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A few years ago, my co-blogger The Accumulator argued that fears for the future of the state pension were overblown, writing:
Governments stay in power by racking up achievement points with their supporters, neglecting those they cannot court, winning the spin wars, avoiding catastrophe, appearing more credible than the opposition, and kicking the really toxic cans down the road.
Your pension is protected by that political nutshell.
Perhaps it’s because they’ve grown up in an era of almost continual political upheaval, but Gen Z is not so sure. When you’ve seen your birthrights and much of your prosperity chucked overboard for a handful of famously hard-to-find magic beans, watched six UK prime ministers fall in a decade, and witnessed a cage fight held on the lawn of the White House, your political nutshells no doubt crack different.
In his early 20s, Joel tells the BBC this week that:
“I don’t believe that I’ll be a recipient of a state pension. I know a lot of people my age don’t think they’re going to be… There just won’t be enough money.”
Meanwhile 27-year old Conor rightly noted that “the goal posts keep moving”, adding:
“At the minute I’ll be 68 by the time I can retire, but I do think I’ll be probably closer to 75, if I’m honest.”
The BBC article is an unusually deep dive into how state pensions are seen by those still half a century from – potentially – receiving them.
Never mind the bollocks
We hear far more often from older generations about pensions – typically in uproar when, for instance, the sustainability of the triple-lock on state pensions is even questioned.
Meanwhile Gen Z quietly suspects that it will have to foot the bill.
It’s easy to scoff when a 20-something says they’ll invest in crypto instead of a workplace pension. But there’s a sort of everyday nihilism revealed here, too.
I’m from Generation X, the famously fatalistic mini-generation of slackers that (at the margin) worked McJobs – at least until the 1990s tech boom got going and we too got religion about capitalism.
Until then, those of us who thought about it suspected we’d be left behind.
But looking back – not least from the other side of a two-decade long house price boom that took homes from a doable three-times income to a bonkers ten-times-plus – our economic concerns seem modest.
And at least the doomed youth of the late 1970s had the Sex Pistols making headlines for them.
Gen Z turns to ChatGPT for comfort. And we all know it’s coming for their jobs, too.
Have a great weekend.
From Monevator
Help! My passive fund is aggressively tech focussed – Monevator
The Living Is Yield-y model portfolio: one year update – Monevator [Moguls]
From the archive-ator: Can dogs and FIRE go together? – Monevator
News
Britons see sharpest drop in wealth of any developed nation since pandemic – T.I.M.
Halifax brand to be scrapped after 173 years – BBC
Interest rate cut ‘off the table for now’ says BOE’s Bailey – This Is Money
‘Sh*tloads to come’: London takeover spree set to accelerate – City AM
Three in five homes listed in January have failed to sell… – This Is Money
…as UK house prices stall for second straight month – Guardian
How scam refund rules are reducing fraud – Which
Motorists face further delays to £9.1bn car finance refunds – This Is Money
NHS to reward people who walk 30 minutes a day – BBC
Hedge funds BlueCrest loses £200m tax battle with HMRC – Reuters
Bubbles or regime-shifting in gold and Bitcoin? [Log scale] – Econbrowser
Products and services
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Hargreaves Lansdown launches table-topping 4.5% cash ISA – This Is Money
The cheapest ways to get Wimbledon tickets – Be Clever With Your Cash
Get up to £1,500 cashback when you transfer your cash and/or investments to Charles Stanley Direct through this affiliate link. Terms apply – Charles Stanley
Co-Op Bank slashes fees on spending abroad – This Is Money
Santander switch offer: £180 and a £45 Amazon gift card – B.C.W.Y.C.
The cheapest mortgage lenders in June – Which
Get up to £200 cashback when you open an Interactive Investor SIPP. Terms and fees apply, affiliate link – Interactive Investor
Chip shortages set to push up prices for electronic devices – This Is Money
Does marriage affect your home insurance bill? – Which
Homes for sale with kitchens that open on to gardens, in pictures – Guardian
Comment and opinion
Should a fund manager invest their own money differently? – Behavioural Investment
“We had packed lunches every day for 10 years and retired at 40” – BBC
Chauffeur knowledge – A Wealth of Common Sense
The ins and outs of withdrawing a pension early – Be Clever With Your Cash
The cost of status – Young Money
Alternatives in a portfolio: Role, risk, and realism explained – Vanguard
Retirees need a plan ahead of a potential lost decade – Morningstar
Is $5m in Treasury bills enough to be set for life? – Of Dollars and Data
A dirty dozen – Quietly Saving
Managed futures ‘crisis alpha’ is compelling – Tax Alpha Insider
Wall Street is becoming crypto – All Star Charts
Another AI maybe-bubble mini-special
Yes, this market is all about AI stocks… – Morningstar
…and what history tells us about the AI boom – FA Mag
Scottish Mortgage: Tech run can continue with ‘unreasonable prices’ – Trustnet
Naughty corner: Active antics
Don’t quit drinking, don’t quit value investing – Lee Roach via X
When information is no longer the edge – Enterprising Investor
The case for value over growth is building – Apollo
When PE firms borrow to fund ‘skin in the game’ – PitchBook
Social media causes coincident bubbles across different assets [Research] – SSRN
Embracing business failure mini-special
Failure as a competitive advantage – Investment Masterclass
Winning a game of failure – Vixology
Kindle book bargains
The Trading Game by Gary Stevenson – £0.99 on Kindle
Alchemy by Rory Sutherland – £0.99 on Kindle
What’s Your Dream? by Simon Squibb – £0.99 on Kindle
How to Have an Epic Retirement by Bec Wilson – £0.99 on Kindle
Or pick up one of the all-time great investing classics – Monevator shop
Environmental factors
Are crows really our friends? – Audubon
The corals that shouldn’t exist – Biographic
Lundy Island seabird population soars after rat removal – Independent
Robot overlord roundup
We need a way to prove personhood online – Noema
Ford rehires human engineers after AI fails to match quality checks – BBC
Meta joins SpaceX in selling spare compute – Semafor
AI slop is starting to overwhelm engagement platforms – Bloomberg via MSN
Not everyone is happy to see delivery robots in the UK – BBC
Stiffed twice by the AI bubble – Simple Living in Suffolk
Gen AI creates delicious, sustainable, and nutritious burgers [Research] – Nature
Heavy AI adoption linked to more hiring, new study shows – Big Technology
Not at the dinner table
New ‘No 10 North’ plan will rebalance power in Britain, says Andy Burnham – BBC
Burnham also promises to ease cost of living pressures – Guardian
The wheels are coming off Putin’s war – The Bulwark
Trump’s financial disclosures reveal $1.4 billion in crypto earnings… – NBC
…but the White House sees no conflict of interest – Citation Needed
Florida is executing prisoners at a record pace – ProPublica
Off our beat
The surprising power of simple predictions – Tim Harford
Rips, a ghastly new digital Pokémon gambling game [Clue is in the name?] – Wired
How Amsterdam invented the fire department – Works in Progress
A beginner’s guide to cooking with beans – Guardian
Why Scotland is no longer ‘the murder capital of Europe’ – BBC
A super yacht armada left a marine graveyard in Miami – Bloomberg via MSN
Communion by JD Vance review: a strange, poignant book – Guardian
Couple turn mid-terrace garden into a tropical jungle with poisonous plants – BBC
And finally…
“As you gain more wealth, money solves fewer and fewer of your problems.”
– Nick Maggiulli, The Wealth Ladder
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It’s not just Gen Z, though perhaps they have more reason to be fearful. I didn’t believe that the SP would be there (and some part of me still doesn’t quite believe it, as in it could be means tested, explicitly or functionally through the tax system). It didn’t form part of my FI/RE planning at 52, and I have been retired for over a decade. That pessimism probably served me ill, because I felt more skint and probably underspent
So while I take TA’s point, there is a hidden assumption there, which is that Britain remains a democracy, at least in name, so his presumptions hold. I am not so sure about that now, particularly what happened in the US. Happy Independence day BTW good people of America, remember that freedom requires eternal vigilance, it’s not the British King that is your problem now.
Although the expectation would be of a rich fossil to become our future Führer, it is possible that an idealistic green rabble-rouser could take the crown. In the sleep of reason, monsters appear.
As a pensioner, I cannot understand the baseline 2.5% lift.
Keeping the pension inline with average earnings growth or CPI inflation is enough, surely? Why do we receive a 2.5% boost?
A double lock is all that was ever needed IMO.
So I did some pension modelling a while back plotting what income streams kick in as a function of time, and how they stack up. It was quite illuminating, I’m really glad I did it, but possibly the key insight was just how big a part the SP played. It’s massive! So I think the corollary of that is if it gets scrapped then it’s going to cause a huge amount of pain to the country. But I agree that the push to the right of the qualifying age looks similar to just canning it. If it did go to 75 say, then it’s really into diminishing returns territory, average payout 3.6 years. A counter insight was looking into the value of additional qualifying SP years, trying to assess whether OMY was justified in this respect. Came to the conclusion it wasn’t. So to summarise, SP good, additional years bad.
@Barm
The triple lock dates back to when inflation more closely averaged 2%. I’d hypothesise the intent was inflation ~2%, earnings growth say ~2.5% (.5% productivity increase seems a reasonable aspiration), and they threw the baseline 2.5% in there in the expectation it would occasionally increase the pension above wages/inflation and it was felt the state pension was inadequate, that seemed fine.
I don’t think the originators anticipated it becoming an untouchable policy, more that it would exist until the pension was less inadequate and then be revisited.
To me as big an issue is the inflation and average wages increase, as they often average about the same, but tend to be out of phase, so you get say 3% inflation one year, harder pay bargaining the next so average wages go up by ~3% but inflation has fallen and so forth.
Linkage to average wages (along with MP salaries etc) seems fairer long term, and similarly MP salaries should be multiples of average take home pay, to concentrate their minds on the the proletariat’s experience.
@Barm – general consensus is that it was needed to ratchet the SP up from a ‘too low ‘ level, but once it hits its target then that element should be dropped and revert to just inflation or earnings indexing.
Imho they should replace the 15% Employer NI with a 15% mandatory employer contribution to your workplace pension, and then freeze all State Pension accrual where it is today, just up ticking what you’ve accrued already by inflation.
This would give us a great opportunity to scrap all NI and increase income taxes (including dividend tax, and CGT) so that the whole system favours work more.
Because right now work is the most heavily punished way to earn.
Next step: introduce a worldwide tax on British citizens like the Americans do. No more fleeing abroad to avoid paying your dues. Tax treaties can take care of the injustices
“launches table-topping 4.5% cash ISA”
HL & This is Money [now?] show it as 4.3%
(I’m neither clever nor erudite enough to post ‘properly’, so am limited to nit-picking, for now.)
Perhaps we could start by following the Norwegian state pension fund model, taking the tax revenue from hydrocarbon extraction and investing it in a ring fenced account. Since 1999 their scheme has grown to a value of $2.2 T with average annual growth of 6.6%. It would, of course, mean that extraction would need to resume at pace, but I think there is only one voice arguing against that policy.
£2.2T at a 4% SWR would cover about 2/3rds of the annual pension bill.
@rhino
https://www.gov.uk/government/news/life-expectancy-at-older-ages-is-the-highest-its-ever-been
The link shows 12/13 life expectancy for 75 year olds.
Was the 3.6 based on life expectancy at birth?
Perhaps we are interested is how long are people expected to life if they make it to 55 years old. These people will have paid in (hopefully) a fair whack – I’d estimate it’s only going to take a couple of years off the 12/13 numbers above.
12 years state pension feels sensible given the costs (and consequential care costs).
I predict a Logan’s run movement in the near future, maybe with financial incentives..
@Bassavoce. (8)
Given that North Sea oil is in terminal decline, with or without new extraction, it looks a little late to view it as a meaningful contributor to a sovereign wealth fund, or ring-fenced pension fund.
Seems to me, that in a country of 69.5 Million population, there has to be more than 1 person who disagrees with ‘Drill, baby, drill’.
I see that Norway includes a wealth tax in their taxation regime. As does, for example, Switzerland.
@Barm (2)
I imagine the 2.5% minimum increase was there to ensure that the Government never had to suffer the political outcry Gordon Brown received as Chancellor when the state pension increase for 2000-01, based on inflation only, was 75p.
And as xeny (4) describes, the triple lock was deliberately designed to have a ratcheting effect until the state pension caught up to a reasonable level. The problem was that the intended eventual level of the state pension was not defined. (Declaration of interest: I am a state pensioner.)
@xeny,Rhino & DavidV
All good replies making perfect sense, thank you.
More for completeness than anything else, the couple in the BBC article who “retired” at 40 (“retired” because they really became youtubers which is another type of job) posted a rebutal: https://www.youtube.com/watch?v=2oUCqKLdNRs
The Great American Ranter thinks people should now expect 30-40 years of increasing interest rates, in contrast to the similar spell of declining rates that’s ending now. I suppose that means that people ought to consider how to clear their mortgages before the pain gets too great.
https://market-ticker.org/akcs-www?post=255646
He also seems to recommend abandoning equities and saving in cash. My own question is how rising interest rates will affect index-linked gilts. Presumably the effect will be small if the maturity dates are close enough. And then there’s Index-linked Savings Certificates: cash them in or keep as diversification? We’ve recently cashed in one third of ours: a reasonable compromise?
@Rhino #6
> value of additional qualifying SP years, trying to assess whether OMY was justified in this respect. […] Came to the conclusion it wasn’t.
Not worth working for, sure. But Class II and Class III contributions are still available for you early retired layabouts. Unless you have limited expected life expectancy once you do the comparison with buying the equivalent annuity on the open market additional years are a steal, particularly if you work at a very low level after FIRE or can make it look that way with some pin money projects.
@Boltt #9
> I predict a Logan’s run movement in the near future, maybe with financial incentives..
I’m not averse to the idea, I hated the way the Lords canned the assisted dying bill. I don’t want to exist as a vegetable and cost the State/NHS money – once the race is run, I’d prefer to let it go if quality of life is crap. Hopefully in some while yet and even more hopefully I’d just keel over, job done
@boltt – yes that’s a good point. I was using life expectancy for UK male from birth which prob doesn’t make sense, 75 wouldn’t make sense either. 55 sounds like a sensible compromise.
@ermine – absolutely, I mentioned previously here my aspiration to do exactly as you suggest. Would be a great wheeze. But an SP qualifying year from a full year of work, not so much..
@Rich – yes I can’t decide if the Donegans are grifters or good guys. Their comments feed seems highly curated which is a red flag. But to be fair, they are providing financial education courses for free (from the perspective of the end user), which I think is commendable. They are a bit matey with the escape artist which is another red flag, but on balance I think they get the benefit of the doubt. One thing’s for sure though, they never retired. They have a full time job the pair of them, but it’s a very intentional, self employed one. Looks like they have a lot of fun travelling the world doing it.
The state pension won’t be formally removed. It just will get means tested out of existence. Probably via taxation and fiscal drag. On the triple lock, it’s not massively expensive right now but it’s structure guarantees it will eventually be. Indexation to average earnings is the right decision, not CPIH. The state pension should be a function of what those who pay for it get paid. Makes it both sustainable but also fair.
@ermine. I’ve had one parent die slowly, painfully, over a number of months. There was no good reason for them to endure that. The other is basically in the same downward spiral. It’s hard for anyone to help without risking legal action. I blame the religious types to be honest. We need a UK version of Dignitas. Legal and simple.
@Rhino. I would say being matey with the Escape Artist is the sort of red flag you cannot ignore. So, grifters until proved otherwise.
@Ermine and ZX: I had a similar experience with someone I was very close to. Meanwhile one of my parents has recently been diagnosed with a disease that spells a terrible end.
I don’t think either of them would have chosen assisted dying but I think it’s inhumane to be denied the choice. I hope it’s there for me and I hope I’m brave enough if needs be.
@TI – I think I read somewhere recently that younger generations are tracking ahead of their creaky counterparts income-wise. Did you see that? Gen Z in particular, IIRC.
@TA. (20)
“.. I think I read somewhere..”.
I read that too. Looks like Gen Z’s are doing just fine in these early stages of their careers. In fact, they’re doing better than any other generation, except for the Boomers, at this stage of their careers. The Millennials took a hit in their early careers, from both the 2008 financial crisis and the subsequent wage stagnation.
State pension increases mean less is needed to be made up in pension credit and subsidized care fees, so cutting it wouldn’t save as much as we’d think. I’d be interested to know what percentage of state pension payments would’ve had to be paid one way or another anyway.
It could be argued too that because it’s taxable, it means any workplace pensions are more heavily taxed – that effect of it might not be fairly reflected in the numbers
On the other hand paying people to not be productive isn’t really a winner, work is good for health, but I suppose there comes a point where we simply can’t work – do we call that disability?
And employers might not want to be stuck with staff too elderly but on permanent contracts into their 90s etc – if there’s the risk of that we might see more ageism in hiring
@Matthew Ainsworth #22
> work is good for health
Sez who? I retired early because work was doing my nut in, I was drinking far too much to get it out of my head, and I am in decent health touch wood some 14 years down the line thank you very much. Which probably wouldn’t have been the case had I stayed working. So no, it isn’t good for health. It may be ok or better for some people’s health, but not everyone’s, and this myth needs to be laid to rest. Work just isn’t all that. Sure, pay your way, but then be done, there’s a lot of more interesting things you can do with your finite time on earth than working.
@Ermine – The drinking was probably the most damaging part of that I imagine, the stress at the time can otherwise be character building maybe – unpleasant, but leaving us stronger in the long term
But I do hedge my work because it’s a game of survival and endurance, 2 employers, 4 sites, so that I’m never taken for granted by being at the same place all the time, or stuck with one set of problems, so I know I’ve got boltholes if it comes down to it – there are ways of structuring it, zero hours contracts give options.
But I do think sitting at a desk, staring at a screen, ploughing through a pile of paperwork, isn’t going to be as healthy or fulfilling as hands on work where you’re moving around, doing tangible stuff that you can see. But most jobs break isolation a little bit, make us feel a bit useful, let us feel like we’ve earned our crust, give us something to talk about
> stress at the time can otherwise be character building maybe
Ah, I was that young pup once, my technician would never do overtime, because he had once gone off sick with stress. What is this stress you speak of, my 30 year old self thought, though I at least had the manners not to voice it.
And twenty years later, after the GFC and some psycho nutters in HR, it came for me. So no, the drinking wasn’t the problem, it bought me three years to marshal resources and invest most of my income to GTFO, and I have never been tempted to sell my time for money since. Even when I fearfully did some contract work post-FIRE I invested the lot, because as soon as you rely on work for your lifestyle you become a wage slave, and BTDT. No consumerism tastes as good as freedom from the hamster wheel feels.
So no, stress does not build character. It fucks you up, particularly past 40. If you are lucky like I was it concentrates the mind to get the source of stress right out of your life. If you aren’t lucky you get a heart attack, and if you are really unlucky your colleagues get to pay their respects at the little pile of earth that was once a former worker. I saw that a little too often as time went by, particularly after 45. Send not to know for whom the bell tolls, it tolls for thee.
Work really is overrated. Besides, there’s no point now. They tell us AI will do all the things anyway.
@Matthew Ainsworth #22
> work is good for health
Tell that to the miners with emphysema , the iron workers, and all the others with industrial diseases or injuries. Sitting in front of a screen all day isn’t exactly healthy either.
And there are better ways of breaking isolation, feeling useful and having something to talk about. And as for earning a crust, I’ve done that and am now living off the squirrelled away crusts, and completely voluntarily helping my community – not work, not workfare, just doing stuff that no-one is willing to pay the unemployed to do.