"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 :-))