Part 223

Hello and welcome back to Mortgage Advisor on FIRE.  This week I discuss pensions, and whether or not the state pension is a good benefit.  Also, some more updates to the website, and a look at free speech.  

Site Update

I’ve made a few changes to the site since last week, including a few new pages, and tweaks to existing pages.  You can check out the new sections on the links below:

About

Supporting Mortgage Advisor on FIRE

Reading Lists

I have some ideas for other, new, sections I want to add to the site, but I want to finish updating the existing content first.  I’m going through my reading lists to add links to the books mentioned.  These links will take you to the Amazon listing, and if you buy the book from that link it will earn me a small commission.  It’s another way to help support the cost of running and maintaining this site.

The other big task is to go through all my previous posts and tidy them up, and I’m going to try and create an index of common themes, so if you want to read my posts about property investing, for example, there will be a list of the blogs that focus on that.  This will be a big project and might not be complete for several weeks.

Weekly Update

I’ve been having some debates around free speech with people this week.  It’s one of those subjects that people tend to make lazy declarations to support their claims, “I can say what I want, it’s a free country!” Or, “I’ve got freedom of speech, so I can say what I want!”

Freedom of speech does not mean freedom from consequences.  It doesn’t even mean what it claims to mean when you get down into the details, and I’d even go as far as suggesting almost everyone who claims that their freedom of speech is total would stop and consider when presented with the following thought experiment:

You are out and about with a loved one, someone you care deeply about.  It could be your mother, father, partner, or child, it doesn’t matter.  Just someone who you love.  You are walking down the street and some random person starts making comments about your loved one.  It could be based on appearance, for example.  Think of the worst possible racial slurs.  Would you just shrug and consider it freedom of speech?

Most people would realise that the behaviour of this other person is unacceptable, and so the conclusion is that total freedom of speech is generally a bad idea.  When we talk about freedom of speech, we are talking about it with certain limitations.  

People should have, among their basic rights, a right to live their lives without fear of physical or mental abuse, bullying, discrimination, and persecution.  However, this only extends to the point where it does not infringe on other people’s basic rights.  Some people may point out the flaw regarding the Golden Rule and masochists, but that’s a debate for another time; to be brief, the Golden Rule argues we should treat others as we would want them to treat us.  For most people, it’s a decent rule of thumb, but for people who get off on being abused, it’s probably not a good idea.

The long and short of it is that you can physically say anything you want, but having freedom of speech does not prevent you from facing the consequences of what you say.  

On Friday evening Oana and I went to Peddler Market for the first time in a few months.  It’s a monthly event with live music, street food, and various independent arts and crafts pop-ups.  On our way over to the venue we hoped that Kebab Cartel would be there, and sure enough, they were.  These guys do great street food and we both opted for the Escobar bowl, which included chicken shawarma, fries, salad, jalapenos, a whole chilli, and a few other tasty bits and pieces.  It was amazing. Paddler was noticeably quieter this time though, with fewer food stalls than usual.  We had a look around for some other food to share and decided to have a few strips of fried chicken.  It was bang average, and expensive for what it was; four pieces of fried chicken, a few fries, and some gravy, all for £14.  It was not worth the money. 

Saturday saw me working in the day and then in the evening Oana and I popped down to my Dad’s apartment to watch a movie with him.  We ordered some food; an amazing curry from Ma-Ba, and watched Interstellar.  Originally we wanted to watch Shin Godzilla, but it was only available dubbed from the original Japanese, and none of us could do dubbed television.  Original audio and subtitles are fine, but dubbed stuff is a bit too uncanny valley for me.

Interstellar is a great movie.  I remember watching it on Imax when it first came out, and the visuals, the soundtrack, the story, and the acting are all excellent.  I don’t generally like using the word, as I feel it’s overused, but it’s an epic.  

Poppy

Our cat, Poppy, continues to be a source of happiness for us.  She’s so affectionate and sweet, and she is still very playful for an older cat.  We’ve been enjoying playing with long pieces of string, and she’ll chase me around the apartment trying to catch it.  We’ve bought her all sorts of toys in the past, but she still prefers batting around hair ties and chasing string.  She also really enjoys “shoulder time”, where she will look at you a certain way and you know she wants to be held.  It’s such a nice feeling having her resting on your shoulder purring away.  She is such a character and we’ve been so lucky to have her in our life.  We’ve been extremely lucky with each of the three rescue cats we’ve had, as they’ve all been really sweet, well-behaved, and loving.  We had Sweep for a couple of years, and we’ve nearly had Poppy for as long.  The little guy we had in between these two, Bobby, was only with us a short time as he passed away suddenly.  If you decide to give a cat a home, please consider adopting a rescue cat, especially the older ones, as they are often overlooked.  

What Am I Doing?

TV: Extrapolations (Apple TV).

Audiobook: The Invisible Universe by Matthew Bothwell.

We watched a show on Apple TV this week called Extrapolations.  It’s an anthology-style show dealing with the impact of climate change on society, as well as the good and bad sides of technology.  The show starts strongly and gets weaker as it goes along.  At the time of writing the Rotten Tomatoes score is 44%, but I think that’s a little harsh.  I’d probably say it’s approximately 20% too low, but I’d still recommend it.  It’s thought-provoking and makes us ask some difficult questions, particularly about how much damage we are prepared to do to our environment in return for comfort and luxury.  Too often we will take an easy option over a slight inconvenience, such as jumping in a car to go a short distance rather than walking or using public transport, or buying products that have an awful carbon footprint rather than going for something more expensive but more socially responsible.

People can make a difference and I think it has to come through political and technological development.  Two of the most impactful things people can do in their daily lives to help are to start using public transport rather than cars for every single journey, and to reduce how much meat they eat.  What does meat have to do with climate change, you may ask?  Well, the production of a kilo of beef produces sixty times as much greenhouse gas compared to a kilo of peas.  I’m not talking about going vegan or cutting out meat completely.  The point is that we don’t need to eat monster burgers with half a kilo of beef inside, nor do we need to eat meat with every meal; bacon for breakfast, burger for lunch, and chicken for dinner, for example.  

It might seem like an impossible task to tackle climate change, especially when the vast majority of carbon emissions are from a handful of mega-corporations, but doing something is better than doing nothing.  There is no perfect solution, and taking no action because of this is just stupid.  Something is better than nothing.

Financial Update

Assets

Premium Bonds: £13,150.00. 

Stocks and Shares ISA: £59,567.68. 

Fuck It Fund: £6,029.25.

Pensions: £70,529.88. 

Residential Property Value: £228,116.00. 

BTL Property Value: £147,203.00.

Total Assets: £524,595.81. 

Debts

Residential Mortgage: £173,195.63. 

BTL Mortgage: £104,912.43.

Total Debts: £278,108.06. 

Total Wealth: £246,487.75.

Investment Income in 2023: £661.27 (target £10,000).

My pension pot has increased in value above £70,000 for the first time, and although going from £69,999 to £70,000 isn’t that different from £69,998 to £69,999, it feels different.  Changing that first digit from a 6 to a 7 is a huge boost, as it no doubt will when it changes from 7 to 8 in the future.  

I was asked an interesting question the other day; would I give up my state pension if I could take all my NI contributions and invest them privately instead?  The state pension might not be enough to live a comfortable life on, but as a benefit for most people, it is good value for money on the face of it.  Much of that value derives from the fact that as long as you’ve paid enough qualifying years, it doesn’t strictly speaking matter exactly how much in cash terms you pay.  There are limits and thresholds, but if one person is paying NI on a salary of £35,000, and another is paying NI on a salary of £40,000, they would still get the same state pension after paying in enough qualifying years despite the fact they will have paid different amounts of NI. 

It’s not that simple though as there are several factors people might not consider.  A state pension is not generally transferable.  A private pension pot would make up part of an estate upon death, which could then be left to another person.  Also, with a private pension you can choose how to draw down the value as an income.  The state pension simply pays out like a salary.  This can be either a good thing or a bad thing depending on your attitude to risk, how much actual money you paid in NI, and ultimately how long you are around to use that money.

Trying to calculate whether it would be better to utilise NI contributions through private investment compared to the current state pension scheme is difficult because so much will depend on individual circumstances.  I’m going to use a fairly simple example to test this out though, and I’m not sure how it will come out as I type this, so here goes…

The current state pension is £203.85 per week; £10,600.20 per year.  Assuming this was a 4% drawdown from an investment pot you would need a total fund of £265,005.  

Assuming our hypothetical person is earning the UK’s average salary (£34,963) and has a standard tax code with no benefits or salary sacrifice, we would expect them to pay NI at the rate of £186.61 a month.  

A person needs 35 years of contributions to be eligible for the full state pension.  Our calculation is thus; £186.61 x 35 years, with a growth rate of 6% (a fairly standard, and conservative figure for growth in the stock market).  This results in a figure of…..

£265,865.19.  

Huh.  I did not see that coming.

So, on one hand, we have the state pension which will pay out indefinitely assuming you’ve paid in for long enough.  It’s not transferable though, and does not entirely depend on the cash value of your payments into NI.  On the other hand, we have a private pension which can be transferred if you die, but depends on your investment choices and the performance of the economy.  It’s a tricky one, and it makes me glad I’m paying into both.

That’s all for this week.  Thanks for reading, and have a great week ahead. 

Disclaimer

The views and opinions in this blog are my own, and do not represent the views or opinions of my employer, nor should they be considered advice.

If you want personalised financial advice, seek an appropriate professional.  If you are in financial difficulty, seek advice via the resources below:

StepChange

MoneyHelper

Biolink 

You can now find all my social media pages by checking out my Biolink:

bio.link/davidscothern.