7th June 2016
Plain English Finance: Brexit vs Pensions
To date, I have been reluctant to wade into the Brexit debate for one primary reason: I believe it is simply too hard to predict with any degree of certainty what the real ramifications of either staying or leaving are for this country. I have a few ‘gut feels’ about it and some ‘soft’ thoughts – I can’t, for example, get my head around the idea that my numerous European friends in London would have to apply for a visa after living and working here for so many years and it would feel really odd to me to treat them as ‘aliens’ (as the Americans like to say). In addition, I dread the idea of one day having to go through the horrendous administrative pain I went through when I moved to New York a few years ago if I feel like living somewhere lovely in Europe for a while some time in the future.
As I say, these are secondary issues (although still important at a personal level). When it comes to the hard-nosed economic consequences of Brexit, none of my thoughts on what may or may not happen could currently be said to be based on cold, hard evidence and dispassionate analysis and I need to do more work in the next three weeks. This is compounded by the fact that both sides of the debate have seemed entirely comfortable from the start with trotting out pure nonsense followed by bare-faced lies followed by hilariously ridiculous economic ‘forecasts’ and the largely ill-considered, tabloid rubbish that gets posted on sites like Facebook both for and against.
Osborne and the Treasury are currently claiming Brexit ‘could cost pensioners £32,000’ whilst the ‘leave’ camp claim ‘new EU rules will cost British pensioners £400bn’: Both statements are about as much use as a chocolate fireguard and we must not take any of these sorts of statements seriously.
We should all know by now that the only accurate economic forecast you can ever make is that most economic forecasts are inaccurate. (George Soros cleverly explains this reality by suggesting that one of the reasons for it is that forecasts themselves change what the economy does, rendering those forecasts incorrect – a financial version of what physics calls ‘the observer effect’).
If you held a gun to my head and asked me my honest view on Brexit now, even before I’ve done the work on it that I allude to above – my answer would be that it probably won’t matter that much either way (shock, horror). Every year I become a more ardent subscriber to what you might describe as ‘the muddle through hypothesis’. Time after time, things that we believe could be incredibly problematic actually just aren’t. Go back and read some articles about the millennium or ‘Y2K’ bug: Planes were going to fall out of the sky, banks would stop working, nuclear power stations would unilaterally go into meltdown blah, blah, blah. What happened? Human ingenuity won the day and nothing really happened. We muddled through. Evolution not revolution. Although Norman Lamont and John Major had a fair few sleepless nights when Britain came out of the ERM in 1992 – as an economy and as a society we muddled through and soldiered on and even bounced back with our newly smashed currency.
Future pension policy or, more accurately, ubiquitous financial literacy – will be far more important than Brexit!
As I have written many times before, the average British person today has a literally disastrous £30,000 saved by the time they retire. At current annuity rates, this implies that that average person can buy around £100 a month of income for the rest of their life (if they’re lucky and get a particularly good deal). Put another way, they could fund just over one year of the more like thirty to forty years they’re going to want / need to fund at only just above the UK average annual salary. Make no bones about it, this is a massive national disaster given far too little oxygen by our press and politicians and vastly more significant than Brexit.
Anything more than this pathetically small sum has to be made up by a state which categorically can’t afford to fund the gap in the decades ahead given the parlous state of our national finances and the demographic reality of far too many people at retirement age and far too few who are economically productive. This is a personal disaster for literally millions of people which has started already. ‘Hanging on in quiet desperation is the English way’ is a Pink Floyd lyric which most certainly describes a growing percentage of the adult population in the UK struggling to simultaneously care for and fund both children and elderly relatives who have insufficient resources to fund their own retirement and often significant healthcare costs. You probably know people in this predicament but you don’t see much written about it – it is just too depressing.
As a nation, what we need as a matter of REAL URGENCY is for the British population to understand, in no uncertain terms, that it is a mathematical impossibility for the state to fund everyone’s healthcare and income needs for the last thirty or more years of their life. The UK pension was created in 1909 for the over seventies in an era when hardly anyone lived to seventy, let alone past seventy. Today people want to stop working in their sixties and then have the state pay them a living wage and fund their healthcare requirements for two, three or even four decades. No matter whether you are left wing or right wing, Labour or Tory, this is simply impossible and no matter what happens with Brexit.
Adding large numbers of economically unproductive people with no ingrained culture of saving to our welfare rolls does, of course, exacerbate this problem – but this seems to have happened with or without immigration. Plenty of British people seem to have just as awful a grasp of why this ‘boring pension stuff’ is important as the various immigrants who have never heard of it before because it has never existed where they come from (a key factor in why their economies and societies are a disaster by the way – more on that another day).
What we must do is ensure that everyone in this country understands enough to take personal responsibility for their own financial situation. We need to foster a real understanding of money and how money works and we need to do it NOW. I’ve outlined the bad news above. The good news is that it actually isn’t that hard for people to achieve the necessary result here, even for people on a relatively low income. Far more important than our relationship with Europe for the rest of our lives will be that we succeed in this endeavour.
Right. I’m off to read ‘The Trouble with Europe’ by Roger Bootle – one of several books I feel I should read before I am qualified to cast a vote in this referendum…
Andrew Craig is the author of the acclaimed 'How to Own the World'. Click here for more information about the book.
Comments (7)
Treasury estimates are that it will continue at 3 million over the next 10 years, so we need to build the equivalent of a city larger than Cardiff each year for 10 years - AND catch up on lost time.
Cardiff has 9 hospitals, 89 Doctors' surgeries and 69 dental practices (in the vicinity), 97 primary schools, 36 other schools, 4 colleges, 4 universities and an airport. Add to that the sewers, water treatment works, roads and the rest of the infrastructure. We have then to find the personnel to staff them, trained to our standards and speaking good English. We have to do more than this in every year for the next 10 years AND catch up on the shortfall for previous years and for this year.
We can't afford that. The money just isn't there. Even if we could, how are we going to feed it?
Agriculture - British agriculture makes up approx. 1% of GDP.
a. According to Radio4's Farming Today programme, it provides a little over 50% of our present food needs. According to the programme, the percentage has been falling for some years.
b. 3 million net immigration over the next 10 years will increase our population by about 4.6% (based on UN estimates of our current population at 65 million) and we'll have less land on which to grow food. On top of this we'll have our own natural population growth.
c. What's going to happen if the oil runs out, if there's a war, or some other disaster resulting in our inability to import sufficient food? Do we want to rely ever increasingly on imports for food security? We nearly lost 2 World wars, because we couldn't feed ourselves. We aren't learning the lessons of history.
If the vote was now as to should we join the EU, I think nearly everyone would be saying "No." Doesn't that say it all?
Richard Brown 08/06/2016 09:51
The Europe Vote ….. “in out … in out … shake it all about …”
In recent weeks, I have been asked on a number of occasions to give my opinion on the pending European Referendum, what the result might be, and what the effect might be of either an “in” or an “out” vote on our economy, and of course on our investments. I fully understand the desire for some clarity, as the hysteria does seem to be rising, and it does become progressively more and more difficult to rely on the main protagonists for an honest opinion.
Unfortunately, and as is always the case these days, especially where politicians are involved, the difficulty is in securing an honest opinion from anybody. It seems that our politicians are incapable of separating their own personal “narrow ambitions” from the more statesmanlike attitude of what is actually “the best course for our Country”. Personally, I think that turning such an important vote, which is of national and constitutional importance, into a party political scrummage with the full use of the three line whip, is an absolute disgrace. It certainly falls well short of the sort of statesmanlike behaviour which we all long to see in our leaders.
However, we are where we are, but I would simply say that before we take anybody’s opinion on the matter, we should be very careful where that person is coming from, and how they might personally be affected by the vote, one way or the other. Only then can we “factor in” what might be an entirely selfish and misleading presentation. I would immediately discount any such presentation from an industrialist, as his business, his career, or indeed his tenure on his Board of Directors, may well be at risk, and unfortunately our politicians have chosen to make the matter one of party political loyalty – a very big mistake for the current party leaders.
As an example of Politician vested interests, one such politician (the one with bad hair) might see his future as leader of the Conservatives, whilst I am told that the other’s immediate family (the one with good hair) has very substantial interests in farming, and apparently his family receives many hundreds of thousands of pounds each year through the Common Agricultural Policy Area Payments from Brussels (I am led to believe over £1.1Million per year) – Does this influence either of their views? – perhaps it does or perhaps it does not.
Some of the larger fund managers in The City, notably Neil Woodford and others, have commissioned their own independent reports from some of the more reputable International Banks, if that is not a mistake in terminology, and their independent research departments. These reports make interesting reading. They are pretty well unanimous in the view that the short term economic effect (up to 3 years) of a vote in either direction, would produce a “no premium effect on our economy”. In other words, the short term effect of the vote, regardless of the outcome, is nil. This is not to say that the current market volatility will not continue for a while, on the contrary, it probably will. However, they do also make the very valid point that, nationally and economically, it is far more important how we work with the result afterwards, whatever that result may be, in building our economy over the next ten years. This was ever the case – no change there then.
However, quite obviously there is very much greater scope for building our economy outside of the stifling European Community than there is inside it. This is particularly true when you consider the emerging nations in the Asian economies, which is without doubt where global trade will develop in the immediate decades to come. In fact it is already very dramatically doing so. Substantial trade development will not come from the tired old western economies, and certainly not from the classic protectionism which currently exists within the European community.
In the last decade, we have seen the value of our trading links with Europe diminish continuously and consistently. We are doing less and less business with the Europeans, particularly in terms of exporting our own goods and services to them, whilst our economic interests have grown immensely in the Asian economies. This is not surprising as those economies are extremely dynamic, they are emerging from third World status and poverty, whilst they also represent more than 2/3rds of the Worlds’ population. The myriad and inexplicable trading rules and regulations within the European system (Brussels) make it very difficult for us to trade with these emerging economies and flourishing consumer nations.
As far as specific trade with Europe is concerned, it is interesting to note that our imports from them are now roughly 8 times as much as the value of our goods and services which we export back to them. In other words, they will presumably be very keen to retain the ability to sell their goods to us, and for those who fear that we might lose our trading relations with Europe, I would have thought that this would lend a great deal of protection to us in any trade discussions – they will still want us to buy their BMWs and Audis whilst gorging ourselves on their Camembert and Brie.
Even as we stand here today, our largest single export market is still the USA, and our fifth largest export market is in fact now China. We are keen to expand these markets for our goods and services, but Brussels continue to make it difficult for us to do so.
The idea has been put forward that it might take us two or three years to extricate ourselves from Europe, and presumably this has to happen before we could go on a selling spree around the World. I must say that I am not entirely sure precisely what this means. I would have thought that as soon as we stop paying into the club, we would then be out fairly quickly – the conversation would be an interesting one to listen to –
“You British must pay or else we will eject you from our Europe club” …….
“fair enough - was there anything else you wanted? – No? - Ok goodbye….”
When looking for a trend of what the public might do, even the Bookies and the pollsters do not have a very good track record of predicting the outcome of national votes. On this occasion I think they are perhaps overly reliant on the fact that we British hate change, and we are easily frightened into a “standstill and do nothing” approach. This is especially so when we are faced with a fear campaign, which on this occasion is being run very successfully by the “stay in” lobby.
However, perhaps something which the Bookies and the Pollsters are missing is the quiet non-voter of recent elections. The Pollsters and Bookies missed these people at the last general election, and predicted another hung parliament, when in actual fact our traditional non-voter turned out in force and produced a majority Government. The fact that the resultant Government happened to be a blue one is irrelevant for the purposes of this discussion, but the implication is that there are quite clearly a lot of people in the UK who have not voted in recent elections, presumably because they were disenchanted and despondent with the UK pink-blue or blue-pink revolving door at number 10. In my experience, this is not the case on the street at the moment. There are large numbers of what one might call ordinary people and artisans, who have not regularly voted in the past, but who are very determined to do so on this occasion, and I can assure you that they are not intent on voting to stay in Europe.
Why is this? Well, rightly or wrongly so, they see their work being snapped up by what they perceive to be foreign workers, who come over here and who are prepared to work for much lower wages than they are, simply to live here as cheaply as possible and then repatriate their surplus wages to their own Country. In their own Country their surplus wages will buy three or four times as many goods, services or even houses, as they do here. The disenfranchised UK workers and artisans, who have previously been unlikely to use their vote at any election, local or national, may well hold the result of this “in / out referendum” in their grasp. These are the people who the Bookies and the Pollsters may well have omitted to count into their figures, and there are quite a lot of them.
I do worry about the younger generations, who will not have been around before we joined The European Economic Community way back in 1975, and who may well fear that our Country no longer has the ability to stand on it’s own two feet. Such fears are completely without a basis in fact, after all, we are the fourth fifth or sixth largest economy in the World (depending on your view).
At a family lunch the other day, we were having one of our usual political discussions (aren’t we an exciting family?) about this very issue – Europe or not. As a wonderful example of lateral thinking, my youngest Daughter, who rejoices in her age of 29 full and complex years, made the following point :-
“… If we were not already members of the European Economic Community, and we were actually being asked to vote, in order to join it ….. you really would not, would you ... so why on earth would anybody want to vote to stay in it …..?”
Give that girl another glass of Bordeaux … what stunning common sense ….
She is obviously wiser than her years.
Trevor
(the above are the opinions of Trevor Harrington MIFS DipFA, Managing Director of Financial Tracking & Advice Ltd – 22/4/2016)
Trevor Harrington 08/06/2016 10:28
You are not voting to leave the EEA or WTO, meaning all of the UK's trade and benefit agreements will remain unchanged should we leave, until such a time that the UK decides to renegotiate them for any reason.
You are not voting to leave NATO, meaning our security agreements remain unchanged. Should we receive an act of hostility from a non-NATO member, then NATO countries are obliged to come to our assistance. This does not change.
You are not voting to leave the UN, G8 or G20, meaning Britain will have the same voice on the world stage as it does today.
You are not voting to leave Europe!! The UK will still, geographically, be part of Europe. Non political organisations aligned to Europe will still extend membership to the UK (I.e. sports governing bodies, and so on).
You are not voting to stop recognising Interpol, Europol and neither are you voting for SIS / MI6 to stop dealing with other intelligence services in the fight against terrorism and global, organised crime.
You are not voting against being able to travel to Europe, contrary to the belief of some fools recently on TV. The UK has always maintained stricter border and passport controls than many EU members. This will not change. You will still use a passport to go on holiday and you will still be allowed entry to countries in Europe.
Medical and science research will not simply stop. The UK pays into the EU to then get money back in the form of funding. The UK will now be in control of this money and can choose to fund whatever UK based medical, science, art or other research it chooses.
Farming will not lose money because of EU funding being cut. The UK negotiated a rebate of some monies that the UK pays to the EU, in order to subsidise UK farmers. Instead of asking for our money back, we can give it straight to farmers. No change there.
You are not voting against human rights. The EU Convention on, and European Court of Human Rights are not part of the EU. Until parliament passes a new bill of rights for the UK, these will still apply, as will precedents already passed down to UK courts from Brussels.
You are not voting to kick anyone out of the UK or block access to anyone. Neither are you voting to stop recruiting valuable European workers into things like the NHS. Like my other point about passports for travel, the UK is already outside of the Schengen zone and so migrant workers must enter the UK with a valid passport before and after June 23rd. That will not change. British borders maintain full control of who comes and goes. Should someone have the skills to apply to work in the NHS, then they will still be permitted travel and given an opportunity to apply for a job. Worst case, points based assessment, like the US, Canada and Australia use, will come into effect. The UK is likely to negotiate freedom of labour movement though, in exchange for freedom of goods movement.
You are not voting to move jobs nor production out of the UK! The EU actually helped fund the move of Ford Transit production from the UK to Turkey... Yes, the EU helped give UK jobs to people in Turkey by giving Ford a loan of £80m with very generous terms!
What you are voting for is UK sovereignty. You are voting to stay in or leave a political union of leaders and representatives that you British people did not elect. You are voting against a commission of unelected, elite men that nobody at all voted for and yet they make decisions on our behalf. You are simply voting to bring sovereignty back to Westminster, and that is all. If you worry about that because you don't like the Conservative government, look at the reality. Their majority in parliament is very slim. They have been blocked on big decisions already. You are therefore not giving sovereignty to David Cameron, but to the UK House of elected representatives. Do not be fooled by the fear campaigns that are simply run by the wealthy, who need EU money to thrive.
Sarah Paul 08/06/2016 11:09
1. Let us nail immigration first. There is so much PC bull on this topic. Looking at the news coverage - since when were Africans, Pakistanis, Afghans, Syrians etc. part of the EU? They are a problem because we have leaky borders. Bear in mind that it probably won't be a problem for long. Europe is swinging to the right. I do hope not too far, but nevertheless it is a fact. Poland, Hungary, Austria, France, Holland and even Italy. Whether the UK is in or out these countries are not going to stand still and before long this problem will be addressed. Personally, I am perfectly relaxed about free movement of Europeans within the EU and that is what was envisaged in the first place. The problem is easily solved. If you are not a European, whether or not you have managed to get into Europe, you should not be entitled to free passage – anywhere within the EU.
2. Trade. Well I don’t see why we should have a problem. Germany certainly doesn’t. Indeed, they sell more to Commonwealth counties that we do. Indeed when it comes down to it the Commonwealth doesn’t give much of a toss about us. (Unless it’s for handouts). We tried to sell India our Jet Fighters. They bought from France instead. The commonwealth is as outdated as Rule Britannia. Our problem is that we have lousy government who just sit by and see our industries trashed. (Steel, Chemicals, Cars and much of our engineering). We now rely heavily on retailing and what is Parliament doing? Trying their best to trash that. Phillip Green and Mike Ashley to the stake! If people don’t like the pay, don’t take the job. It is called capitalism and is governed by supply and demand. I just can’t believe that every international economic forum and every foreign government outside the EU can be so wrong – they all encourage us to remain.
3. Sovereignty. This to me seems to imply that we do things better.
Well in which case why do we have these ten random points?
a. Lowest state pension in OECD
b. Worst rates of cancer recovery in Europe
c. Worst rate of child literacy and numeracy in the developed world
d. Most obese in Europe
e. Highest transport costs in Europe
f. Worst productivity rate in G7
g. Children in the UK are more likely to die before they reach their fifth birthday than in any other western European country except Malta. Almost five in every 1,000 children born in the UK die before the age of five. 3,000 children in the UK died before their first birthday in 2012. (Institute of Health Metrics and Evaluation (IHME)
h. Highest overall debt in the World (Public & private including Private Finance Initiative, household debt and student debt – excluding mortgage,) Our Public Debt is now £1.5 trillion – this now approaches 90% of GDP. (ONS, DWP, HMRC, G20, OECD)
i. Largest prison population in the EU
j. British mothers sent home sooner after birth than any other developed country. British women are sent home after 36 hours compared with two days in the US and more than four days in France. (PLOS Medicine – Public Library of Science)
And here’s one statistic of which to be really proud:
BRITAIN is the most tattooed nation in the world, with an estimated 20 million designs decorating our bodies and the number of parlours more than doubling in just three years.
4. Democracy. You cannot be serious. Look what we have now. A Conservative party that has torn itself apart and a Labour Party – well………
Normally you get to have a say every five years. But of course only if you happen to like one of the two choices. Most like neither that’s why less than 50% vote. So who represents them? Then when the winning side has a decent majority they are in effect a dictatorship. Who wanted to go to Iraq? Who decided we should contribute 0.7% of GDP to Foreign Aid (the net cost of the EU is 0.5% - a bargain by comparison.
And following the title of the piece – our pensions. Well, there are Hedge funds supporting BREXIT financially in the hope that they win. The Hedgies will then have a field day shorting the pound. (Remember George Soros). The pound id already 6% down against the Euro since the same time last year and 5% down against the Dollar.
You have all seen how much has been withdrawn from UK funds (about £65 billion) over the last couple of months – do you think UK equity prices can hold out against that?
Sure what will happen in a year, five or ten is pure speculation (from both sides) but we know that Nissan, Toyota, BMW and JP Morgan (and possibly others) have all warned their staff about the consequences of BREXIT.
One side shouldn’t be rude about the other – they are both a bunch of Tossers. Are they that much better than the EU Plonkers?
Harry Katz 08/06/2016 19:25
Nice to hear from you and I hope you are well.
After reading your piece a couple of times ... I am not sure if you are saying that in your opinion we should stay in ... or get out ...
What say you ?
warmest
Trevor
Trevor Harrington 08/06/2016 23:29
With all due respect - that is an odd comment. I thought it was more than obvious that I am convinced we should stay in.
Immigration claims are based on a false premise. The idea that we will have a clear trade path after Brexit is bull of the first order. Look at how long it is taking Canada to do a deal.
Sovereignty - well we make quite a cock up of things on our own. Perhaps membership will help us to pull up our bootstraps.
Democracy - a chimera used to keep the masses quiet. At root what is democracy? Pandering to the lowest common denominator - that's why we have buffoons like Corbyn running what was a respectable UK political party.
Finally, as I said – how much worse are the people in Brussels from our own inept parliamentarians?
I would have thought my view was as plain as day.
Best to you.
Harry Katz 09/06/2016 13:18
It is just that you were so disparaging about all politicians, be they ours or the Europeans, that it was a bit difficult to see whether you were an "in" or an "out" person. Not that I blame you for that, after all, they really are all a bunch of charlatans and shysters.
Anyway, I think that if you are really so displeased with the entire political scene (me too), you would be better to vote out ... that way we only then have to deal with our lot rather than those who are foisted upon us by the Europeans, over whom we certainly have absolutely no control.
warmest
Trevor
Trevor Harrington 09/06/2016 18:10
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