The UK state pension

My last post was about Child Trust Funds, which are relevant to young people and this post goes all the way in the other direction. It’s mostly for the older demographic, who are in their 60s. So, let’s talk about the UK state pension.

It looks like somebody is checking her state pension forecast.

In order to “earn” a UK state pension, you need to pay National Insurance Contributions (NICs)- these are automatically deducted from your monthly salary. A certain amount needs to be paid each year to lock in your “qualifying year”.

You need to pay NICs for at least 10 years to get any state pension. The maximum state pension you can get is currently £179.60 per week i.e. £9,339.20 p.a. and requires you to pay NICs for 35 years.

If you are in your early thirties, then the state pension is expected to start at age 68 or maybe even later… it’s around age 66 for most people today. The government is broke, as is often the case, and there’s a good chance there will be further extensions to the starting age for the state pension.

However, the income itself is very valuable. It is guaranteed by the government and inflation-protected by the “triple lock”. Each year the state pension increases by the greatest of 2.5%, average UK earnings or inflation (CPI). Therefore, at least 2.5% each year. That’s really good and very expensive for the government. Any politician who decides to get rid of the triple lock will commit political suicide as that poor chap will be voted out by the older demographic.

The thing about needing 35 years of NICs isn’t the entire story. There are many people who have paid NICs for longer but won’t qualify for the full state pension. There’s a big bureaucracy involved in calculating your state pension and it’s very complicated (so I’ve been told) to find out why your entitlement is reduced even though you’ve paid in for more than 35 years.

You should request a state pension forecast to get an idea of what you might get at your state pension age. Please note, that forecast can look deceptive as on its first page it can say in big letters that “you will get £179.60 p.w.” [i.e. the maximum] but then in smaller letters qualify it with “if you continue working until your state pension age” or something like that (sorry, it’s been a while since I’ve seen a statement). That’s a bit sneaky but I think the current entitlement was mentioned somewhere as well.

It’s easy to find out what your NI record is if you have a gov.uk account. That record will identify how many NIC qualifying years you’ve got and which tax years you’ve missed out on. It also details, how much it would cost you to plug a missing year – it’s around £800 for each year by the way but can be less if you partially paid in in a particular year.

Generally speaking, plugging those holes in the NI record represents fantastic value. Let me illustrate: if you have 34 years, then your state pension should be circa £9,339.20 / 35 = £266.83 less each year compared to having a full state pension. You would need to plug that 1 year with a one-off payment of circa £800 and in exchange, you will receive an additional £266.83 p.a. of inflation-proofed guaranteed income for the rest of your life. You will be in profit after about 3 years. This additional income would represent an annuity rate of 33%, which is insanely high. It is fantastic value.

So, if you (or your parents) aren’t far from their state pension age, make sure they check their NI record and plug any holes in it. Remember, this needs to be done before reaching your state pension age.

Bureaucracy warning! The actual mechanics of plugging the missed NIC years can be complicated. Essentially you need to call HMRC, fill in a form, get them to provide you with a reference number (for one-off payment), etc. It’s all made very difficult – I wish you could simply look at your NIC record and click on the monetary amount next to the tax year in question and then enter your card details. That’s what it should be… but this would mean that an army of bureaucrats would be out of a job and we can’t have that.

If you are still relatively young and know that you have many years of employment ahead of you, then you should bookmark this post and come back when you are 60+.

Have a good weekend!

Do you have a Child Trust Fund you’ve never known about?

A new long-term investment account was announced in 2005 (in the UK). This was for children born on or after 1st September 2002. It was called a Child Trust Fund (CTF) into which the government paid £250 in the beginning and then another £250 at age 7. Parents were able to add more into the account (subject to an annual limit). Families on lower incomes could get an additional £250 both at the start and age 7.

The account was the predecessor of today’s Junior ISA.

After age 18 the account can be accessed or re-invested in an ISA etc. However, there is a high incidence of ‘Addressee Gone Away’ accounts – this means that many people have a CTF account with their name on it but simply never knew about it.

I realise this article should live on TikTok, because that’s where all the kids are on. However, it’s also relevant to parents of kids born between 2002 and 2011.

Child Trust Funds were discontinued in 2011 due to politics and probably the cost involved as well. Existing accounts could continue though.

If you were born after 1 Sept 2002 (about 18.5 years ago) then there’s a good chance you have a child trust fund with at least a few hundred or few thousand pounds in it. This is accessible for people who are 18 years old today… and gradually more and more CTF accounts will “mature”.

It’s possible to track down your own or your child’s account and the process is explained on the government’s website.

I hope some of you find the above useful and are able to track down your child trust funds. 🙂

Automation

I’m sure you have heard that the robots will come and take away your job. AI is getting better each and every year and it’s improving at an exponential rate.

The way I see it the robots are already taking our jobs. The transition to automation will look a lot like somebody going bankrupt. It will happen very slowly in the beginning and then all at once.

My prediction is that a huge disruption will happen with autonomous vehicles. If you’re an Uber driver or drive a cab, lorry, bus etc you need to act now. That job will disappear and you need to have an exit plan in place. Start learning new skills, take some online courses etc. Don’t just wait until it’s too late. I think virtually all driving jobs will disappear. Autonomous driving is safer, cheaper, more efficient and simply better.

Another example is the construction industry and 3D printing. Houses will be printed in the future, it’s already happening and it will take significantly less people to build a house going forward. I’d expect 90% of traditional construction roles to disappear in the not too distant future.

I think there is a good chance that financial planners, investment managers and tax advisers will largely disappear as well. The robots will sort it.

Many other industries will be impacted as well.

The problem is deciding what new skills to acquire as the robots will automate so much. A book I read suggested that anything to do with one-on-one people interaction will be the hardest to automate. Think hairdressers, make-up artists and doctors… but their time will come.

That all sounds quite bleak but I’m an optimist. I think people will reinvent themselves and create a huge number of new jobs which don’t even exist today. We’ve seen it happen in the past when internet became mainstream.

However, in practical terms I’d aim to distance myself from driving jobs as a matter of emergency. For other occupations I’d suggest to add a backup plan to your employment situation.

Personally I’m slowly learning software development and am considering data science and machine learning (as I was very interested in this back at uni). Maybe I will be the reason many will lose their jobs in the future when I create artificial consciousness.

The other part of my strategy is FIRE. I aim to build up significant wealth to help me in that transition. Every penny will help…

Your favourite Armchair Oracle

A new home

I had a flat viewing yesterday, which was only a few minutes away from our current home. It looked decent but the agent tried to pressure us into taking the property because somebody else had already made an offer and paid a holding deposit but not yet seen the flat… and the other chap wanted a starting date which was a bit far in the future.

It all sounded a bit off. Why was the agency still showing the flat to people if a holding deposit had been paid? This sort of thing doesn’t sit well with me. The whole point of the holding deposit is that it holds the property for a particular individual. That’s not a difficult concept. Real estate agents really do deserve their low reputation.

We decided that we weren’t interested in the above flat and didn’t want to get involved with that agency.

Next day we had a viewing with a lovely old Asian lady, who gave us a tour of her rental property. She came across really sweet and lovely etc. We liked her and the flat.

That property was listed at £1,250 pcm and was immediately available. According to Zoopla it had also been on the market for circa two months already and this was a “listing manipulator” who kept increasing and decreasing the price many times.

We went home and after a chat we decided the property ticks the majority of our boxes and we made an offer of £1,150 pcm (£100 below asking price) with a move in date one month away from today (about 3 days before we need to move out of our current home).

We shared our house hunting adventure with a few friends who found it incredible that we make offers for rentals. I suppose some people are more comfortable paying the listed price or it’s never occurred to them that prices are always negotiable.

We got a response to our initial offer. The agent wanted to meet half way i.e. £1,200 pcm and move in about 2 weeks away from today.

I had a very brief chat with my girlfriend and we responded that we “unfortunately will not accept the counter offer as there are many flats in the area, which could meet our criteria and we have several viewings booked for next week already”. I also said that our initial offer is still on the table should the landlady reconsider.

Within half an hour the agent got back to us to confirm their surrender to our terms. We’ve now paid the holding deposit and will go through the referencing process etc. It almost feels like it was too easy to find our new home…

We did the same sort of negotiations last year, which worked out exactly the same way. So, I’d encourage you to try this method as well.

Agents always try to pressure you into making a decision quickly and want more money out of you. Stick to your guns and see what you can get away with!

In the future it would be nice to have more transparency around prices and information for individual properties. Maybe a standardised two-page factsheet like they do with investment funds could be handed out at a viewing. It would tell me the name of the owner, summary of features, risks (i.e. vermin problems, heating issues), timescales it took to fix said issues, history of repairs/improvements, history of rent amounts paid, council tax costs etc. Maybe this information could also live on a Blockchain so that landlords couldn’t manipulate the data. One can dream…

Anyway, a little about the new home… It’s a larger one-bedroom flat (52 sqm), has a private garden (90 sqm – I calculated this from the floor plan they provided… it’s quite large when we saw it, so might be accurate) and has clear separation between the bedroom and living room (so it’s possible for two people to work from home). The rent remains the same as our current suboptimal flat.

The above should give a bit of a flavour of what’s it like in the current rental market in London. I think we got a decent deal and we are very pleased with ourselves.

Hopefully all goes well and we get to sign on the dotted line some time next week.

Enjoy the rest of the weekend,

A couple renting in London

The one about teeth

I used to have great teeth. I remember a conversation I had with another backpacker in Bundaberg, Australia. I was talking to Michelle after a days work at the farm and somehow we started talking about teeth. She was quick to point out that I had fantastic teeth. I completely agreed with her.

That was about 8 years ago, how things have changed…

I blame time. I think it takes a long time for the small “mistakes”/inefficiencies and bad habits to accumulate. These start to show once you hit your thirties.

Let’s talk about flossing first. I only had a few months in my twenties when I actually flossed regularly. I lost that habit and have flossed very few times ever since.

Recently I found out that I was flossing wrong anyway. This is because I have retainers (both upstairs and downstairs) and the floss can’t get to the area between all of my teeth. My dentist said I should be using “super floss”, which fixes that problem – it has a stiffened end on the floss, which you can poke between your teeth and behind the retainer, where all of that plaque etc lives.

It’s only been two days using super floss for me – and boy does it take a while. It’s easily a 5-10 minute endeavor. However, I hope to stick with it this time and aim to only do it once a day before I go to sleep (also I think I need to floss before I brush my teeth).

I also found out that I have been brushing my teeth wrong my entire lifetime. Did you know that after you brush your teeth, you should spit out the excess toothpaste and that’s it? Do not rinse your mouth with water after brushing your pearly whites. Apparently, rinsing will just flush out all the fluoride and other magic, which is supposed to keep your smile big and bright. Why isn’t this common knowledge? My edumacation has failed me again.

Good dental hygiene is important as teeth are expensive (and unpleasant) to fix. Year to date, I have paid £200 to extract a wisdom tooth, paid £90 for a hygienist (AeroFlow), and another £50-£60 for consultation(s)/antibiotics (London, Zone 2 prices, private dentist). The costs aren’t astronomical yet but if I don’t change my dental routine, then the direction of travel is towards big dental bills. I’m sure we can all agree, we’d like to avoid that.

Happy flossing,
WealthPlanner