"This Changes Everything "

On Thursday morning my boss handed me The Letter.

My application for Voluntary Redundancy has been accepted and all the playing with spreadsheets and financial wheeling and dealing I've been doing over the last 2 years turns out to have been completely unnecessary. Early retirement landed on my plate, courtesy of Government cuts, and I finish on 31st March 2016.

The group of us who got letters immediately ticked the box and delivered our acceptances to HR en masse. There was something of a party atmosphere going on. We're virtually all long serving older people able to access our pensions early, with a redundancy payment on top, so we're sitting pretty. It couldn't have worked out better for us but it wouldn't have happened at all in better times under better governance. My feelings are slightly mixed, but not very. Mostly I'm still pinching myself and wondering how I got so lucky and having surreal discussions with my boss about things like putting my "Out of Office" on my mail shortly after Christmas so that people get used to the fact that I'm not going to be there any longer.

The title of this post is also, of course, a reference to the Paris climate change talks taking place at the moment. "This Changes Everything" (if you haven't come across it) is Naomi Klein's award winning examination of how we got where we are with climate change and what we can do to try to preserve the world for (at least some members of) future generations. Please read it.



I'm going to quote in full a paragraph that struck a particular chord with me and made me think about the implications of my financial activity over the course of the last two years in quite a different way.

"More fundamentally than any of this, though, is their (the climate change deniers) deep fear that if the free market system really has set in motion physical and chemical processes that, if allowed to continue unchecked, threaten large parts of humanity at an existential level, then their whole crusade to morally redeem capitalism has been for naught. With stakes like these clearly greed is not so good after all. And that is what is behind the abrupt rise in climate change denial among hardcore conservatives: they have come to understand that as soon as they admit that climate change is real, they will lose the central ideological battle of our time - whether we need to plan and manage our societies to reflect our goals and values, or whether that task can be left to the magic of the market."

When I started this blog financial management and investing were largely a completely unknown and mysterious art to me but, as I read and learned, I came to realise that here was maybe a way to get out of the job that I had begun to dislike. At that time this was the top and bottom of it. Just me working things out to help me get what I wanted. Nothing to do with the bigger picture, and certainly nothing that could possibly impact on where the world was going.

However, that learning and reading moved on and my thinking about the whole subject of investing began to get a little uncomfortable at times. This resulted in my divesting from fossil fuels (at least where I could - i.e. where I knew I had stock), re-investing in green energy and generally taking an interest in finding ethical ways to use and grow my money.

Because there is a basic dilemma here for the investor. Those of us in the FiRe community are very scathing and dismissive about consumerism but our success as investors depends on it - surely we're guilty of more than a little hypocrisy here? We may sneer about people buying big cars and splashing out on "things" but if we're invested in this behaviour and profiting from it does that make us any better?

In addition, this drive for continual growth that we're part of is causing untold damage that will massively impact the lives of our grandchildren's generation. Shouldn't we be taking part of the blame, acknowledging the consequences and doing something about it, rather than simply bunging as much money as we can in SIPPs and JISAs for the next generation. The world they are going to have to cope with might be made a little better for individuals by having enough money to live somewhere that isn't in danger of flooding or drought (just yet), but food supplies will become restricted, borders fenced and patrolled and news headlines increasingly harrowing. Not the kind of world any of us want for our children, grandchildren or the kid next door (in the global sense of course).

Although Naomi has plenty of ideas on how to make things work differently and the tone of her work is generally positive, I don't think human nature is such that we will see sense and take her up on them in enough numbers. Change is needed at the political level and we're certainly not going in the right direction at the moment.

There may be an agreement of sorts in Paris but it won't be enough and it's probably already too late, unless

a miracle occurs. "Business as usual" will win. It seems that at the end of the day it may be that we can only do what we know to be right as individuals. Plenty of people do see the need for change, so supportive community-based forces striving to make things better will grow in strength, and I intend to be part of that. But I don't expect it to work.

So that is that and here I am. Ready to move into a new phase of life with the luxury of being able to work out how to indulge my moral standpoint from a solid financial position. I am not unaware of the hypocrisy here too :-) I have been extremely lucky to land where I have.

We have plans for a possible re-location to Scarborough, and I have plans for lots of other things too. Becoming a volunteer at CAB is one, as is investigating helping out with some of the growing number of community initiative food projects, such as FoodCycle. I going to be very busy.

Goal achieved and new horizons looming. For these reasons this will be my last post.

I would like to thank the FiRe community for their fantastic support over the course of my journey. However, I know that my stance in this post will not be shared by some readers out there so, for this reason, I am disabling commenting. I hope you will forgive me the indulgence of ensuring that the last words on my blog are my own.

Health and Happiness to all :-)

"Doing a Geoffrey" - Do Consumer Boycotts Work?

This time last year I finally gave in and decided to do some Christmas shopping on amazon. (I know the FiRe community is very down on "stuff" but everyone has to spend a little on it at Christmas don't they?) This capitulation followed several months of trying to do the right thing and boycott  them due to their tax avoidance (their treatment of employees being allegedly none too great either.)

I had been buying at local independent bookshops and feeling much better for it, but Christmas loomed, time was short, amazon deliveries are generally timely and prices competitive. I took the easy way out, felt pretty bad about the whole thing but did it anyway.

Today, with the Christmas shopping fast approaching yet again I decided to take another look at amazon to see what had changed and if I could feel a bit better about using their services this time around . It appears that things are on the move. Diverted profits legislation passed this year has forced the company to pass all it's UK business through HMRC for the first time since 2004. However:

"That development is unlikely to lead to a leap in Amazon’s UK tax bill, however, as the company continues to use further controversial structures to shift profits out of Amazon EU Sarl – which reported a loss last year – and back to the US."

So the answer to whether or not I can feel any better about shopping at amazon is "sort of", but not really. The ethos/character of the company hasn't changed, they're just finding it harder to do the same things and will keep on trying until all the loopholes are blocked. In fact their employee relations has been back in the news again. There is no evidence that they have any intention of reforming themselves into good guys any time soon.

So it's obvious that I can't persuade myself that it's now OK to go ahead and buy from them without guilt. However is boycotting them the best way of making my feelings about all this known or even really hitting them where it hurts?

Of course it's not easy to calculate how effective boycotts are as it's very difficult to count how many people didn't buy things, but last Christmas amazon anonymous had pledges from over 11,500 people to spend more than £2.5 million elsewhere. This was a very high profile boycott with backing from Ethical Consumer, probably just as effective a boycott you're likely to get, still the monetary effect it seems to have had doesn't look immense. In addition it didn't seem to have any impact on amazon's basic modus operandi as they only began to change when legislation forced them to do.

The trouble is that not enough of us were bothered enough to do something about it, and that is overwhelmingly the case where a very popular, convenient and high profile service/product like amazon is concerned. Boycotting amazon won't work, a small minority will put their money where their mouth is, whilst the majority will just make the right noises.

Apparently however, that "noise" is what companies should fear more than the slight fall in sales a boycott can produce. In fact the 2014 Deloitte global survey on reputation risk goes so far as to say:

"According to a study by the World Economic Forum, on average more than 25 percent of a company’s market value is directly attributable to its reputation"

The evidence suggests that companies should take the tag-line "It's got our name on it" very seriously indeed and Jefferey Bezos would be wise to be concerned about the reputation of his company. The fact that he rushed to its defence following the allegations this August proves that he knows this.

In the end though reputation is one thing and character another (the reputation of Volkswagen was obviously built on fairly sandy ground), and there must be serious doubts that the "character"/ethos of companies that continually fall foul of public opinion is sound. This is why our strongest weapon against immoral business practises isn't always in our purse, but in our democratic ability to influence legislation via our politicians. Collective conscience forcing standards of behaviour on business is far more powerful than individual action in this situation.

So, I will be going ahead and buying from amazon this Christmas. However I will also be moaning about them to anyone who'll listen whenever I'm given the opportunity. This post being a case in point :-)

(Oh and by the way, of course I realise that amazon's cheap prices are partly down to the very business practises which put it in the news, but there's also a lot of individual profit involved (for shareholders too, of which I am undoubtedly one). In 2014 Mr Bezos paid himself over the equivalent of £11 million. Paying a little more to get things right is sometimes necessary, and I would argue that people would see this if they are given the full information and choice about what they're actually buying - so long as they're not on the breadline of course.)

Diworsification and the Twitter Effect

It seems that Twitter uptake may have reached saturation point. Apparently the user count has stayed flat since the start of the year. Not good news for a social media service which bases popularity on pure numbers (as in number of followers, the "I follow you, you follow me" syndrome).

I do use Twitter but, I admit, not in the most "Twitter-ish" way. In other words I don't put any effort into boosting my followers and I "mix-up" my interests in the same account (some of my political re-tweets must drive my FI followers mad - if they ever read them, more of this below). In other words, I follow who I'm interested in and I tweet what I'm interested in. I only access my timeline about once a day - more often if there is a breaking news story that I'm curious about as I find it particularly useful for up to the minute information and opinion, and I don't tweet on anything like a regular basis.

Another interesting article about Twitter this week mentions a further effect that comes into play when it is used in the conventional way - i.e. the way aimed at gaining you the most followers by following lots of people yourself  - and that is a situation arises such that:

"genuinely tending to the tweets of more than 200 people becomes impractical (and unenjoyable) ..... with everyone sending out tweets few people have the time or energy to read or act upon." (Andrew Smith)

Over-enthusiastic "following" which is part of the essence of proactive Twitter usage, means you are less likely to actually see the quality tweets that you are really interested in, because your time-line will be full of stuff you're not really interested in .

 In many ways this emphasis on quantity rather than quality reminds me of the investing sin of diworsification - i.e. holding so many funds/stocks that any inherent quality/value in the portfolio is lost or watered down by the fact that it makes up such a small part of the whole.

The subject of this week's Portfolio Clinic in Investor's Chronicle is a case in point. The investor holds 46 funds, and as the commentators point out, he may as well be holding a global index fund at far less cost and trouble. But also, as with the Twitter "too much noise" effect any quality brought to his portfolio by actively choosing funds is drowned out by, and buried in, the quantity of assets he owns.

"46 is far too many. Apart from being a large number to manage, research and review, there is the potential for overdiversification or 'diworsification' - where a portfolio is spread so thinly that any outperformance is too small to be noticeable." (Danny Cox).

The obvious answer for us ordinary investors to the issue of diversification in equities is, of course, to hold a global tracker and not to look at it too often. This incidentally is also perfect advice for the ordinary Twitter user (celebrities excluded) who is determined to get their follower count as high as possible. Follow everyone, (if you're really dedicated to the task you can even use software to do the job for you) and don't even try to asses the quality of what they say. Trying to mix quality with quantity in either stocks or Twitter is a self-defeating exercise.

October 2015 Update

This month sees an ongoing reduction in our cash reserves (as intended). The markets have been doing what markets do, but the end result is a slight uplift to our investment portfolio from last month.

I am still waiting for the "aye" or "nay" on voluntary redundancy, but in the meantime, a colleague's discussion with the council's senior pension officer has raised an interesting point. He advised her to apply for VR this year rather than wait until next in the hope that by doing so she will beat proposed legislation to cap public sector redundancy payments.

Make no mistake I agree wholeheartedly with the statement that “It’s not right that highly paid public sector workers should receive huge taxpayer-funded payouts when they’re made redundant" (Greg Hands, Chief Secretary to the Treasury). However some interesting effects of this ruling come about because the cap is to be applied to all forms of compensation on redundancy. And yes, this could, in slightly different circumstances, have meant me.

My top line salary is around £33,000 (pro-rata £26,000 as I'm part-time). I have worked in various part-time/full-time roles in local government for a total of 17 yrs 360 days, earning much less than I do now for the bigger portion of that time, before I funded myself through my MSc and got myself promoted. 

My colleague (the one who had the conversation with the pensions officer) is the same grade as me but works full-time. She has worked in local government for over 40 years, also in a variety of roles and, until the last 8 years or so, at much lower rates of pay. I wouldn't consider either of us "highly paid" even now, but we do both have long service and are in our late 50's, and that means that we are now eligible to receive our pensions if we are made redundant. This is where we (or people like us) could fall foul of the £95,000 cap.

If I am made redundant the system works like this:

I am entitled to redundancy pay of £24,000. 

Because I am now also eligible to claim my pension, the entitlement I have built up until the day I leave becomes payable without actuarial reduction. This is funded mainly from the pension fund coffers, but the actuarial reduction that would have been applied if I hadn't been made redundant has to be "made up" from local government funds (i.e. you and me - the tax payer). A quick calculation of my figures for this component works out somewhere around £18,000 in total. The actuarial reduction reduces for every year closer to scheme retirement you get, so in year 1 - from age 57 to 58 - it is 37% - around £3,300, in year 2 from age 58 to 59 - it is 34% - around £3,060 and so on (My total pension will be circa £9,000 by March 2016). In addition my tax free lump sum would also be granted without the actuarial reduction of around £1,000.

I will therefore be costing the tax payer £43,000 in total to let go. So it's not hard to imagine a situation whereby someone who has been in a middle income technical/professional/managerial role in local government for significantly longer than I have and/or has very long service and consistent full time employment, could fall foul of the cap. Someone of my age with built up pension entitlement of £18,000 a year would be very fast approaching the limit. On the other hand if I'm made redundant, the tax payer doesn't have to find my salary for the next 9 years, so saving themselves £234,000. As a "by-product" we have the degradation in the service I help to provide if I am no longer there, which is difficult to assess, but I would guess that it will eventually be significant. I really can't see how the slack could be taken up by the existing infrastructure as we've got way past that point now. "Value for money" for the tax payer is very difficult to assess depending on what that particular tax payer values. :-)

How I feel about this is mixed. On one hand I totally agree that large costs attached to redundancy for public sector workers should be tackled, especially the situation - which I have seen - whereby someone gets made redundant and is then re-employed, often as a "consultant", a couple of months later (mainly because the work still needs doing and in this way the "paper" costs have been reduced and the boxes ticked, but the person who can do the job most efficiently is re-employed to do it). But on the other hand I object to the "spin" that this change in the rules will only apply to "high earning" public sector workers.

I have no objection to being treated with fairness (even if that is via a degradation of the terms on which I embarked my employment) but I want it to be recognised that this is what is happening. Public sector workers, many of whom have professional qualifications doing jobs that do not have comparable roles in the private sector, have been taking a hammering on salary and status for a considerable time now. Maybe things will go OK if we decide that we've had enough and opt out back into the private sector where at least you're treated with "dog eat dog " respect. Maybe not. I suspect that we will all find out before too much longer. Personally I just hope to be allowed to go without having to see the mess I'll be leaving behind, either with redundancy "benefits" or without.

Pushing the Ethical Envelope - Abundance Sipp and Good Money Week

This week is Good Money Week so take a look at what's going on and get involved.

My "actions" towards becoming a more ethical investor/consumer include cancelling my subscription to Money Observer and using my financial magazine "allowance" to subscribe to Ethical Consumer instead. I've also written to my MP asking him to actively support the movement towards transparency and accountability in all areas of finance that is being promoted during the week.

Having control over what is being done with our money makes a big difference to how we feel about the whole process and, for me, being able to be confident that my investments are being used ethically would give me an added "bonus" that is worth far more than an extra % point on the potential profit. However it turns out that taking a hit on profits is no longer necessary because, (as was reported this week) ethical funds are now heading to the top of the leader boards due to the collapse in the prices of oil and other mining stock.

Divestment has actually made good financial sense for some time because, even if you're not worried about what will happen to the planet and the people on it after you're gone, you have to acknowledge that we simply cannot dig up and burn most of the fossil fuel left in the ground if we have any hope at all of keeping global warming down below the target levels agreed by governments. Fossil fuel companies are in very real danger of not being able to realise expected profits. It would be very short sighted indeed not to take this on board (-:  if the cap fits Ms Rudd et al :-))

In recognition of the unease many of us feel about the opaque nature of investing, Abundance, who I've been investing (and earning over 7% interest) with since March, have just announced the first peer-to-peer SIPP. There's a good write up on this on crowdfundinsider.com so I won't go into details here but it's very competitively priced (free to set up and no fee for the first year, 0.3% thereafter) and seems to make excellent sense if you're ethically inclined and worried about putting all your retirement eggs in the volatile equity basket.

I'm not in the market for any additional retirement investing myself as I'll soon be drawing down what I've got, but I'll certainly be talking about the Abundance product with my sons and their friends. My youngest son in particular is extremely "pension poor" as he's been in full time higher education for the last 8 years. This is exactly the kind of product that will appeal to him and his circle of friends who take the issues of corporate financial integrity and responsibility for the planet very seriously, seeing, as they can, where "turning a blind eye" has got us so far.

The introduction of new financial products such as this, ones that allow us to make our money work in ways we want it to, is an exercise in crowd-sourcing in its own right. People really do want to know what is being done with their money, and they want to be able to make informed choices about whose hands they put it in. Abundance have done their research and seem to have got a lot of things right regarding this product. They are honest about the fact that this pension is not for everyone and the risks involved. At the very least they are to be applauded for pushing the market forward and providing a product that supports all the principles of "Good Money" this and every week.

The IMF and Global Growth - Short-Termism and the Markets

(Disclaimer - my understanding of economics has been gained from basic reading of the popular press and a few more detailed online resources. I am very happy to stand corrected on any of the following :-))

Last week the International Monetary Fund met in Lima. Commentators agree that the outcome of their talks is worrying.

They have reduced their forecast for global growth again (for the 4th year in a row) and have concerns that the economy in emerging markets could prove very unstable if the USA raises interest rates.

'Despite progress in recent years, financial sector weaknesses remain in many countries, and financial risks are now elevated in emerging market' (Christine Lagarde)

The advanced markets in Britain and the US have achieved a level of stability following the crash of 2008 but it's been a long time coming and has required monetary policies (quantative easing, low interest rates) that haven't produced the rate of growth they were expected to:

"Six years after the world economy emerged from its broadest and deepest postwar recession, the holy grail of robust and synchronized global expansion remains elusive," Maurice Obstfeld, head of research at the IMF.

Reading about all this from my very naive level of economic understanding I must admit I agree with Larry Elliot

'These are indeed weird times. Share prices are rising and so is the cost of crude oil, but the sense in financial markets is that the next crisis is just around the corner...'

There does seem to be a consensus amongst the people who "should know" that things could easily turn very rocky and a recession now would not be as easy to pull out of as it was in 2008. So why does the announcement that the Federal Reserve bank will not increase interest rates *just yet* have more power to raise the markets than serious data-driven announcements by reputable financial bodies has to depress it? (As was certainly seen in my portfolio last week). Is this just another example of the continuing (increasing?) trend towards short-termism in business and financial institutions?

There's an article from 2013 by David Kingman  on the subject of short-termism which makes some very interesting points, one of which he quotes from "The Road to Recovery: How and Why Economic Policy Must Change" by Andrew Smithers: American companies are now handing back a far greater proportion of their profits to investors than the amount they invest to grow the business. In the 70's 15 times more profit was invested than giving out in dividends, now it's just 2.

It's all seems to be down to the natural human tendency towards short term gain at the expense of long term well-being, a failing that anyone who is working towards FiRe recognises, and the damage that giving in to it too often can do. Companies (and individuals) are making money and then hanging onto it or paying it out as dividends, rather than investing it back in. On a global financial level this is causing growth to slow to the point of stagnation, and quite possibly stall as far as emerging markets are concerned because they need the demand that is produced by investment from the advanced economies. There is a massive amount of debt in emerging markets which has been fuelled by low interest rates and which needs servicing somehow. If growth diminishes and interest rate rise things could come crashing down. 

Hanging on to cash and failing to invest is also one of the reasons that so much wealth is getting concentrated at the top, it's just sitting there in bank accounts and not doing any work to create growth or further the famous (and contentious) "trickle-down" effect.

(btw I would argue with his definition of socialism - I think he actually means "communism" here).

The IMF is advising public spending on infrastructure projects as one of the ways advanced market countries can ease the situation, but with so much emphasis (and brain washing of the public) about the dire need to cut deficits, governments may find funding difficult unless they bite the bullet and miss a few targets (nothing new there then:-)) (And maybe if there hadn't been so much "austerity" going on in 2010 - 2012 things might have moved a lot quicker.) It does look as though Osborne has taken this to heart and the news that the pooled pension pots in the LGPS could be used to help fund things is especially welcome.

But why has business (and Government) become so short termist? If I can see the big picture from my very low level of insight then surely it's no secret that this is happening and what the likely effects are, and will be. This is an interesting question and it may be that it will take another market crash to improve things, as some commentators suggest that the last one didn't actually change policy and practise very much at all.

No one could accuse FiRe seekers of short-termism, but without Governments that build for growth, encourage investment in the future and tax wisely, and discourage cash bonus payments for company managers and the stock-piling of cash by obscenely wealthy people, we're might soon start to struggle to reach our goals. 

September 2015 Update

This month saw what I would regard as the first "real" reduction in our assets as we withdrew some of our cash to fund my eldest son's university fees. It was a little painful as it felt like the end of "growing" our pot and the beginning of using it up and I hadn't expected to be entering this stage of the process for a couple of years yet. Still, I have everything worked out and I'm fairly confident that we're on track to be able to stick to our plan that I should retire no later than April 2017 (and hopefully a little earlier - more about that later).

In addition to the drop in our cash holdings there's also been enough market turbulence to do this to our investment portfolios and I expect there's more to come:

	GBP Value	Performance
		1m	6m	1y
A's ISA	£36,920.59	0.20%	-8.40%	7.00%
J's ISA	£13,779.96	0.50%	-7.40%	5.40%
SIPP / CIS Pension	£34,771.05	0.00%	-1.80%	5.80%
Total	£85,471.60

Luckily I think we can ride it out as (apart from my SIPP) we don't need these funds any time soon.

Yesterday I sent in my official request to be considered for Voluntary Redundancy in April 2016. My manager needs to cut between 9 and 12 people from the team over the next two years. Chatting with my colleagues suggests that there's not going to be a shortage of applicants. It's not a happy place to work any more, the cuts in services are depressing and demoralising and public sector wage increases are set to be capped at 1% for the next 4 years.

However, I have reason to believe that I may be fairly near the front of the queue as I have a niche job providing a specialist service that could be delivered totally differently (i.e. outsourced) or supported at a much less responsive level. The public who depend on it (who are incidentally some of the most disadvantaged members of society) would no doubt notice the difference, but needs must when the devil drives :-)

As I mentioned in my last post, redundancy would be a financial godsend to me and the figures I have been supplied with regarding the payout I could expect are even better than expected. I would be entitled to £24,000 redundancy payment plus immediate access to my pension unreduced. I'm not counting my chickens yet (although I have of course made contingency plans on what to do with the money :-)) but I am increasing my AVC contributions to the maximum allowed (50% of gross monthly salary) just in case. Pre-2014 LGPS AVCs can be taken completely tax free (this perk has been removed for anyone starting to pay in after March 2014), so boosting this fund is a better option than paying any more into my SIPP as, if I do get immediate access to my LGPS pension, anything I take out of the SIPP, over and above the TFLS, will put me over the tax threshold. The only risk is that if I don't get VR and have to revert to plan A, I won't be able to get hold of the AVCs until I take my main pension. This may make things a little more difficult to manage for a couple of years as I will have run our cash reserve right down and getting flexible access to my CIS FSAVC isn't as straightforward as I thought, but I think it's worth taking the chance.

So now it's just a waiting game to see if I'm one of the "lucky" ones. We should know by the beginning of December as they have to allow for the 3 month notice period. It might be a very jolly Christmas.

(Oh, and we won £25 on our Premium Bonds too - bonus :-))

A Waiting Game

Following a week of "should I or shouldn't I" angst over my pension transfer, complete with much working out of whether I could manage to leave the pension intact (should I decide it's a good idea to do so) and still retire at 58, my manager dropped a quiet bombshell at the end of last week. Apparently "letters" will be issued by the end of the month.

By this we took him to mean that redundancies of some flavour are back on the menu. There has been much speculation and rumour on the subject for the last 18 months or so. (See here , here and here) with the latest "update" a couple of months ago being that there was to be no redundancy offer in our section due to the high number of contractors we still employ. Apparently so long as there are contractors in post, permanent members of staff cannot be made redundant despite the fact that the work done by the contractors is in a specific role for which none of us are trained, and at a lower level than we are currently employed. Apparently management have now found a way round this, maybe by shuffling people around departments as they're deeply immersed in a transformation exercise at the moment. ("Transformation" being the word you use when you want to find a way of getting the same amount of work done by half the number of people :-))

I had put the possibility of voluntary (or compulsory) redundancy and how it could work for me to the back of my mind but as it might now come back to the forefront, I don't feel equipped to make any type of decision on my pension. The "Welcome" pack from Fidelity is sitting, unopened, on the shelf.

If I'm made redundant I would get immediate access to my LGPS pension, unreduced. There would be no pressing need for me to have access to the £20,000 in the FSAVC over the next couple of years (although it may still be desirable).

So, many thanks to all who left very useful comments on my last post but for the moment I'm going to park it and wait to see what the end of the month brings. Fingers crossed I either get my marching orders or can apply to be given them :-)

GARs, Misleading Pension Statements, Transfer Troubles and Other Gripes

After waiting for over 8 weeks I have finally heard back from Fidelity about my request to transfer my CIS FSAVC into my SIPP. It wasn't good news. Because the FSAVC (Free Standing Additional Voluntary Contributions) has a Guaranteed Annuity Rate they require me to take advice before they will accept it (even though the transfer value is less than £30,000).

They do, of course, offer this advice service themselves for the cost of £500. This fee is payable even if the advice turns to be "no, sorry, it's the wrong thing to do and we won't accept it". In which case, I am informed, the fee will have VAT added on top.

So I have a dilemma. I knew that there was a GAR attached to my pension but I didn't think Fidelity would require me to pay for advice before transferring it, and I don't think that the FCA requires them to do so either as suggested by the quotes below from a policy report released earlier this year.

"Historically there has been no need for a PTS to advise on a transfer from a scheme with a GAR and it makes sense that it shouldn't be implemented now.

"Although providers should be able to show the client what benefit they are giving up if they choose to forego these GAR even if the fund is under £30,000, where advice may not be given."

• Should I therefore look for a platform that will take my FSAVC without requiring that I pay for advice? Does one exist?

• But firstly, and importantly, should I think more carefully about the GAR and what I would actually be giving up seeing as Fidelity obviously think that this option requires £500 worth of investigation by a pension transfer expert.

A little background

I started paying into the FSAVC in 1996 because I knew I had gaps in my pension provision due to taking time out to have kids. I was working at the Council at the time but was in a fairly low paid role and wasn't sure how long I would stay, so I didn't really consider supplementing my pension there. Looking back this was possibly the wrong thing to do given that soon after taking up the CIS policy I got promoted into a job that's served me well ever since. Putting more into my LGPS at the time would have made a significant difference to the value of my DB pension now.

It could even be argued that the CIS (Co-Op) representative who sold me the pension was guilty of a mis-selling as he knew that I was in the LGPS and could/should use that to boost my pension rather than buy an independent product. However when the new pension rules were introduced this year and it looked as if there was going to be more flexibility around taking the FSAVC before my LGPS retirement age of 66 (or so I thought until I received the letter from Fidelity), I have been glad that I went the way I did and continued to pay a (very) modest amount into the FSAVC alongside my main LGPS scheme.

But what did I buy back then?

Working out the actual benefit that my FSAVC "with profits" pension carries has been quite difficult, especially for someone who knew nothing at all about pensions before I started thinking about how I could retire as soon as possible a couple of years ago, .

The policy benefit schedule looks like this:

And after doing a little research I took this to mean that it has a GAR of 6%

This was confirmed during a phone call with CIS (now Royal London) yesterday. So for every £1,000 in the fund at the time of retirement I am guaranteed £60 pa pension. As far as I am aware there is no index linking, widowers pension or any other "with profits" benefits. The transfer value in March 2015 was £19,200.

All that sounds fine but it doesn't actually tie in with the annual statement which says under the heading:

 Pension you Might Get at age 60

• Your fund might be £22,200
• which could give you a taxable yearly pension of £604

I queried the discrepancy in the figures (projected fund around £22,000 with a GAR of 6% - surely the projected pension is £1,320 not £604?). The CIS representative responded that the figures quoted in the statement don't include the GAR and she couldn't say what the pension would actually be with the GAR because they didn't know what the end figure would be. This doesn't make any sense. The statement already quotes me a projection and we all understand that a projection isn't a guaranteed figure. Given that, how can it be right to send out statements for pensions with GARs that do not include the projection for the GAR. That's the whole point of it being a guarantee - if my fund is £22,000 at pension retirement age I'm guaranteed 6%. I'm guaranteed £1,320.

The conversation went round in circles with me asking for a statement that included the GAR and her saying they couldn't do it. The only thing I could get her to agree to was to send out written confirmation that the FSAVC has a GAR of 6%, as although I have the scheme schedule, I felt that I wanted something more recent especially as the fact that I have a GAR apparently can't be included in any of the workings on my statement. The only reference to the notion that the figures may simply not apply in your case is in the "General Assumptions" section, one of which is "we have ignored any guaranteed minimum amounts that may apply to your policy". No wonder people complain that they can't understand pensions.

In conclusion I now have some work to do to find out if there would actually be a benefit to keeping the pension as it is and drawing it at the scheme age of 60, when I could also draw a reduced LGPS pension. In which case I need to look at those years between 58 and 60 again and assess if there is a way my existing SIPP/other funds/extra saving could fund them. 

And, if I find there is no benefit to doing this, I then have to decide whether or not I want to pay Fidelity £500 to tell me the same and accept the transfer, or, even worse, pay them £500 plus VAT to tell me it's a terrible thing to do and refuse.

Part 2 (including workings out) to follow, but any comments in the meantime would be much appreciated.

August 2015 Update

The month has been another busy one with day trips to York and London and an overnighter up in Yorkshire for my Mum's birthday. However all this hasn't worked out too expensive in the scheme of things as we used my leave last week for a "staycation" instead of travelling further afield, so there were no expensive hotel bills as anticipated. The plan had actually been to wait and see what the weather did and take the tent somewhere if at all possible, bailing out into a hotel if necessary, but there was altogether too much rain and wind for us to be able to raise the enthusiasm to pack our bags so we bought a local footpath map, packed picnics and "discovered" the area on and around our doorstep instead.

The good news is that the final part of my husband's TFLS finally turned up. Most of it stayed in our new NationWide current account to keep the balance topped up over the £2,500 and so gaining the maximum 5% interest, but £500 was invested in the Scottish Mortgage global equities IT we hold. I just happened to make the buy on "Black Monday" , however the timing was more by luck than by design as we had planned to do it anyway. It did no harm to buy at the lower price though. (This trust is currently trading at a 2.42% premium to NAV so I do have some misgivings about buying more, but it is just about the only exposure we have to American large caps at the moment and the charges are fairly cheap at 0.51%).

My FSAVC still hasn't made its way into my SIPP. Fidelity went down somewhat in my estimation when they phoned at the beginning of the month asking why I hadn't returned a bit of paperwork they needed to progress the transfer, and then obviously came across the said form in my file half way through the conversation. I'm used to this kind of administrative fiasco with Interactive Investor but I did think (hope?) that Fidelity were a different kettle of fish. Maybe not. I'm now almost 8 weeks into the transfer (the maximum time they quote for it to complete) but not holding my breath. It took iii over 6 months to transfer in both mine and my husband's ISA, so I know full well that patience is a virtue (and the only way to stay sane) with these things.

Further administrative incompetence meant that my instruction to reduce my work's pension AVC from £500 to £200 per month was not activated in time to make the change by the time my salary was paid at the end of the month (despite my asking for it to be done on the 2nd). This, although annoying, is probably a blessing in disguise as boosting my AVC pot is a very tax efficient way of increasing my post-retirement funds and being forced to put in a little, if unplanned, extra is not such a bad thing. Hopefully payroll will manage to make the change by the end of this month though, as our monthly budget requires that my salary is at a certain level now that my husband only has his pension coming in.

The financial news this month has been dominated by the volatility in world markets sparked off by the steep drop in the Chinese stock prices and the fear that growth there is slowing down. This has meant that our combined portfolio has dropped this month despite the fact that we have ploughed in over £1,000. The total is down from £126,304 at the end of last month to £124,759 this and is recording an investment loss of 4.7% for the month. (This figure includes our ISAs and my private pension and AVCs but not our DB pensions.) However on the whole we are fairly comfortable with the turbulence as I secured the cash we will need for the next couple of years to see my son through his MA course by selling funds a couple of months ago and took some further profit from our Japanese and Bio-Tech investments at the same time. It will be interesting to see what the coming months (and years?) bring.

On a more serious note we have all been further, and tragically, reminded that we live, and act in a global environment by the ongoing refugee and migration issues. The opportunities brought by global trade and travel also bring responsibilities. Simplistic nationalism backed up by barbed wire fences just won't work for very much longer and Europe is being forced to recognise this. Escaping war at home is one of the the current drivers, but in the future mass population migration may well involve many more desperate people moving around the globe trying to escape the effects of climate change. Personally I'm pessimist about our ability to reduce carbon emissions enough to prevent very real problems. We continue to dig fossil fuels out of the ground even though the harm reduction plans we are pretending to put in place mean that we cannot possibly burn them, the UK government massively reduces subsidies for renewable energy and we continue to reward CEOs for deepening the climate change crisis. This year is set to be the warmest on record, intensifying patterns of extreme weather. In the light of all this the ongoing market "blips" and the effects they have on our portfolio pale into insignificance. Hey ho.

Time to Switch to Auto PIlot

Personal Finance is all about control and FiRe chasers have to be the biggest control freaks in the game. If we don't have all the strings in a firm grip, know exactly how long they are and when to pull them, how else are we going make it happen?

But there are times when the best strategy is to stop trying to make things happen and sit back and ride it out. It's fast looking as if this is one of those times. I've never "seen" a market crash or bear market. Of course I've lived through them, I've even been invested through them as I've held, and regularly paid into, a S&S ISA for around 10 years. However up until 18 months ago I wasn't remotely interested in what I was actually doing or even tracking how things were going, apart from glancing at the annual statements and thinking "that doesn't seem to have gone up much" (or the opposite). I was far too busy with kids, life, work and all the rest. This time it's very different.

Letting go of control and not being able to do anything but roll with the punches, sounds and feels more than a little scary until you realise that doing so should actually be part of the plan. Exactly as a pilot trusts his instruments to know better than he does at times, so we have to trust our PF plan to work to our best advantage when we can't see what's ahead (and as Monevator said at the weekend if you haven't got a plan get one quick:-)) Leaving the plan to do what it's meant to do is the whole reason we have it, it's there to prevent us having to make decisions when we don't have the tools to be able to do so.

I recently watched a television documentary about the terrible Staines air crash in 1972 which killed 118 people. The causes of the accident were complex but at least some of the blame has been placed with the pilot who, just before take off, had had a violent disagreement with a fellow pilot and so can be presumed to have been in an heightened emotional state. It appears that whilst the plane was coming out of take off he didn't climb quite high enough and then, when problems started to become apparent, an automatic stall warning and recovery system were overridden. As a result the plane went into a "deep stall" (from which recovery is impossible) and fell to the ground. Human intervention and faulty decision making disrupted the pre-programmed routines of the take off and tragedy ensued. The parallels with investing are clear.

(Incidentally the notion of a "deep stall" during which nothing can be done to pull the plane back up seems to me to have a financial equivalent in the situation in which many people who take out pay day loans find themselves. No matter what is done, it must feel like even the possibility of control has been lost. Apparently 44% of people who take out such loans use them for everyday essentials such as food.)

Markets across the world are tumbling, and for the first time I'm watching it happen. I'm very glad that I sold our CIS UK Growth funds a couple of months ago and took out the cash that we will need for the next two years as there is no indication of when things will recover and according to some commentators we could be in for a very bumpy time.

For now I'm going to sit tight and see what happens. (Well apart from buying £580 more of the Scottish Mortgage Trust we hold in my husband's ISA which has dropped over 7% since Friday. My husband has just received the final payment from his pension TFLS due when he retired so we have a little extra spare cash). I'll also be buying my Monkey Stocks on iii's next regular investments day towards the end of Sept. Who knows, they may be very cheap indeed by then :-)

Student Living

Last week we finally received the great news that my son had been awarded a place on the MA course he applied for at the beginning of July.

This was a tremendous achievement on his part as the Department is rated second in the country for the subject and they describe the competition for the course as "fierce", deliberately keeping the number of students down in order to preserve a high staff to student ratio. As part of the application process he had to produce a research proposal and a piece of critical writing as his degree is in an unrelated subject (Law). He worked very hard on all this and we're extremely proud of him.

Since we now have a clear plan for our retirement and are pretty sure we have (more or less) enough to do what we want to be able to do, we have decided to gift £17,500 of our ISA savings to each of our sons as an "Opportunities Fund" to be used to allow them to do something they would otherwise not be able to do, hopefully to improve their lives permanently. This may (or may not) be directly tied to job prospects as personal satisfaction and development comes in many forms. :-) The eldest is using his to go back to University and the youngest is leaving his with us for the time being until he has a good use for it.

In addition to gifting the £17,500 we have also said that my eldest son can live rent free in our studio flat for the year. Our youngest son has already made use of the flat between his MA and PhD when he was doing some intern work and applying for funding. This is, in fact, why we bought the flat, as we only own a modest semi and having an adult son live at home can get a bit "cramped" if it goes on for any length of time. :-)

(btw I am painfully aware that my sons have both been given an educational advantage by having parents who have been able to afford to supplement student loans, internships, housing and life in general. I am ideologically opposed to the idea that education is ever something that should be allowed to exclude people for financial reasons and would never have sent them to private school, but parents these days seem increasing sucked into supporting their kids through further education if they can. As this becomes the norm surely the kids of those who cannot afford to help become actively disadvantaged? One for my conscience (and vote)).

Having now got the offer of a place we have been thinking in more depth about accommodation and my son has decided that he would rather live on campus if possible. Although our studio flat is only about 30 mins by road from the University he doesn't drive and there is only one bus an hour and none after 6.30 in the evening. He had been thinking about getting a bike as there is a cycle route for some of the way but travelling home late in winter on poorly lit roads was a bit of a worry. In addition it would be good for him to be in the thick of things and we wouldn't have to give our tenant notice (something I'm loath to do as she has been very good and is obviously happy where she is despite only signing up for 6 months initially).

However the student accommodation prices came as a bit of a shock. As a postgraduate needing a 51 week rental the full range of choice of halls was not available to him and he's basically confined to a cheaper option of £5,800 (shared bathroom) and £6,700 (en suite).

Comparing these costs to the income/costs associated with him living in our studio flat works out like this:

• After tax income from rental (estimated as it depends if any further repairs are required and\or the tenant gives notice): £3,700
• Estimated utilities (electricity, broadband, water) to pay if in flat - currently covered by tenant: £1,000
• Council Tax (currently covered by tenant): £1,200

Total: £5,900

So, taking into account the travelling costs associated with living in the flat and the fact that living on campus entitles you to 10% discount at food outlets and bars on site means that, although the university accommodation seems mighty expensive when compared to our studio flat, it would actually be more or less cost neutral for my son to live there.

This calculation was quite interesting from another point of view. If we are getting a profit of around £3,500 pa on our studio flat and it works out that it costs our son just about the same to live in what used to be called University "Halls", surely the University is raking in huge profits at these kind of prices. Their overheads must be proportionally much smaller given the scale of their service. They have a captive rental "audience" and can control their void periods (the rooms are let out for conferences and visitors during the vacations) and service the flats using their own maintenance staff.

It all seems a bit scandalous except for the fact that we have to recognise that this is yet another reflection of the ongoing trend towards the commercialisation of education. Government funding for universities has been reduced so they have to make money somewhere. What then happens is that cheap accommodation for the students without parents with the wherewithal to help becomes scarce and the poorer students are forced out into the private sector with all its attendant stresses and difficulties, things that young people leaving home for the first time do not always have the skills to manage.

Personally I'd rather pay a bit more tax, fund the universities properly so they can provide affordable accommodation and remove tuition fees for UK students, put kids back on their own two feet with a fair and adequate grant system and make sure that further education is only seen as attractive for the right reasons by the right people. Somehow, though, this all seems to be moving further and further out of reach.

July 2015 Update

Things have wobbled about a bit this month but our portfolio managed to finish up in the green with combined assets up over £2,000 since last month. I haven't been doing much trading as we're in a state of limbo as regards how much cash we will need for the next couple of years (my son still hasn't heard whether he has a place on his MA course and there's been no further news on my VR).

The only investments I have made are £500 into my LGPS AVC, £57 into my CIS FSAVC (still waiting for this to be transferred into my SIPP) and a small amount of re-invested dividends ploughed back into my ISA.

All in all it's been a pretty unexciting month. However, I have been pleased to see that my Herald Investment Trust (global small companies in IT, multi-media and comms) has now made some steady progress (up just over 10% during the period I've been drip feeding it) and TR European Growth Trust seems to be hanging onto most of the profit it has made for me (19%) (don't know how long that will last though - I have been considering taking some profit from this but holding off for the time being). Globally smaller companies seem to be doing quite well currently with my FTSE 250 tracker also standing at 10% up, although Aberdeen Asian Small Companies just keeps on dropping (down 16%) and the modest amount I have in an S&P small cap tracker is refusing to make profit and has slipped into the red again.

What's not been doing so well recently is my iShares Global Clean Energy tracker.

The S&P Global Clean Energy Index offers exposure to the 30 largest and most liquid listed companies globally that are involved in clean energy related businesses, from both developed markets and emerging markets

Key	Chart	Instrument	1 mth	6 mths	1 yr	3 yrs
		iShares Global Clean Energy UCITS ETF GBP	-4.64%	2.86%	4.17%	77.86%
		Gbl ETF Commodity & Energy	-6.47%	-6.95%	-17.09%	-18.37%

I can understand why clean energy companies in the UK could have been taking a bashing due to the fact that the government has been reducing subsidies, but what the drop says about global trends following a surge in investment in 2014 is a little worrying. Maybe it's too soon to see it as an indicator of anything.

The fact that fossil fuels reap 4 times more in subsidies from world governments than renewable energies can't help though.

Although July's been fairly quiet maybe August will bring some excitement. Today my £9,000 worth of premium bonds will be going into the draw for the fist time. 

Drinks all round at York if ERNIE comes up trumps :-)

A Musical Interlude

As it is festival season (very funny analysis here by TEA) I thought I'd indulge myself by posting up a couple of clips.

I was at Warwick Folk Festival earlier this week and will be going back over the weekend (we live very close so there's not even any camping involved :-))

Billy Bragg headlined on Thurday evening and it was a great night. He's a long time musical hero of mine, the crowd were really behind him and I thoroughly enjoyed myself. He gave a great speech about the Labour leadership battle, expressing respect for Corbyn and disdain for the Blair view of things .... followed by  "UpHill - Socialism of the Heart". Wonderful evening .

One track he didn't get round to was "Great Leap Forward" so I sought it out on YouTube when I got home. The version below is a couple of years old so the lyrics aren't quite current but you'll get the gist.

(hackle alert for some out there I guess, but as weenie reminded me, it's my blog so I can post what I want, and it does sort of cater for the cyclists too :-))

 - take a look (and a listen).

To Be Honest

(As always :-))

The budget left me depressed, demoralised and completely down. I was a "winner" financially but feel patronised (who really believes all that "working people" nonsense when the cuts to tax credits will hit so hard) and disenfranchised.

I work alongside emergency duty social workers earning less than £40,000 who have to deal nightly with suicidal people wandering the train tracks, children needing emergency foster care and mental health patients who should be sectioned for their own protection, needing beds that no longer exist. Despite coping with an incredibly stressful job these dedicated professionals, along with the rest of the public sector (nurses, teachers, librarians, firemen) are now being told that we are not doing work that is worth a jot to the country.

I'm bowing out for the time being. Good luck to you all. :-)

Extreme Investing - Blood Sports and Hoarders.

If asked to define our aims when investing, most of us would be able to give a reasoned reply and describe an outcome we are trying to achieve, whether it's to buy a house or retire early. We know how much we need (well roughly :-)) and we are making plans to get there.

But, like the huntsmen with their hounds, some investors seem to chase profit for it's own sake and delight in making a killing even when they have no real use for the spoils. Accumulation and growth is the thing, the excitement of putting another "0" onto the bank balance, just like the thrill of the chase and watching the dogs kill the fox, are what it's all about. Investing has become a sport in which owning a large amount, or making large gains, are aims in themselves and not means to an end. In fact, after a certain amount of wealth has been generated, there simply can't be any other "end" than to make more of the same. When you are able to have anything money can buy with the click of a finger, making more money becomes the only challenge.

Then there's those investors who treat investing like a game of chess, a challenging intellectual pursuit with sophisticated tactics and gambits. The figures at the end of the balance sheet are almost academic, rather than a practical goal, because that's what the whole exercise has become.

Although these types of relationships with investing can seem alien to most of us, who just aim to have enough money to do what we want in life, there is a further attitude towards money that also often results in "having too much" and which is even more toxic from an economic point of view, and that is cash hoarding.

We all know about the gradual shift of the world's wealth into the hands of the 0.1% and how it has continued to the extent that they can't possibly spend it and put it back into the economy. However it also seems that the super rich aren't investing as much as we might expect them to either. They have stopped building business to the extent that they were "meant to" by the economic model and are becoming more content to let their capital feed on and nourish itself.

Cash hoarders have bloated bank accounts full of "stuff" they have no use for. They take delight in counting it and checking that it's all still there, rather than in what it can do to improve their lives. There is an argument that these people are to be pitied just as much as those who fill their homes with old newspapers and other rubbish. However, on the other hand, a TED discussion concludes that: " the harm caused by a wealth hoarder is generally imposed upon their community while for other forms of hoarding it is the hoarder themselves who bears the brunt of that behaviour." 

Those of us in the PF/FiRE world often (and rightly) pour scorn on the need people seem to have to buy more and more "things" and have more and more "stuff", but stock piling wealth for its own sake could be regarded as just as much, if not more of, a sin. I see it time and time again on MSE forums - people who obviously have far, far more than they need raising anxious questions about what to do with the rest to make sure it continues to grow. I struggle to see how having all that money is enriching their lives (although Freud could probably give me a theory :-))

In the budget next week George Osborne is expected to introduce more incentives for building, keeping and passing on wealth for those of us who are fortunate enough to be in a position to do so. Maybe he should be concentrating on encouraging us to see the benefits of knowing when we have enough and giving us ethical and effective ways of investing it back into the world we live in.¹

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1 See Mr Z and DD for some ideas^↩

June 2015 Update

This has been rather a momentous month in our household as my husband has now retired completely and my youngest son achieved his Doctorate. We've been out and about a lot and have just got back from the Dentdale Beer and Music festival (they ran out of beer on the Saturday evening would you believe :-)) where we spent a couple of nights in a tent for the first time in years and enjoyed it well enough, despite the midges, to be planning another camping expedition some time soon.

Moving forward into July feels like the start of a new stage in our lives so taking stock at the end of this month has been happening on all sorts of levels, not just financial, however our portfolio update is here.

During June I moved about £15,000 out of investments and into cash (or cash-like) accounts. This is money we will likely need in the shortish term. I also applied to transfer my CIS FSAVC to my Fidelity SIPP and sold £500 of my AXA Framlington Biotech Fund in order to take some more of the profits it has gained over the 8 months since I bought it. Luckily all this was done before the recent slight drop in the markets. (Our combined portfolio is down 3.3% this month.)

The possibility of Voluntary Redundancy/Early Retirement has receded a little as my boss has been told by HR that he should get rid of the contractors he employs before he can offer VR to permanent members of staff. He is contending this because being forced to achieve the level of cuts he needs to make by losing contractors, would mean that he has to shed 75% of the staff working in a particular part of the service he manages. I'm intending to just plod on as normal, wait and see what happens, but make sure I keep all my options open particularly with regards to my AVC/SIPP contributions.

I hope everyone enjoys the sunshine this week :-)