Attending a naughty boys’ course

Despite my car’s oversized engine, I’m not a speed freak: I’ve had a license over two decades and my motoring offenses comprise precisely two parking tickets. Until last month, when a camera clocked me at 39 in a 30 zone.

Like everyone who gets one, I felt unfairly victimised. It was just off the M4 so was still in a motorway mood… and why should I get penalised when cars were passing me as it flashed? (The answer: they got Fixed Penalty Notices too.) But the fine sheet had an interesting option: avoid points on my license… if I attend a “Speed Awareness Course” for first offenders. The shocking thing: it was actually quite good.

The first entertainment value came in the names of the presenters: Mr Neophyte and Miss Lightning. (You take all the laughs you can get at 7am on a damp Friday.) Despite his name, Mr Neophyte was an experienced driving instructor odd-jobbing for the Met, and his attitude was ideal. Whereas a Met man might’ve adopted a finger-wagging you-naughty-people approach (the attitude that’s led to a majority of white middle-class Londoners quietly withdrawing their support for the police) Neo prefers a regular-guy persona: I Understand, You’re Here to Avoid Points on your License. Which we are.

“We” are a bunch of 18 people. Most are from ethnic minorities; nearly all are male. But at this time in the morning, it’s probably the “professional” bunch: the folk who have jobs to go to. It’s good-humoured considering nobody wants to be here. But the mood is managed with skill.

First up’s a recap of things many of us haven’t revised in years: the Highway Code. Speed limits on Britain’s various road types. I get them all right but learn something too: do you know that if you see street lights without a sign indicating the limit, you assume it’s just 30mph? Interesting. Access roads to service stations count. Then comes the real stuff: the justification for why travelling at 35mph in a 30 zone can cost you your license (if you do it four times in four years

It’s all about curves, and I’m not talking rural roads here. If you hit a pedestrian below 30, they’ve got a high survival rate – over 80%. But for every mph above that, the chances they’ll die shoot off the scale – the graph’s like a hockey stick. By 40mph, you’re a death sentence for basically anyone you run into. And that’s the zone where most fatalities happen: on motorways you’re travelling much faster (70mph) and breaking the limit much more frequently (80-90mph) for far more miles… yet barely 6% of accidents take place on them.

So: for a course you don’t want to attend and feel victimised for being asked, the output’s not bad. I find I am thinking about speed more often, and paying particular attention when people are around. All in all, not a bad result.

No accounting for socialists

I’m at the other end of the political spectrum, but I’d really like to at least *respect* the few hundred motley socialists gathered in the City of London. The trouble is, they’re just so…. daft. Take this report in the Telegraph.

“The richest 10pc of the UK population have a combined personal wealth of £4 million, million. A one-off 20pc tax on those people would raise £800 billion. Those people can afford it, they’d feel no pain, they’re so fabulously wealthy. With that sum of money you could pay off the entire government deficit. No need for any public spending cuts.”

“Protester Peter Tatchell” aptly demonstrates the biggest problem with the Left: its complete inability to do basic maths.Let’s skip over the fuzzymouthed phrasing (£4 trillion would sound less preteen, buddy) and take a look at what this socialist’s “solution” would actually involve…

He wants £800bn. So let’s assume that “rich” ten percent, 5.8 million UK residents, is okay with paying an average £137,000 each. Whoops! First mistake right there!

In Britain today, people at the 90th percentile (those Tatchell calls “rich”) earn about £40k. Hmm. That’s the income of a hardworking plumber or electrician putting in overtime. Are these people “rich”? If that describes your household income, “beware” indeed: the lefties want five years’ aftertax salary from you. My word, this guy’s truly from the Gordon Brown School of Public Finance, where taxpayers’ money is something that rains from the sky in infinite quantity.

A silly socialist, doing silly socialist things

A silly socialist, doing silly socialist things

But what the hell, this is socialist arithmetic. So they could sell their houses to be part of this socialist utopia, right? Hmmmm again. The top 10% of the UK possess average wealth of about £60,000, mostly in the value of their homes. So at his suggested 20% level, the average tax per person will be about £12k, and most people will have to sell their homes to pay it.

And wait, wait… that’ll raise less than a tenth of the £800bn he feels entitled to! What a silly little socialist.

Next up for critiquing: the “Tobin Tax” on financial transactions. Which would, in socialist speak, “reduce speculation and be good for the economy, and raise at least £100 billion a year.

Hmmmmm once more. What happens in a global economy, Mr Socialist? When business feels squeezed, business goes elsewhere. Sweden had a nice little financial sector before 1984; when it introduced a Tobin Tax, they expected it to raise a billion and a half kroner a year. Nope. The business fled, and the tax never raised more than a twentieth of that level. Today, let’s just say if you want a job in finance, Sweden’s not the best place to look for it.

So, in summary: what this socialist suggests would raise less than a tenth of what he wants and throw over 5m people out on the streets. Perhaps that’s what he wants: socialists love the downtrodden.

Definition of a Socialist: someone who really, really likes getting his hands on someone else’s money. As I said, I wish I could at least respect them, even if their views are different to mine. But I just can’t.

Tinker, Tailor, Soldier, Spy

Ok, so it’s not getting great reviews, and when a girlfriend pouts her way through the whole two hours it’s a fair bet she doesn’t like it either*. But I enjoyed Tinker Tailor Soldier Spy. Which means it’s fair to say you probably won’t.

It was obvious rather a lot of the audience were expecting a James Bond-style thriller. (Comments overheard on the way out: “appalling”, “junk”, “boring”, “slow”.) But I take that as a sad indictment of today’s want-it-all-now, over-stimulated, X-factor’d up society – a society of instant gratification where not having to wait for stuff is seen as a basic right.

But real films are narratives, not rollercoasters. To get this film you’ve got to sit quietly and actually listen. Which, let’s face it, is more than most people are capable of these days. This film is a piece of art – from its pixel-perfect 1970s sets (remember those funny-looking Saabs and cans of Harp?) to the quality of the acting.

I’ve never quite “got” Colin Firth – nor what women see in him; he always seems to spend about a third of his screen time blubbing. But he’s pretty good here – and it says something that in TTSS, he’s one of the worst-cast. And Gary Oldman’s George Smiley IS the Le Carre original. The slightly effete awkwardness of the harmless-looking middle-aged man who was actually the most effective agent on either side of the Cold War … Oldman captures every twitch and shuffle. The one occasion he holds a gun, it’s dangling unwanted at his side, a slightly distasteful accoutrement rather than a tool of the trade. And there are a LOT of extreme close-ups. Half the narrative is in facial expressions; this dialogue-driven film has relatively few words-per-minute. People are civilised, waiting for each other to finish a sentence before presenting their rebuttal.

(Is this gentlemanliness what’s missing from British society today? The chavster classes inhabiting so much of the mass media don’t have the wit or breeding to consider any situation not pertaining directly to themselves?)

And the narrative gains a lot from being pared back to a movie’s essential elements. The setpieces are terraced townhouses and workaday government offices; SiS high command inhabits a grimy Cambridge Circus building and the overseas headquarters are grimy import/export sheds. You get the feeling this is how intelligence work really was during the Cold War – a lot of dull hours waiting around at Teletype Terminals, where privileged but intelligent and civilised men pondered tiny scraps of information and deducted Red military policies and Kremlin power structures from a half-hidden salute in an old photograph.

(Of course, the blue connections and personal relationships of such groupings led to things like the Cambridge Five in real life, but the point stands: this film works.)

And because it was a more formal decade, protocol and procedure seem a lot more important. Simple acts like looking up files in a fifth floor archive are imbued with sweaty-collared menace … no Tom Cruise wirobatics, no webs of red lasers, just the clenching anguish of doing stuff you’re not supposed to be doing. Everyday tradecraft was about not leaving a paper trail, right down to swapping bag-check chits and leaving woodchips in the doorjamb. You never see James Bond walking around in his socks while a friend listens underneath to see if the floorboards will creak, but such details are what distinguish a good agent from a bad one. The beauty is many such scenes are never explained; you’re left to work it out for yourself.

Go and see “Tinker Tailor”. Chances are you’ll hate it.

And by the way, Odeon, your cinema is still crap. For future reference, it’s normal practice to TURN THE LIGHTS OFF BEFORE THE FILM STARTS, without members of the audience having to come out of the theatre to tell you.

 

*Possibly connected to me upending her popcorn before the film started.

A friendly rebuff to Elizabeth Warren

Elizabeth Warren is a non-crazy left-of-centre US politician. Circulating on Facebook is a neat little vignette about a reasonable view of social democracy.

I actually agree with her statement (left) that wealth-creators should pay their share of taxes – but think it’s incomplete without a dig at the wealth-consumers. Plenty of US pols (like the weirdo bunch calling themselves Republican presidential contenders) are anti-tax, but most of them have always taken a public sector salary, so their views don’t exactly carry water. Here’s my quick rewrite from the right side of the fence …

There is nobody in the government who creates wealth. Nobody. You’re in the public sector out of a sense of duty to others and a desire to contribute to society? Good for you.

But I want to be clear. The services you provide are paid for by the wealth-creating part of society. Your salary is paid out of the taxes levied on the private sector. Your immense job security is made possible by the private sector’s ability to grow the economy. You’ll be safe in retirement, because your government pension is guaranteed by the taxes from people whose benefits are far, far lower. You don’t have to worry that marauding private sector workers will bring the country to a standstill by striking, because people in the private sector lose their jobs if they pull that stuff…

Now look. You joined the UK public sector, and you provide halfway decent services without wanting a kickback. That’s great! Keep on doing it. But part of the underlying social contract is that you understand you’ve got a terrific deal. You’ve got better job security, higher average salaries, and massively better retirement benefits even with the proposed reforms that ask you to pay a little bit more and retire a little bit later. So can you think again about all this strike action, guys?

The incredible story of SNS and a Kindle

I thought nobody would ever buy e-readers. They seemed  a gimmick for geeks, not a tool for people who read in high volumes; books have done perfectly well for thousands of years without needing a battery to look at them. And besides, there’s the tactile aspect. You want to mark a book, put notes in the margin, make it yours. Creases in the spine and dog-ears on every chapter are a mark of pride on one’s bookshelf; the subtle visual cues of how many pages you’ve consumed and how it falls open on a table all add to the immersive experience. No chunk of technology could do better.

Or so I thought.

I’ve had my Amazon Kindle less than a week and I’m hooked.

Hooked on a carryalong gizmo that can’t do email, doesn’t handle touch, and whose screen is a 16-shade greyscale not seen on a PDA since 1998. While I work in technology I’m not much of a gadget fiend; I’d rather let someone else do the bleeding edge and I’ll buy it when it works, thank you. So why did I buy a Kindle?

The reason? It does one thing – but does that thing very, very well.

I subscribe to an insider’s newsletter called SNS. It’s distributed in PDF. Since PDF is portrait-friendly and most computer screens are landscape, reading SNS on my laptop sucks (let’s face it, reading anything off a computer screen sucks). Perversely, the only way to read a PDF is to print it out – which destroys the value of electronic distro. And anyway, SNS’s 20-30 pages are a lot of tree. I’ve been researching a lot this year and I’ve had other things to read; unbelievably, when I checked my SNS folder I was nearly a year behind.

This newsletter costs $595 a year, and I’d gained no value from it since Q4 2010.

That’s important, because publisher Mark Anderson writes about below-the-surface upheavals in macroeconomics and geopolitics that’ll impact the world a year-plus later. Being a year behind puts me back with the rest of the world – you know, the people who think the FT and WSJ are the most intelligent takes on where the economy’s going. (For all they’re worth, they might as well write a daily headline “To hell in a handbasket” and not bother.) SNS draws together disparate threads of business innovation and government policy into reasonable conclusions, and frequently those conclusions tell a very, very different story to the front pages of mainstream media.

So I bought a Kindle. For no other reason than I thought it’d get me back “into” the SNS Newsletter.

The first thing you notice is its beautiful look and feel. (The Kindle, not the newsletter.) You don’t quite “get” e-ink until you’ve used it. Not My Kindleemitting light, it drives no eyeball fatigue and you can read it in bright daylight (or Tube striplight) without pain. The page-turning experience is natural; it weighs less than a paperback and the reading experience is just as immersive. This thing was designed by people who really, really love books. (Only nag here? The page-turning buttons on the left should’ve been inverted, so the lower left button would turn pages back rather than forward.)

But the real work’s in the way the enabling experience – let’s be accurate: the Amazon experience – is replicated. It dog-ears everything for you; no need to insert bookmarks, it’ll just return to the place you left. Your preferences and purchases are saved back at the Big A and if you lose the machine it’s no problem: just deregister it. To get a non-Amazon title (like the PDF’d SNS) onto your Kindle, just email it to your unique kindle address and seconds later it pops up on the gadget. (Don’t forget to put “convert” in the subject line; SNS’s standard PDF is unreadable without it.) It’s as smooth as any iPod.

Other features replicate the social experience of reading. Remember how fascinating it was to come across someone else’s note in a university library book? The Kindle shows you where other people have annotated a passage in whatever you’re reading; you can even broadcast it on Facebook and Twitter. It answers an FHT (Fundamental Human Truth) other e-readers never did: we want other people to know how clever we are.

Next, the 3G. Amazon’s bought up some dwarfstar mass of bandwidth on the world’s wireless networks, and the 3G-enabled version (no phone contract or fee) simply subs for Wifi anywhere, so your Kindle can receive books anywhere and  always-on. I didn’t buy the 3G version and already wish I had. To have a 3G connection where you don’t have to worry about cost-per-megabyte – or contract fees – is amazing, and the fact it’s happening in 100 countries even more so.

Anything missing here? Perhaps it wasn’t legally possible, but what if: for every book you’d ever bought on Amazon, you were entitled to a free downloaded copy? I’ve spent £60 on Day One buying books I already owned.

In summary, a great machine. I’m not sure this will ever be out of my bag again. (And it was really good of them to match the colour to my car, too.)

Mark, I’m up to March.

On pensions, part 4: building a strategy

So you’ve got your Stakeholder Plan and a simple online management tool. How do you use them? Here’s how I do it: a simple investment strategy that takes barely an hour a month to administer.

It relies on three principles: a) the market knows more than you; b) retail pension funds have two good years; and c) charges are your enemy.

First , work out what you want, so you can spend the next couple of decades getting it. A £350 monthly contribution, rising by 10% each year will, over 25 years, grow to a £1.6m pot if you keep an 8% return over costs and inflation. It can be done – but you’ve got to be active about it. Here’s what I do.

Choosing your funds

Risk-taking and yo-yo’ing may produce great returns by chance over a short term, but we’re looking for long-term growth here. Hence my rule: don’t bother with company shares. As a retail investor, you’re there for one thing: to absorb risk on behalf of institutional investors (i.e making sure they make money, not you). No retail investor ever makes money consistently over time.

The vehicles to invest in are pension funds, a spread of investments packaged together (usually on a theme, such as mining companies or technology businesses.)

If you’ve opened a Stakeholder or SIPP, your provider will have a wide range of funds to invest in. They’re sold in “units” (you can buy fractions of a unit, so you never have money sitting there uninvested) and the better fund providers let you choose and swap your investments online. It’s a liquid and transparent market, with unit prices published in places like the FT.

The list of funds offered may run to over 100 entries, so let’s narrow it down using two parameters. First, only go for funds marked “Acc” – accumulators, where any returned income (such as dividends) is automatically re-invested in your fund. (This is a pension; you’re looking to build it up, not withdraw from it.)

Second, only go for funds offered by your pension provider, not “external” funds it offers on behalf of other providers – these will carry “external fund charges”, and it only takes a couple of those to seriously eat into your growth. (One thing pension fund providers aren’t good at, for obvious reasons, is making clear how much they’re skimming off your fund each year.)

I choose my funds on a simple algorithm: whatever’s been doing well over the last year, I invest in. My feeling is that a pension fund has a couple of good years in any investment cycle. I try to catch that fund as it’s warming up, with a few quarters of solid growth behind it and a few more ahead. It means I’m never buying the cheapest, but usually the most solid. The returns you can make here can run above 12% consistently, if you pay attention.

Deciding how much to invest

Remember that £1.6m pension pot that’ll provide an upper-percentile income from age 60+? To get it, you need to invest about £350 a month gross, and get an 8% return over inflation and fees, every year. Realistically that means a gross return around 13%. Keep about half a dozen funds in your pot, and the fees will be around 1.5% a year (the maximum they’re allowed to charge – some providers charge less. Just remember there’s a fee per-fund which may drive your total fees higher. Sometimes it’s pleasantly cheap, though: one UK fund charges an annual management fee of just 0.15%.)

There’s another thing you need to do: tie your contributions to your earnings as they rise over the years. That £1.6m pot needs that £350 to rise by 10% every year. About 3% a year will, over time, only keep pace with inflation. About 6% a year will make your contributions double in a decade… and wages rise at about that rate, so you’re keeping pace while being able to afford it.

The younger you are, the more flexible you can be here. If you’re under 30, that £1.6m pot costs less than half as much each month to build. The moral? Start young.

Keeping it up!

In the private pensions market, a huge percentage of people simply stop making contributions after the first year or two. It’s too hard, too expensive, and they lose faith in something they won’t see the benefits of for decades. (It’s easy to understand why. Many Stakeholder pension providers choose rather low-risk, and therefore low-return, funds for you. That’s why I want to have a say in the choice myself.)

So the last part is keeping your pension top-of-mind.

First, set aside one Saturday morning each month to review your portfolio and make any changes. It only takes two hours and can be fun. Simple rules – like mine, which sums up as always keeping the top 4-6 funds, whatever they are, in the portfolio – work. I tend to keep 10% or so in something solid and stolid, like UK Gilts (which only return a few percent) but over 80% of my portfolio is in moderate-risk funds like smaller companies. That suits my risk profile; yours will be different.

Second, watch the numbers over time. You’re not a momentum trader; you’re looking at long-term performance, not short-term dips. 2011 has, of course, been pretty awful. Look at the graph over the last year; you’re looking for smooth and steady above-inflation returns with a reasonable chance of continuing. There are plenty of websites that’ll track your investments for you. Use them. (Morningstar is among the most complete.)

Third, know what they’re charging and what inflation is today. Add these numbers together and you’ve got a figure – possibly as high as 7% – and that’s the amount your pension provider and the invisible hand of economics are taking out for themselves. And they take it out every year, whether your investments have grown or not.

This is the biggest pitfall in the pensions biz, and it hugely affects your longterm projections.

On my plan, a two-percentage-point difference in overall return is the difference between my pension pot lasting a couple of years and lasting… forever. By “forever” I mean that taking out my planned income, an amount that rises with inflation each year, only reduces the pot by a proportion of its growth over inflation – in other words, I’m living off the interest after inflation, keeping the capital’s buying power constant.

(Think it’s stupid to have a pension pot that lasts “forever”? In today’s world, the fastest-growing demographic is people over 100. You could be living off that pension income a long time. So you need to make sure it’ll last.)

And that’s how I do it. Make your own decisions – but remember, it’s all up to you.

Riots? Blame New Labour

Walking around Deptford last night, I felt the troubles hit some some of tipping point around 2am; tonight I expect them to start fizzling. (Partly because there’s only a finite number of Currys and JD Sports left to loot.) It’s been an interesting week so far. But what caused it?

There’s been a lot of talk over what really caused the riots spreading across London. Blame poverty, blame race, blame lack of male role models, blame the Met’s appalling PR after the trigger event. (At least it seems the guy was, indeed, carrying a gun.) But for me, the attitudes of today that led to this week’s rioting have one core driver: the 13 years of New Labour government.

It was Blair, after all, who coasted in on a promise of “We’ll take care of you.” And Brown who hosed billions at the public sector as it added today’s millions-strong hordes dependent on the public purse. New Labour was all about giving a man a fish – never teaching him to fish for himself.

And that’s why it’s all New Labour’s fault. It created a class of people with no sense of ownership in society; people who think everyone else owes them a living. The looters are one example – but they share space with striking unions (like the one led by Bob Crow, whose Tube chaos has cost Britain about £500m so far) and the pension-guzzling parasites of the public sector, who can’t understand why we don’t all support their bid to keep their pensions three times as generous as anyone else’s.

Under New Labour, these people were made to feel special. To feel that drawing your income from the State was somehow more admirable than being a wealth creator. (It is, at best, its equal – never its better.) And on the back of these views arose a complete contempt for the private sector. Blair and Brown’s disdain for those who create the wealth of nations – as opposed to those who merely spend it – was near-total. Private business, under any Labour administration, is simply an ATM dispensing limitless green notes to fund the socialist dream.

Well, where has it got you, socialist scum?

The Big Lie of the Left – an unwillingness to comprehend that wealth must be created before it can be spent –  has led to millions taking to the streets, in demos, strikes, and riots. All trying desperately to ignore that fundamental truth. The account New Labour wrote its cheques from went so far into the red that the UK now pays a billion pounds a week in interest on it.

And the rioters are wrapped up in the same mistaken belief Blair and Brown were. Partying against the darkness, trying to ignore what’s in plain view.

The next few years are going to be hard. And I doubt this week’s flare-ups will be the last. But we need to return British society to where it once stood – a land of fundamental rights balanced with fundamental responsibilities. Where there’s an understanding that the person most capable of changing your future for the better is the one in the mirror.

For years, people like me at least gave the Labour rabble a chance; lefties make better constituency MPs, after all, because that’s a job well suited to little thinkers. But we were wrong; we should have been clamping their thick skulls in vicegrips until they understood. Because they were – as always – just plain wrong. And now the gloves have to come off. People must be made to understand.

We will hurt you, Labour voters. And we are not sorry. There’s simply no other way.

Don’t go West, young man

That’s it then. In the last 48 hours, the balance of world power shifted from West to East.

With Xinhua reporting China’s “demand” that the US address the structural deficit that drove S&P to withdraw the USA’s triple-A credit rating yesterday, the leverage across the Pacific finally changed direction. (There was the little matter of a $2 trillion rounding error, but a credit downgrade is a credit downgrade.)We all knew it was going to happen, but not quite this soon.

With much of the USA’s debt held by the Chinese government, Beijing now calls the shots – just as the roof over your head is ultimately there because your bank extended you a mortgage. Thanks to its UK-style profligacy in its public sector entitlements, its expensive war efforts, and its absurdly complex tax code that raises very little money, the USA has lost any power over China. And it lost it … yesterday.

I spent a lot of years in the Chinese world and like Chinese culture a lot, but this has nothing to do with Chinese characteristics – or indeed socialism. It’s realpolitik. One country manoevring for advantage in the shadows until it was time to press the button.

The West woke up this morning to a fundamentally changed world. And only time will tell if it was for the better.

 

 

On pensions, part 3: setting things up

So you’re ready to set up your own pension plan. Here’s what I did.

1. First, look at your employment situation. There isn’t much point in being a one-man limited company any more; if you’re a service provider charging a day rate or similar, go self-employed instead. The reason: it makes you eligible for Class 2 National Insurance Contributions for the Basic State Pension. While the Basic only pays out a small amount per week (currently £105 from age 67) it costs a self-employed person as little as £2.50 a week (for 30 years) to secure it.

(You pay Class 4 on top, but only at 9% above a certain level of profits, and it tops out with a marginal percentage of just 2% when your profits exceed £40k.) Being government-provided and linked to average earnings, it’s a great deal (who wouldn’t appreciate an extra four hundred quid, index linked, every month in a few decades for just a few percent downpayment?)

So check you’re eligible for Class 2 Contributions. If you’ll build up fewer than 30 contributing years before you hit 67, apply to catch up. (Having spent part of my life overseas, I’ll only pass the 30-year requirement in my 60s.) Bear in mind an average-salaried individual will pay £200 a month in NI to get the same basic entitlement; if you’re self-employed, that money can be going into your private pension pot instead.

2. Next, talk to a financial advisor if you like, who will advise you to open a private pension plan. If you’re in my situation – self-employed UK citizen with your own business and wild income swings – there’s only one choice: a Stakeholder Pension Plan. They’re designed for people on lower incomes, but since the contributions ceiling is £50k/year – around twice average household earnings – the “low income” bias isn’t relevant in practice.

(If you’re an employee, the first £3,600 per year is eligible for tax relief, so if you pay up to this out of your after-tax income, an £80 monthly investment will be topped up to £100. The self-employed of course don’t get this, but other benefits balance out.) The other great thing about Stakeholder Plans is that money managers’ fees (the killer) are capped at 1.5% per providing company. There are fancier alternatives, like SIPPs, but if you’re looking for a tax-efficient wrapper for financial assets, a Stakeholder is all you’ll ever need.

When choosing a provider, look for three things:

Web-based account servicing. You want the Web because you’re going to be looking at your funds regularly; make sure your provider’s web services are up to scratch. Look for a provider the same way you’d look for a new bank – secure web access and the ability to conduct business entirely online. (I haven’t been into a bank branch in years.)

A broad choice of funds to invest in. The UK’s bigger pension providers, like Legal & General, have a choice of over 60 funds that fit into a Stakeholder Plan. It’s less well known that Stakeholder Plans let you self-invest, but it’s one of their biggest advantages. Make sure the choice of funds your provider gives you covers a broad array of geographies, business sectors, and financial instruments from index trackers to government bonds.

Fee-free fund reallocations. Make sure your provider allows you to flip and switch your money between different funds as often as you like. Some providers even allow an unlimited number of switches per month. At minimum, you want the option to completely re-allocate your pension pot four times a year.

3. Check and recheck. Make sure your employment status is correct; make sure your Class 2’s are being paid by direct debit; test your Stakeholder Plan’s online servicing features. And you’re set up. Next:  my investment strategy.

On pensions, part 2: understanding the concepts

There are only seven concepts needed to understand pensions. First, the two types of pension. Then a word on funds. Then the four mathematical concepts to see them in context. (Remember the basic rule: this stuff ain’t hard. The financial industry just wants you to think it’s hard.)

There are two basic types of pension: defined-benefit and defined-contribution.

Concept 1. Defined-benefit includes those gold-plated final-salary and the slightly-less-golden career average schemes in the public sector. Pay in throughout your career (usually not very much; your employer coughs up too) and you’ll receive a proportion of your salary at retirement. Forever. Not subject to how long you live, not subject to the ups and downs of the markets. Since such deals often rise with inflation too, they’re a great deal.

So great that they’re bankrupting every country that offers them.

Because defined-benefit is inherently unsustainable. Imagine a senior manager retiring at the public-sector average of 58. His employer may have to stump up two-thirds of the salary he earned in her last year … bumped up with inflation… every year for the rest of his life. With today’s lifespans, that might mean paying his pension for more years than he worked. That’s defined-benefit, and it’s killing both our public finances and the finances of private companies offering such schemes.

(So why does the public sector continue to offer them? Simple politics. Promising a pay rise costs money now; promising a pension costs money after the next election. Both are effective in buying public sector workers’ votes and sending the bill to future generations. And in countries like the UK, which has a large public sector, there are many millions of votes to be won that way.)

Concept 2. Defined-contribution. This the only reasonable way to run a pension fund without storing up trouble. You have an individual retirement account, it grows or shrinks with whatever you invested in it, and what you get out relates to what you put in. (A simple savings account is a defined-contribution plan.)

Defined-contribution plans tend to pay out far less than defined-benefit, largely because you’re taking all the risk instead of outsourcing it to your employer.

While it might be great to have someone else taking all your investment risk, it’s happening less and less for private employees; defined-contribution is now all anyone outside the public sector can expect. Taste the difference: a senior civil servant on a defined-benefit retiring today, on £85k at the age of 60, will receive a pension exceeding £5k/mth. That sum will be adjusted upwards for inflation, risk free, for the rest of his life. To get the same through a defined-contribution plan,  you’d need to have north of £2 million in your pot.

Defined-contribution isn’t generous. But it’s sustainable.

(There is one lump of sugar: with defined-contribution, you get to be in control. If you’ve got a taste for risk, you can dial your preferences into your fund and enjoy wild growth if your investments have a good year. I don’t need to mention the corollary, of course.)

However, most defined-benefit plans from employers make it hard for you to exert a great deal of control over them, which is why this blog is mostly about defined-contribution. It’s about what you can do to maximise your pension.

Concept 3: the investment fund. Whether you’re defined-benefit or defined contribution, you pension is part of a fund, a sheaf of investments (shares, bonds, cash) chosen to increase in value over time so the pensioners can be paid. Big companies and public sector organisations might have only one fund for all employees; individual self-investors might buy slivers of many funds bought on the markets. (There are thousands to choose from.)

The only thing worth remembering is that funds are aggregated. One fund may bundle together many investments (such as shares) and sell the bundle as units. (Imagine a basket of vegetables: that’s the fund. Your pension pot contains a bite of carrot, a slice of cucumber, a peck of peas, and so on.)

A £100 unit may contain slivers of a telecoms giant, an oil startup, and government bonds, weighted by the fund manager to produce maximum return. Funds on the markets are very liquid; if your pension pot isn’t in nice multiples of £100, you’ll simply own relevant fractions of a unit too.

Now for the maths: compound interest, pound-cost averaging, weightings, and Projected Value. Relax; it’s all simple.

Concept 4: Compound interest is what you learned in school. Put in £100 at 10% interest, get £110. Leave it there, and next year you’ve got £121. Investment funds carry other goodies like dividends and coupons, and if you reinvest these back into your pension plan (you should) the compounding just works harder. Compound interest is simple.

Concept 5: Pound-cost averaging is the reason you should invest a set amount in your pension each month, before any other expenses go out. It’s a way of smoothing out the stockmarket. Let’s say you’re in Fund X whose component companies did well this month. Their share price is high, so you’ll get fewer shares, but they’re doing well, so you don’t mind. The next month, when the company hits the skids, your regular payment buys a lot more of their shares, so you own more shares and reap the benefits when the company starts growing again.  Pound-cost averaging is simple.

Concept 6: Weighting. Your pension plan is probably in more than one fund; how they’re mixed or “weighted” is a key concept to understand. Fund Y is making 20% and your fund contains its units; why has your pension fund lost money? Because Fund Y comprises just 10% of your portfolio and the rest of it is toxic waste. Weighting is how you balance your pension pot with your appetite for risk. Adventurous young males in good health choose funds in emerging markets and new technology; sozzled greybeards stick to bonds and index trackers. Weightings are less simple but more fun.

Finally, concept 7: Projected Value, or PV. This is how you plan for the future: given average returns of X percent a year (long-term stockmarket returns are surprisingly stable) with n years of contributing N pounds rising at Y percent a year…  accounting for inflation, charges, and risk by Z percent… and you’ve got your pension pot, from which you can work out what you can afford to draw as your monthly pension. Projected value is simple and fun.

That’s all you need. Next: setting things up.

News of the World to close on Sunday

So what are we to make of it? Perhaps – just perhaps – that lynch mob justice works.

The News of the World, with its phone-hacking shenanigans, is to close on Sunday, and not a day too soon. Newspapers tapping phones, buying information from cops, and politicians too scared to do anything about it. Parliament, most of whose 651 members have been put on the rack by this newspaper at some point, has been in spluttering uproar for days… perhaps sensing blood, and that the time was right to give some of it back.

I think this story, ultimately, was about one thing. Journalists are great at dishing out the dirt on people… but very poor at taking it. Unable to accept their methods weren’t in anyone’s interest but theirs, phone-hacking became an accepted technique, unquestioned by the people doing it. It’s an attitude shared by many in newsrooms: I still remember my surprise when a letter written to the Daily Mail many, many years ago brought not an acceptance or rejection, but a personal note from the newspaper’s editor telling me (scoldingly) how wrong I was.

Has mob justice, for once, worked? This didn’t need a law change; phone hacking is illegal. It didn’t need new penalties; those for interfering with a crime scene (arguably the case if a kidnapped girl’s mobile phone messages have been deleted) are already severe. It’s notable that without public outrage nothing would have happened here. Look back at the scandal, and look at the cross-connections. Police strangely reluctant to investigate? Well, a fair few of them were making a nice little income selling confidential information to journalists. Politicians without a taste for looking deeper? All of them scared they’d be investigated by Murdoch’s titles. We’ve got institutional breakdown here.

What is clear is just what a couple of tough bastards Mssrs. Murdoch and Brooks are. (As if we needed further proof.) No sentimentality: when they saw the scandal was engulfing an arm of their business to a degree it’d never recover from, they shut it down. One of the UK’s biggest-circulating and most profitable newspapers. They shrugged and tied a tourniquet on its bloody stump. That’s what it takes to succeed in business at this level: a will and resolve shared by very, very few.

On pensions, part 1: getting the mindset

I’ve worked for myself for over a decade, and spent a lot of years outside the UK or on non-paying projects like an MBA. Wild income swings are normal to me and my risk profile is off the scale, but I do have two fears: a) Getting old, and b) Being poor. Both can be influenced if you take the right actions in good time.

This blog’s about setting up a pension if you can’t rely on anyone else providing one.

(First, a disclaimer: I’m not a financial advisor, and this isn’t financial advice, nor should you take it as such. I’m just sharing what I do on my blog which helps me.)

Financial advisors go out of their way to make pension provision sound complex. Well, there are hard aspects to it – but the hard parts aren’t where you’d think. The hard part is simply getting the mindset: looking at your pension fund as an asset like your house or car. Except that it brings you benefits later on instead of tomorrow. And nudging yourself into that mindset can be surprisingly simple.

The first concrete thing to do is bring your pension into your life. (I have the login page of my account as a browser home page. This daily “nudge” keeps it top-of-mind.) What this does is negate the feeling you’re throwing money away.

(Deferred benefits, i.e pension payouts several decades away, will always feel harder to pay into than your new car or computer that brings pleasure TODAY. But by keeping your pension top-of-mind, it feels an asset like any other. Many providers offer web-based portfolio management tools; make sure you get a plan with decent online services.)

The next thing is to make a regular contribution on your payday, NOT when you’ve “got other expenses out of the way.” Even if you’re in an employer’s scheme, make sure you know how much you’re contributing and ask to increase it if the projections don’t give you what you want when you turn 60+.

(Working for myself, I don’t get the tax relief formally salaried people do, but I treat my monthly gross contribution with the same importance as paying the mortgage. I’m a spender, not a saver; this is the only way I (and most people) can ever save.)

Last, have a monthly ‘money day”. The third thread – whether you’re a hands-on self-investor or leave it to others – is simply to keep yourself informed. Know what your contributions are being invested in, know the weighted return over the last 12 months, know the inflation rate and charges that are eating away at your nest egg.

This is part of the habit-forming needed to get the mindset: I’ve set my pension fund tracker to be among the start pages for my browser, so I’m constantly reminded what’s working and what’s not. The same applies if you’re in a company scheme: are they making investments that give returns, or are they investing mainly in the same sector as your employer? Let’s just say we can all guess which oil and gas company was the primary weighting in the pension fund of… Enron. Know what’s going on.

That’s the mindset. In forthcoming days I’ll be blogging my takes on understanding the concepts, setting things up, and building an investment strategy. Next: understanding the concepts.

Telegraphing change: the generosity of public sector pensions

On the day 750,000 public sector workers are closing schools, the Telegraph reports on the real problem: after years of Labour largesse, the public sector doesn’t comprehend just how good a deal it gets. Thanks to the zero-risk defined payouts of unaffordable final-salary schemes, a mid-career teacher on £32k will retire with a pension equivalent to £500k. Vast.

That £500k isn’t a pot the teacher can take as a lump sum, of course: it’s the equivalent someone in the private sector would have to build up in order to draw a pension income at the same level. But this is the point. Public sector workers get a free ride from the taxpayer, making very little contribution themselves. Whereas the taxpayers who make it possible – private sector workers – get zilch.

We in the private sector don’t want your benefits, teachers; that’d be even more unaffordable. All we want is for you lot to understand that things can’t go on like this – that the public sector isn’t some sort of special case deserving preferential treatment. Accept that things have to change. And get back to work!

Public sector parasites: BRING IT

All right, you public sector fuckers. This is war.

We of the private sector have. had. ENOUGH.

You cannot be permitted to go further. You may not be permitted to cost our country more than you already have, during the years of Labour rule. And the time for negotiation is over.

So, Public Sector workers: Go ahead and strike.

Strike all you want. Strike again, and again, and again.

DO IT!

Because the British taxpayers who DON’T work for the public sector – and there are, despite years of New Labour mismanagement, still some of us left – have run out of patience. Of your endless demands on a public purse that failed to execute an end-run around economic reality. Of your endless bleating about “Fairness” and “Equality”. (Fairness and equality always seem to mean the public sector getting far, far better pay and benefits than anyone in the private sector.) Of your utter refusal to accept – ever – that you might, just might, have to make some sacrifices along with the rest of us.

What’s truly amazing is how poorly you understand that the mood of the country – this time round – isn’t with you. This ain’t 1981, folks. There are a lot of you, thanks to New Labour’s phenomenal expansion of unaffordable nonjobs 1997-2010, but you’re not as strong as you like to think, and we were better to start with. And you’re nowhere near as necessary as us.

We create the wealth of nations; you just spend it.(Definition of a Socialist: someone who’s really genorous with someone else’s money.) Work out who’s actually more vital to the economy here, you scum-sucking lowballers.

This is it. I’m calling your bluff. Go ahead and strike, you fuckers. Go ahead and strike. I’m ready for you. With a baseball bat. With nails in it.

Really BIG fucking nails.

Public sector workers are the all-singing, all-dancing, thieving scum of the world

My word, public sector workers really are the all-singing, all-dancing thieving scum of the earth, aren’t they.

750,000 of the bastards out on strike on June 30th – again. All because the public sector thinks it deserves the right to be insulated from economic conditions. That it has the right – unbelievably – to dip its hands into someone else’s pocket, every year, because it thinks its members are somehow “special”. For special, read: better. They honestly believe – work-dodging, early-retiring, disability-benefit-seeking all of them – that they shouldn’t be subject to basic rules of society. That they should somehow float above it all, protected from reality, and taking money out of the economy they never created in the first place. Just because they work for a jobsworth-employing local council instead of an enterprising private company.

I’ve tried to hold back on this, but there’s no fight left in me. Public sector unions, you are scum. Andy “Serwotka”, you are scum. The 32% or so of his union that actually bothered to vote (if they were in favour of striking): you are scum. Merrily taking money out of the taxpayer’s pocket, never comprehending that all that money has to come from somewhere. To me, you’re thieving scum; to a large number of private sector workers, you’re thieving scum; to an ever-larger percentage of the British taxpaying public (admittedly, a smaller class these days) you’re thieving scum. Fortunately, in the next difficult couple of decades, you’re going to realise just what that means.

Jamie Oliver’s Barbecoa

I’m a big fan of restaurants, and last night chalked up the new venture by Jamie Oliver and Adam Perry Lang: “Barbecoa.” (Thank you very much, C&B.) And I’ve decided that it’s possible for a restaurant to serve flawless food while completely missing the point.

Now, celebrity chefs are a bugbear with me. By the time they’re celebrities, they’re not spending much time where they belong – in the kitchen. Most celebrity restaurants simply trade on a well-known face, no classier than an X Factor second album. But that isn’t the problem at Barbecoa: the food’s terrific. It’s just not…. quite… what it should be.

Its theme is barbecue. The relationship between fire and food. This relationship – going back, perhaps, to the exact moment an apelike creature scratching at the African savannah became Man – is deeply visceral, plasma meeting protein in a scorching, crackling celebration of sustenance. It’s about fun and theatre and the best things in life. If you doubt this, think of the happiest people on earth, and the people who do the best barbecues. You’ll have two identical lists.

So a barbecue restaurant should be a stage set. There should be visible fire, smoky aromas floating around,skilled chefs effortlessly turning moist cuts on spit, griddle and skillet. The food should be rough-cut and assymetrical, harking back to the days when the coolest tech in town was a struck flint and dinnertable conversation consisted of ughs. (Let’s face it, the second half of that remains basically true today.)

Most of all, the food should look like barbecue. Great platters of baby back ribs, massive hickory smoked cuts from the whole cow,vast piles of pork chops slathered in spiciness, whole crabs with blackened shells and giant prawns skewered with burnt-edged slices of belpepper and onion. Most of all, Jamie: where are the sauces?

Any Texan mooseying into this place would soon be muttering things like “Lah-di-dah” under his stetson. Actually they’d never make it past the door in the first place – Jamie’s business partner Adam Perry Lang is “One of New York’s top barbecue chefs”. (New York?)

Barbecoa is a great restaurant. Serving great food. But as for the claim to barbecue? Nah. It’s all a bit .. polite.

Plannning for re-tyrement

  I’m not a car geek, but it’s amazing the difference a new set of tyres make. They’re Continental ContiSport Contact 3’s in 225/45 R17 reinforced to 94Y, and amazingly I now know what that means. (Thank you for a great price, blackcircles.com, although the service from the garage left something to be desired – chaseup calls went unreturned before I could collect my Audi.)

 

Tesco credit cards: a case study in consumer finance

I’m not a rate tart; opening card after card to take advantage of 0% periods has always been more trouble than it’s worth. But I’ve just taken out a credit card with Tesco – and scorched across the small print is reminder after reminder of the difference between a consumer finance company and a consumer focussed company. Say what you like about the supermarket giant; it knows how to treat consumers. In a way pure-play finance companies don’t.

For starters, it leverages the rest of its business to my advantage. Double ClubCard points on petrol means nearly two pounds back every time I fill up – for no effort. With ClubCard’s regular 5p/litre off promotions, that means almost a fiver saved – and that’s substantial. Unlike most banks, whose credit card marketing aims at new customers in a way that alienates existing ones.

Secondly, the interest rate’s simply lower – in more ways than one. The T’s & C’s state your payments are applied to the balance in a manner very few card companies operate: they pay off the highest-interest (i.e. most expensive) debt first. Most cards push any cash withdrawals (the most massively expensive use of a credit card) to the bottom of the pile, meaning that if you roll over your balance from month to month (as I did for a decade) the priciest debt sits on your balance forever. Tesco don’t do this; somebody, somewhere focussed on what was best for consumers, and realised that the standard way of doing things was wrong.

I’ll pop in a disclaimer here: I don’t work for Tesco, but do have one of its advertising agencies as a client. Doesn’t stop me being a fan. Anyway, off to the filling station for a fiver of payback…