwing people, because they believe that they are evil. Whereas I have no problem getting on with leftwing people, because I simply believe that they are mistaken’

    Most people pursing financial independence will probably benefit on the finance front relative to other possible outcomes, some of the key items of the Tory manifesto are

    • Take everyone earning less than £12,500 pa out of Income Tax altogether 1

    Now on a technicality pension income doesn’t count as ‘earning’ although it’s subject to income tax, but the Tories probably don’t want to piss pensioners off either. The changes in personal allowance are quite transformational for the value of pension income, particularly when combined with Osborne’s changes. Before the Coalition, the personal allowance was £7,200 – with the best will in the world it’s probably a struggle to live well with an income below that even if you have paid your house off and gotten shot of the kids, whereas according to TFS £10,000 p.a. allows for relative luxuries including a serious consumption of alcohol which is just as well since it appears that pensioners are a bibulous bunch going on regular benders.

    I could wish for an end to the theatre of of passing laws to try and embed rises in taxes etc. The whole point of government is to pass laws, and to unmake them, so this is a damn fool waste of parliamentary time. As the old boy Yoda said, do or do not, there is no try. There’s no need for a faux legalistic framework, simply follow your manifesto and don’t put up the specific range of taxes you said you wouldn’t.It’s not like last time, Dave, where you could blame Nick for stopping you implementing Conservative manifesto promises. And let’s face it, you landed the mother of all sucker punches by getting Nick to renege on his no rise in tuition fees 2010 manifesto promise 😉 Nearly all voters have a dog in that race – either their children entering university or their grandchildren

    For those working and earning well I guess

    • we will raise the 40p Income Tax threshold to £50,000

    will be sort of welcome, though it’s not such a huge raise on what it was when I was working, unless it interacts with the notably raised personal allowance, in which case the combination is probably a decent lift on what it was five years ago.

    And yet the Ermine does wonder if we will get the 1980s back. Let’s have a song

    because on page 8 there is

    • We will find £12 billion from welfare savings

    Let’s hope that the theory is true that in the developed world we are all becoming more peaceful and less violent people because of the removal of tetraethyl lead from petrol. Caitlin Moran makes an interesting point in the Times (paywall, but free syndicated version in the Australian – Google is always your friend to read the Times for free – search the title :) )

    Push the highest rate of tax for a few thousand people to 90 per cent and let the bin-men go on strike. Annoying but not fatal. If you are generally secure, a government can inconvenience you, make you poorer or make you angrier – it can, let’s be frank, be a massive, incompetent, depressing, maybe even immoral pain in the arse – but you, and your family, and your social circle will survive it. It is unlikely that the course of your life will be much different under one government than the next, however diverse their ideas.

    By way of contrast, what’s the worst – the very worst – that a government policy can do to you if you’re poor? Food-bank poor? Dependant-on-the- government poor? Well, everything. It can suddenly freeze, drop, or cancel your benefits – leaving you in the panic of unpayable bills and deciding which meals to skip.

    I have been lucky enough to have been in the first category, and now is time to tip a hat to Lady Luck, particularly as I came from a working class background, I grew up in a much much poorer Britain but perhaps a kinder one, and particularly one a bit more meritocratic. It’s not all luck – I didn’t spend money I hadn’t earned other than having a mortgage, which I did pay off, and I didn’t have children I couldn’t afford.

    We are all much, much richer now in material terms, but that is not enough – the contrast between us is widening 2it’s now much, much greater than they were when I was growing up. The rich are richer, strict rationalists will say the poor are richer than they used to be too, but humans are social animals who compare themselves against each other, so there be trouble in this materially better off paradise. And that, sadly, is part of the problem with how rich or poor we all feel, together with macro shifts in employment that are destroying the ability of the Average Joe to earn a living enough to buy a house and raise up to two children. It’s hard to establish what is really the cause of this – some blame the Establishment, some blame the inherent complexity and interconnectedness of the world and a loss of shared narratives, some blame peak oil and resource crunches 3, some blame the rich for ratcheting up the expectations of us all and pricing us out of the markets for fundamentals.  Take your pick, and of course remember the bearish argument always sounds smarter.

    I really hope that those £12bn of benefit cuts (can I nominate the £2bn welfare benefits for rich landowners be included in the roster of cuts) don’t give us another roll-call like the 1980s – Brixton, Toxteth, Southall, Lewisham, the Battle of Trafalgar Square. In a narrow sense I will probably be richer with the result of the elections, though there probably isn’t that much in it – I am not rich enough or poor enough to have been in great hazard from any likely government action. But I am fearful – of social unrest. As a student in London I shot grainy images of the soup kitchens under Charing Cross railway arches. That was not the Trussell Trust, but maybe it’s where it is going.

    Though I am in good health I am fearful of what will happen to the NHS in the next 30,40 years -I will need a larger emergency fund to deal with that, although at least the fear and loathing that is the US medical system is still some distance away.

    The Ermine will become richer soon…

    because I am getting older, specifically at some point I will pass the 55 mark and all of a sudden I will get hands on some of my own savings 4. Along with the saying that coffee is there to help me with the things I can do something about, red wine to help with the things I can’t, it is time to look to some of my values. I used to have a CAF card from years ago, but on that fateful day in Feb 2009 when I realised I was going to retire early I shut down all such activities. I have tried to reactivate this, because although I will become richer I will take every step not to pay tax 5. However, even as a non-taxpayer but an investor I do pay some tax, just not very much, in the form of dividend tax credits. There are in fact two great benefits of using a CAF card. The most specific one is that it makes it possible to take advantage of gift-aid and have it recorded and totted up in a way I can see, and presumably print off in evidence should I ever need to for HMRC, along with my dividend tax credits – I can track that I am not over-claiming.

    It should be noted that you can only set dividend tax credits in unwrapped accounts against Gift Aid – so ISAs don’t count. However, I have significant unwrapped holdings, and once I get hold of my own savings I will prioritise transferring SIPP money into ISA savings over unwinding capital gains allowances. So I will probably have enough unwrapped dividend tax credits for my relatively modest plans, at least until I become a taxpayer again as a pensioner.

    The second benefit is in some ways far greater. The trouble with charities nowadays is that they have adopted many of the traits of business, and in particular once they have your personal details they will pester you shitless with requests for more money, and if you’re unlucky, sell your details to some sort of do-gooding sucker’s list to other like minded sorts. I originally got a CAF card to avoid that malarkey. The Ermine has a simple principle when it comes to charities – unless there’s some sort of return, like with my RSPB membership 6 where it actually does something for me to reveal who I am then I want anonymity. Particularly if it’s a charity that deals with human problems, anonymity is king – don’t call me, I’ll call you, because of this selling of mugs lists.

     

    Notes:

    1. Conservative Manifesto 2015 page 5
    2. As an example, CEO pay was about 40 times that of the grunts (US study, Table 6), compared to over 200 times now
    3. I generally fall into this category, though I subscribe a little to the other camps too
    4. Yeah, I know, I don’t so much become richer but I get access to my own money
    5. I will run out of road on that once I draw my main pension, but I still have a few years of flying under the HMRC personal allowance to go
    6. where I get into RSPB reserves like Minsmere that normally charge for free or effectively prepaid with membership. Most RSPB reserves don’t charge.

    The ethical investment conundrum

    As an example of living the FI principle, every so often people ask me “what is this investing thing you speak of – isn’t it all just a grand casino”. And I point ’em right over to that Monevator fellow who has done most of the hard work, specifically to the passive investing section. Although for a few pints I will talk the specifics of their situations I try and emphasise it’s all ideas and DYOR and all that – everybody is different ,in philosophy, temperament, risk tolerance and lifestyle. However, there are some things people often miss – a few people at The Firm were pointed at investigating AVCs and some others to consider a SIPP. Pointing people at passive investing is pretty much like buying IBM was in the old days – nobody gets fired for it, though it’s curiously passionless at times.

    And then every so often somebody comes along and throws you a curve-ball – in this case it is Mrs Ermine, who is looking at pension investing, and to date the general answer has been something like Vanguard Lifestrategy 100 – do so for 20 years and you’d expect to get about the amount you put in monthly back. This is because of the 5% SWR limit and ignoring compounding, as a rule of thumb it’ll do. This is part of her pension savings, Mrs Ermine is far more entrepreneurial that I am so some of the assumptions one makes for wage slaves don’t really apply.

    Unlike myself, Mrs Ermine thinks about the wider issues and comes to the conclusion that she wants to invest ethically. This is totally outside my ken. First thoughts are that it obviously reduces the action space somewhat and therefore will intuitively underperform. It also immediately debars you from index funds; you’re becoming an active investor if you decide that fossil fuels are a no-go area, f’rinstance, along with the whole Guardian thing. I know some other PF bloggers have given this some thought – Keeper of the Cauldron on fossil fuels and on wider ethical considerations here. The search for ethical solutions seems to take Cerridwen into racy territory – Abundance crowdfunding strikes me as having a risk profile way ahead of publicly quoted equities and terribly difficult for members of the public to qualify the risk balances.

    A last look at our unscarred friendly skies before flight resume

    A last look at our unscarred friendly skies in April 2010 before flight resume

    Now I have to admit that the cynical me doesn’t see a world of people deciding to leave fossil fuels in the ground unless something cheaper and hopefully less polluting comes along. I only have to see the 4x4s on the school run, listen to the increasing racket of jets in the sky and look at the concomitant scarring of our evenings with vapour trails and how quickly no third Heathrow runway at the start of the Coalition became a firm proposal for one to think that this is the wrong side of the bet, and that’s without the increasing power drain of IT since you’ll only prise smartphones from the cold, dead hands of the addicted consumers. I’d be surprised if this happens in my lifetime, and to be honest, if it does, I think all our investments are going to be written off in such a zero-growth or negative growth world. Capitalism needs growth like a vampire needs fresh virgin blood. It’s perfectly possible to postulate successful zero or low-growth economies, and indeed we seem to be going ex-growth as it is, but they don’t look like industrial consumerism, and they don’t have endless smartphones, city breaks and foreign holidays in them for most people.

    But this isn’t my fight. To invest ethically you have to decide either what is ethical, or conversely what isn’t. At the moment Mrs Ermine is in the latter camp – fossil fuels and industrial agriculture are what she wishes to avoid. It’s probably not exhaustive – indeed one of the issues of ethical anything is that it’s fundamentally difficult to be a blameless consumer if you chase anything to its logical conclusion. One should probably add CAFOs to the list, so Smithfield Foods probably fall into the beyond the pale category as well.

    An Ethical Investor is an Active Investor?

    To my eyes the two go together, although I’d like to hear different. By definition you’re selecting a subset of the investable universe. Now one option would be to be a stock picker, but that’s probably not how Mrs Ermine wants to spend her time, so it’s probably along the lines of this list of ethical funds. Now I don’t do funds unless they’re index funds and the history of non-index funds isn’t illustrious. I observe that Vanguard do offer a couple of socially responsible index screened funds in this list but again, what does that mean? Are there options for ethical investment trusts?

    The investment return is low enough as it is – that 4-5% real return hasn’t got much fat in it. To combine active investment and artificially reducing the investment universe seems to be a tough headwind to fly into. Even in the ITs – take Impax Environmental f’rinstance – over the last 5 years the improvement in NAV seems to have been buried in the -12% discount to NAV.

    The whole thing does my head in and I have no idea where one would start. The Ermine, with the libertarian social bias is not going to be an expert in this sort of thing but hopefully some readers have given this some thought. Am I missing any rich seams of knowledge or obvious goto places for ethical investment at low cost?

    1 May 2015, 11:56am
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  • Representation without Taxation

    There’s an election in the offing in Blighty, as it’s been nearly five years since the last one. There’s much hue and cry, although to my eyes less separates the three main parties than there used to, much is about the details and less about the big picture. Some of the big picture stuff is changing, and it’s changing is some pretty rum ways.

    Many years ago, in the 1770s in the reign of good ‘ole King George there was a bunch of uppity upstarts in one of the colonies of the Empire that got all het up about paying tax without any say in how it got spent, and their rallying cry was no taxation without representation. They had a point, and the rest is the history of the United States of America, no longer a colony for over 200 years.

    Now one of the aims of becoming financially independent is of course to minimise taxes. One of the curious twists of fate in Britain is that it’s much easier to do that when you have money – you can influence how much tax you pay by using pensions and by controlling your income. As a wage slave I was always a PAYE employee, so the main option I used was using pensions, but the ways of controlling your income are much greater for the self-employed. In particular paying yourself in limited company dividends can be a lot more attractive that paying yourself in cash income.

    However, a more recent accelerating trend seems to be increasing the personal allowance, which lifts more and more people out of the tax system altogether. Of course they still pay consumption taxes like VAT; another curious twist of fate is that those chasing financial freedom probably pay less of this sort of tax simply because you probably buy less Consumer Stuff.

    From a personal point of view, that’s dandy. And yet I do wonder what will happen as this trend increases, and we have a larger and larger number of people represented in elections but who aren’t personally impacted by the grubby costs of all the jam today we would like. Some of this trend is simply the results of increasing inequality of income and wealth, of course – if the 1% own 99% of the wealth and most of the income then it isn’t surprising that most of the tax revenue comes from a smaller tax base. Although I don’t agree with all of his conclusions, I think the Torygraph’s Jeremy Warner makes an interesting case in his article about the tax and benefits system –

    it also makes the government dangerously reliant on those with increasingly less direct interest in what the money is actually spent on, the more so given the growing focus on pensions, health care and other welfare entitlements. The contributory principle in taxation has all but disappeared. By progressively raising the tax-free allowance, the Coalition has turbo-charged this process of disassociation between revenue providers and users.

    Obviously the Torygraph is there to bang the drum for Wealth, but his case is supported by Mona Chalabi’s brilliant Guardian article that shows that higher rate taxpayers contribute the vast majority of tax revenues, though they are only 15% of the taxpayers by number.

    Contrast this with the situation when the Ermine started work in 1982. Ignoring university infill summer jobs and suchlike, this was my first real job, a junior test engineer lining up electronic sensor heads. I was intrigued to find that after compensating for inflation it paid better than the average wage is now. However, the personal allowance in 1982/83 was shockingly low – £1565, so most of that salary was taxable, and the basic rate of income tax was 30% with an additional ~9% national insurance. The young Ermine paid nearly 40% tax/NI on a higher proportion of his salary at the beginning of this career than the 2006 higher-rate taxpaying Ermine.

    People in those days were much more involved in the costs side of the tax and spend equation than they are now – if the personal allowance goes up to £15,000, which of course I am all for, personally :), then a typical two-person household earning the average UK household income of £27,000 need not pay any tax at all if they both earn roughly half. The whole tax/spend/representation thing is very different to how it used to be. Perhaps the argument is that inequality has gone up and so this is inevitable.

    Inequality has risen since 1982

    Inequality has risen since 1982

    There’s some support for that argument in the change in GINI coefficient since 1982, unfortunately although the figures show inequality has increased I have no feel for how significant a shift from ~33% to ~37% actually is.

    Maybe representation without taxation is just what you get as power shifts from labour to capital. I figure it’s going to lead to some strange places at times. It’s easy to make the case to no taxation without representation. I’m not so sure the other way round won’t have difficult birth pangs of its own…

    Caledonian Contemplations and an encounter with the Weasel of the Trees

    An Ermine has been touring Scotland for the last couple of weeks, seeking out wild places and fellow mustelids. It’s been a time of reflection and inqusitiveness – up in the wilds of the north it has been good to get away from the virtual and into the real. I did have a computer to transfer pictures and sounds but connectivity was ratty and very low speed – even the weather forecast was iffy at times. But I got to stay by the side of lovely lakes and see hawks circling over mountainsides.

    Loch Garten, Abernethy forest

    Loch Garten, Abernethy forest

    It surprised me how remote some parts of Scotland still are – I had somehow expected the tentacles of the mobile phone networks and suchlike to have penetrated far more than they did. Because of its open spaces Scotland shares an enlightened approach to wild camping with places like Scandinavia. Most of the interesting places and creatures are in the remoter unenclosed regions, though I am a slack bastard and use a camper van. Campsites often don’t work for me, because they cost more than I typically use in fuel in a day, they cluster around ‘attractions’ and they also often discourage movement between 7pm and 7am – some of the best light and interesting sounds are to be heard in that period.

    Shin falls

    Shin falls

     

    There seems to be an election going on and everyone is talking tactical details and nobody is talking strategy…

    It’s odd hearing the odd snippets after the weather forecast on the radio – with time to reflect it seems increasingly bizarre. The airwaves are full of micromanagement and pork-barrel politics. A lot of energy is being wasted on the micro and not enough focused on the macro. So here’s some of the big picture things an Ermine would like to see getting attention. Most of them seem to theme around a rapid loss of diversity in may ways of organising human affairs:

    Improved communications and lower cost of transportation is decreasing homogeneity and leading to concentrations of people and job opportunities. It’s not what we expected to happen – the idea of the freelancer able to access the world from a laptop in one of those wild places (or even a market town in the north of the country) was part of the early promise. Didn’t work out that way, so we have London with shitloads of jobs and sky-high prices of housing and other cost of living bits, and a lot of the rest of the country bombed out. Is this a problem, and if so is there anything that can be done to alleviate the human suffering?

    Along with the geographic inhomogeneity the improved communications are creating winner-takes-all effects in big parts of life. Internet services – for many people Facebook/twitter ≡ the Internet, and we are losing diversity in many network services not through standardisation but through de-facto sole suppliers and network effects.

    The distribution of money/resources is also becoming more unequal – capital is winning the fight against labour, a little because of globalisation but more largely automation seems to be developing apace. There’s nothing wrong with humans doing less work – it’s a trend that has been going on since the Industrial Revolution. But if fewer and fewer people are getting to keep the spoils of war then it seems a tough deal – what makes them so special apart from being in the right place at the right time.

    Why do we have this Calvinist fetishisation of work as being noble? It’s being used to spoil a lot of little people’s days, because They Must Work It is Good For Their Soul. I can see the problems of money for nothing, but benefit scroungers pale into insignificance compared to welfare for well-funded lobby groups. That seems to be an odd perversion of free market principles in industries like farming and banking. George Monbiot took the battle to the enemy in terms of farming subsidies of £3bn p.a.

    Why do we permit lobbyists at all? Why do we not debar any minister in an department connected with an industry from working in or having worked in that industry for two years either side of their term of office. I get the argument that it’s good to have domain knowledge, but I am reminded of Adam Smith’s observation

    People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices…. But though the law cannot hinder people of the same trade from sometimes assembling together, it ought to do nothing to facilitate such assemblies, much less to render them necessary.

    Never mind the assemblies, let’s keep these dudes out of assembling within the flippin’ government where they get to make the rules to featherbed their conspiracies… Caroline Spelman, she of ex GM lobbyists Cormack Spelman and associates was Environment Minister for a couple of years, obviously there was no conflict of interests.

    The game of tag ‘twixt Greeks and Germans is still going on

    I guess if you’ve been doing something for two years now then why change a winning formula, strange how little seems to have changed over a few weeks, still the same people calling each other names. Oh well. Despite this

    the markets are in serious nose-bleed territory

    UTMT observed this a while back and it’s still going on – indeed having come back I need to get in and sell my CGT limit of The Firm. But what to buy in it’s place. In general WTF is going on, everybody seems to be having a touch of the vapours, even the Russkies aren’t as much down shit street as they used to be. This ain’t real, guys. Has that ugly sucker Putin stopped being nasty to people? Surely not – the twisted wreckage of his psyche would take more than the collected shrinks of New York and California to iron out into something approaching normally convoluted grey matter. This really can’t carry on like this.

    Of legacy, and an odd glimpse of the bizarre inequity of children inheriting wealth…

     

    Loch an Eilein with its castle

    Loch an Eilein with its castle

    Forty years ago I came here as a teenager and took a similar picture of this lovely lake with its enigmatic island topped by a castle, though the teenage Ermine took that picture in the light of the noonday sun because that’s when we were there. It’s in the relict part of the ancient Caledonian forest, and part of the Rothiemurchus Estate. It so happens that the current head honcho, Johnnie Grant, happens to be a decent sort of egg, but I kinda took a double-take with this part of the guidemap.

    Shouldn't that be owned by us for generations, paid for my you?

    Shouldn’t that be owned for generations, paid for by you?

    There’s a teeny bit of sense of entitlement here, Johnnie. Now Britain does have an extensive history of aristocratic ownership of land, and indeed the aristocracy did do a lot to advance knowledge, particularly from the Enlightenment onwards. Charles Darwin was an aristocrat – like an Ermine after 30 years of work, Darwin could afford to pursue his own interests, but he didn’t need the 30 years of work. The British aristocracy were the main body of people who had the time to pursue non-pecuniary interests in those times.

    The conjunction of a lot of this with Britain holding a large empire did throw up some valuable additions to the body of knowledge – the Victorian expeditions around the Empire bringing back specimens are one of the reasons the Natural History Museum is one of the key plant archives of the world and there is such a vibrant gardening and plant-breeding tradition in the UK. Britain also has more veteran trees than typical for this part of Europe, partly because of that tradition. Just as well all this plant collecting came back to an established and fairly robust natural environment and not too many of the alien species caused trouble here, eh 😉 We could have done without Japanese knotweed and grey squirrels, but it didn’t turn out too terribly.

     

    the enigmatci catle on the lake

    the enigmatic castle on the lake

    However, in a different universe, Johnnie could be a hedonistic twat keen on yachts and fine living, in which case the stewardship of the estate could be a very different matter. One of the things that an Ermine occasionally gives thought to is that perhaps I may not run down all my capital – it depends on the kindness with which Fate graces the older Ermine, and to that effect I reflect on where I would want to aim the residue of my estate. One of the things that did concern me in some of the obvious diretcions is that I am not sure that having large tracts of Britain in the hands to the likes of the RSPB and the National Trust would necessarily be kind to future generations of Britons. These would not be my children because I am child-free but despite a common stereotype I do have compassion for the future population of this country, and concentration of ownership is one thing that seems universally bad in human affairs. Until I read Johnnie Grant’s little missive – which brought home to me that I’ve grown up in a Britain where huge parts of the land have been in the ownership of individual families for years – and to be honest I’d rather than conservation charities in charge of these now, because any one of Johnnie’s three kids could be a spendthrift wastrel. There is a lot wrong with charities – in particular how much of the money seems to walk out of the door in executive ‘cos we’re worth it‘ salaries, but there’s even more wrong with ancestral wealth.

    Even Johnnie agreed, when he sold a lot of forest to the Forestry Commission, although that’s not exactly a safe home either. Not only did that incompetent nincompoop Caroline Spelman try and flog this off to the highest bidder until it was halted by the outrage of half a million of the UK’s good men and true.

    a forestry comission landscape

    a forestry commission landscape

    As well as being sell-offable by newbies the Forestry Commission also gives us harsh and blasted moonscapes like this, with their homogeneous monocultures suitable for 25-year clear-felling, compared with the antiquity of some of that ancient Caledonian forest

    Abernethy forest

    Abernethy forest

    So all in all I feel better about the RSPB owning big chunks of the land than the laird. Mind you, the long arm of the aristocracy did make sure that embedded into the Constitution of the RSPB was the following, hamstringing the nascent society from taking a general view of the welfare of birds:

    The Society shall take no part in the question of the killing of game birds and legitimate sport of that character except when such practices have an impact on the Objects.

    Obviously game birds aren’t birds, ‘cos the toffs wanted to carry on blowing the suckers out of the sky when this was enacted in 1957 1. It was okay for the little ladies to set things up to prevent egrets being killed for their white feathers used in the millinery trade, when when it comes to the man’s business of massively breeding game birds and getting your serfs to beat the suckers in the air and shoot one of the many young birds driven into the sky to show what a hard man you are and how skilled a shot you are by aiming somewhere into the air then that’s a different matter and Must Not Be Touched. Thus the RSPB is officially neutral on shooting game birds.

    The aristocracy did historically do some good stuff, but they did also have it in them to treat people like shit. They came to the conclusion it was cheaper to raise sheep in the Highlands. There was one small problem – there were too many people on the land to make this work. One Sheep farmer, Patrick Sellar, delivered himself thusly

    “Lord and Lady Stafford were pleased humanely to order the new arrangement of this country. That the interior should be possessed by Cheviot shepherds, and the people brought down to the coast and placed in lots of less than three acres, sufficient for the maintenance of an industrious family, pinched enough to cause them to turn their attention to the fishing.

    A most benevolent action, to put these barbarous Highlanders into a position where they could better associate together, apply themselves to industry, educate their children, and advance in civilisation.”

    He hard a charming habit of roasting people alive in their houses if they wouldn’t move first. Which is why you see so many abandoned cottages in Sutherland. The time of ancestral wealth and using agricultural land a a store of dynastic capital  is for the chop in the modern world IMO. Indeed, the whole inheritance thang and the way people get het up about it is bizarre. For starters, if you truly love your children and have raised them right then you can give your entire estate to them free of tax – just do it while you are alive and survive seven years – stand by your principles. If you don’t trust the blighters not to turn you out of your ancestral pile when you go ga-ga then a) you should have dragged them up properly and b) why should future generations of Britons be subject the the boot of these ne’er-do-wells just because they were related to you. If you can’t trust them with power why should the rest of us have to deal with them empowered by capital they didn’t earn?

    The current threshold of IHT is also unreasonably and recent-historically high. The aristocracy held a stranglehold on land capital until the wars, when the reforming governments saw that the little people who had been slaughtered in their millions for King and Country did deserve a little bit more of this green and pleasant land than they used to have – for instance the plot of land their small hovels stood on. It still took time – in 1969 my parents bought a house in London. A house, mind you, a suburban semi, not a caravan on wheels, but they didn’t get to buy the land it stood on (freehold possession, in modern parlance). They had to buy it leasehold, because if there’s one thing that old money doesn’t do – it doesn’t sell off the capital, and so many of the houses built in the post war era were sold on long leases of 99 years. Ten years later they took up the opportunity to buy the freehold for about 5k in today’s money, presumably the estate that wanted to hold onto the land was skint due to paying IHT. Inheritance tax was an equitable way of breaking up these historical accumulations of wealth – in the end we all inherit the earth from previous generations and yield it to future ones. Of course what you accumulate through a working life should be inalienably yours 2, but if you believe that you have a problem with Taxes after you’ve succumbed to Death then you’ve not used your time on earth well to familiarise yourself with its ways… The dead really do pay no taxes. It’s your grasping children who will pay the taxes. Since it’s a windfall for them anyway, easy come easy go…

    If you own your house freehold you have IHT to thank for it prising the land rights out of the cold dead hands of the aristocracy gifted it by William the Conqueror 3. What goes around comes around  – what makes your progeny so damned entitled to free money so they can stamp all over their peer group who aren’t so fortunately endowed? If you want to give them your money, show ’em the love – do it when you’re alive and trust to the upstanding personal character you have instilled in them to look after you. You should at least share some of the risk with the rest of us if you want to disadvantage others and featherbed the fruit of your loins beyond the grave.

     An encounter with the Weasel of the Trees and other mustelids

    Not only did I see a fine male Stoat crossing the road on my travels, but thanks to Johnnie Grant’s tree-hugging tendencies I got to say hello to the Tree-Weasel of old – the noble pine marten, once persecuted by gamekeepers (a lot to answer for, these grouse estates!). I can’t claim talented fieldcraft and stalking skills here, I took the easy way out and paid Speyside Wildlife £25 to sit in their pine marten lodge and look for one taking the peanuts laid out for them

    Pine Marten

    Pine Marten

    The trouble with mammals is that many of them are nocturnal, and they have way better senses that we do. I could actually still see in colour to take this picture because they have low floodlighting. It was a tough picture, throwing everything I had – f5.6, ISO 1600 this was still a 1 sec exposure, which is why the picture is so bad. The marten could probably still see the hairs in her fur clearly. So you need edge to see nocturnal mammals, £25 in this case. With badgers thrown in too.

    1504_badge_IMG_3061_lznThe pine marten has an interesting  service to offer us, too. They have a penchant for eating squirrels, but in a curious twist of fate they are a friend of the smaller red squirrel. Pine martens chase squirrels into the trees and follow them along the branches, but the red squirrel can go further out on the branches that can support its lighter weight but not that of the marten. Not so the grey squirrel. As Monbiot describes, once the Irish stopped killing pine martens, the martens have been driving grey squirrels out of the west of Ireland – and now they have hemmed them in east of the Shannon river, and presumably as the martens build their ranks they will eventually drive the greys into the Irish Sea.

    The eternal sunshine of the spotless mind of Owen Paterson

    Owen Paterson, a Tory gent with a penchant for the politics of Enoch Powell, believes shooting greys will be effective. Even allowing for the fact that Owen seems to be a bit on the dim side with an antipathy for science unless it suits his ends (Climate change bad, well, simply non-existent in that spotless mind, culling and shooting good even if it doesn’t work and blame the bloody badgers for moving the goalposts) he’s clearly not been familiarised with r/K selection.

    1504_badger_owenYou have a decent chance of killing off a species that reproduces slowly but occupies its ecological niche at carrying capacity by culling. Pine martens, humans, African big game, yup, you could clear an area of these species that way. Grey squirrels breed twice a year so fall into a r-selection pattern- you need to carpet-bomb the place and then secure the perimeter to be sure of killing off enough of them that they don’t simply renew their ranks. Or set the pine martens on them 😉 The difference between the pine martens and the shooters is that the pine martens keep on coming, whereas the shooting stops when the Government sponsorship runs out, whereupon the skwerls repopulate the joint. Quickly – and you’re back to square one.

    Paterson is a odd fellow, aristocrat by marriage, a chap who when faced with the right answer to something and the wrong answer to it, unflinchingly chooses the wrong answer particularly if it benefits his rich countryside buddies.  For example, this Soviet-style special interest pleading:

    Andrew George (St Ives) (LD): It is, of course, right that public money should be spent on public goods. At a time of severe austerity, what public good is there in spending hundreds of thousands of pounds—indeed, £1 million cheques—on large landowners who do not need the money?

    Mr Paterson: I thank my hon. Friend for that question. The fact is that we are going from 7 billion to 9 billion people. There has been complacency in this country over recent years, because there was unlimited, safe and easily accessible food to be bought abroad. We want to make sure that we have an extremely efficient, high-tech agricultural sector producing food. I take food security extremely seriously and welcome large, efficient farmers.

    Dear Owen, you are so full of shit. Food security may be an issue one day, but the security bit comes to play when the global system is stressed, and in that case we want a resilient and lower-tech system that isn’t all interlinked with just-in-time connections. High-tech food production has massive sprawling inter-country supply chains as evidenced in the horse for beef scandal.

    Alternatively, if we want cheap food then here’s a radical idea. You know that thing called the free market? Howsabout it – get your damned Government pork out of our food system, stop picking bloody winners  like your aristocratic buddies in their huge estates leased out to contract farmers to whom you piss in huge amounts of the proletariat’s VAT taxpayer money as subsides. While proles claiming benefits are of course labelled lowlife scum, the rich storing their ancestral wealth while sucking loudly at the Government teat of ag subsidies is noble policy and an essential bulwark against Britain being starved out of the future, because of course the history of central planning in food production has such an illustrious history, eh?

    Let’s take a look and what this highly complex subsidised high-tech system has brought us in recent years. There’s the whole GM thing which seems to be forced upon us despite European customers being rich enough to say we don’t like the idea of that – a free market without Monsanto and Syngenta etc pulling the strings  would give us the choice in the same way as if you want something without nuts or organic you can go get that, clearly labelled.

    We have horse in our beef, we are all becoming fat bastards and now the WHO tells us that the magic Roundup which is what this whole GM stuff is designed to promote isn’t good for us either. Maybe the place for Government in this area is regulation and monitoring (like when it sez beef it is beef) rather than spraying taxpayer’s cash around to rich people and their buddies to maximise profits, minimise resilience and charge every UK household about £250 p.a. to keep them in the style they’re accustomed to.

    If GM really is more profitable without subsidy, then drop the objections to labelling the stuff as such, FFS, and let the market decide. In the battle between cheap and good, the evidence is overwhelmingly that the punters will go for the cheap.

     

    Notes:

    1. I have never, ever, seen grouse on sale to eat, which would at least be less wasteful of life. I don’t even know if you can eat grouse. The market value of pheasant is low, basically because too much is shot as sport for the demand as food, so a lot of this is wantonly buried
    2. subject to the usual rules of the land and taxation
    3. history buffs will gripe over running roughshod over the details
    30 Mar 2015, 9:31am
    personal finance
    by

    19 comments

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  • Rust never sleeps – 20% inflation in five years

    In March 2010 I wanted to gift my future self a regular income, and came up with a great way of doing it. Every month I would buy a three-year NS&I inflation-linked savings certificate of £500, in three year’s time I would have a three-year steady income of £500 a month. Ideally that would have been more, but I was saving in pension AVCs and  filling ISAs at the same time.

    I only managed to do that twice before NS&I ILSCs disappeared like summer rain – when they briefly reappeared I hit ’em straight between the eyes with the full £15k. The low-maintenance high-security non-taxable inflation-proofing of NS&I is too valuable to waste. These NS&I savings I consider strategic reserves against the unexpected. Because the value isn’t destroyed by inflation these savings are an in emergency break glass sort of thing to the extent that I will borrow money for short-term requirements rather than break into this, because once they’re gone there’s nothing else available that will preserve liquid cash across the years without stupendous amounts of faff. I don’t expect much of cash, I’d just like to find the same amount of value when I come back for it rather than have it melt into the ground.

    Rust never sleeps, they say, but it came as a surprise to me to receive this statement, on a rolled over echo of that first £500

    photoshopped to ice the details

    photoshopped to ice the personal details

    In only five years 20% of the value of that cash has quietly died in the night; it now takes £600 to represent the same value that £500 did in 2010. (Update – Bruce correctly pointed out I missed that ILSCs offered 1% over inflation for the first three years!) It summarises everything that’s wrong with cash – a great medium of exchange but a dreadful store of value. NS&I ILSCs fix the store of value problem, but since debasing the currency is how promises are paid for they aren’t sold any more.

     

    how Britain fell back in love with borrowing

    In the Ermine world, people clearing their unsecured debts sounds like A Good Thing in general, after all, when I was growing up there was no unsecured personal debt 1 and people survived, the sun rose each day and they seemed to have fewer financial crises… In the Through the Looking Glass world we have now that’s all bunk. Apparently, more unsecured borrowing is a good-news story. Let’s hear it from PriceWaterhouseCoopers

    Just as daffodils herald the beginning of Spring, it’s a sure sign that people are feeling better about their economic prospects when they dust off their credit cards. […]

    In the five years after 2008 people worked hard to reduce their debts and managed to clear almost a quarter of their unsecured borrowing. But the latest report shows a sudden and sharp return of unsecured lending

    […] In cash terms, that’s more than ever before and a reflection that many people feel more confident about their finances than they have in a while.

    Matthew’s Moronic Money Muppetry

    On the radio I hear such a stupendously moronic statement from a mouth-breather that makes me  ask WTF is going on here? Did I stick shift somewhere and end up on a different planet rather than a different lane?

    The man-child Matthew tells us something at 16:44 that informed me that the fight is futile, the good guys lost and the bad guys won.

    Q: Are you spending money you don’t have:

    Err, yes, people do these days, things are expensive, you have big outgoings, …Christmas, I put things on credit card… then you get into a cycle of just paying the minimum amount…transfer the balance again…hopefully that won’t run out

    I definitely use credit cards to pay for major times like …Christmas… I’ll spread that over the year, won’t be gone by the end of the year…you wanna have a good time, wanna have nice food and things…it’s important for me to keep a good credit score

    Q: when was the last time you were credit free?

    6 or 7 years ago

    Q: is there any end in sight?

    when those interest-free offers run out, and I do pay interest on some things; when that all comes on top of me I will eventually get a loan, and then it will stop..until then it works for me.

    Fundamentally my lifestyle revolves around exceeding my income and I think that’s a normal thing

    There are times that you weep for all the previous life-forms that struggled their way across the geological aeons, the fish that left the sea, and indeed our own human forebears who endured desperate privation to produce the pinnacle of wisdom delivered by Matthew encapsulated in

    Fundamentally my lifestyle revolves around exceeding my income and I think that’s a normal thing

    Live intentionally, Matthew. Christmas should be about gratitude, not spending to make corporations rich

    Go on Matthew

    Go on Matthew. In the unthinking stir-fry that occupies that cranium of yours, ever look at things like this and ask yourself if there’s more to life that rolling over your Christmas consumer debt from year to year?

    Now I know you’re not a fellow who’s given to deep thought on the meaning of life and all that jazz, but Matthew, has it ever occurred to you that the purpose of your life on this sparkling blue planet may not be totally summed up in doing as you’re told and buying shit you can’t afford to make other people rich? Let’s take a look at that Christmas thang, for starters. What is Christmas? Why is it there? Ever thought about that, y’know – why do you want to have a good time, drink yourself stupid on wifebeater and pig out? Let me tell you a story

    more »

    Notes:

    1. this isn’t strictly true, there were ways and means but usually associated with the threat of violence for defaulters. What we know as consumer credit to buy Stuff was regulated hire purchase secured on the goods
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