Working for The Man post 45 is a risky business

The Man is an unreliable dance parter, the hazard is in relying on working for The Man into middle age. The LA times has a mini series on the shrinking middle class. Unlike the British middle class whinathons and SAHM child benefistas and grizzling journalists that I’ve taken the piss out of earlier these guys are closer to the manufacturing industry end of things, and they seem less culpable than our lot with school fee ambitions for their progeny. All these guys seem to want is a house, two cars and a dog –  one of them sums up the feeling

The promise that your kids would have a better life than you, with the house, the two cars, the dog and everything else, it’s gone.

In fairness to the promise it  didn’t go away, it moved eastwards with globalisation. They were probably chuffed with how cheap DVD players and iPhones are these days… But it’s tough to feel good about that when it’s your end of the boat that’s sinking. Two things are common to all their stories:

They relied on an employer in some form or another. The other is just like me, they failed to lift their eyes to the distant horizons, though they had fewer savings than I had.

I don’t know the stats for the US, but in the UK most of us work for an employer. Fewer than 10% of us were self-employed when I started work in the early 1980s, rising to 15% in 2014.

The Man seems to like ’em  25-35…

You could could be lucky, get all the way to retirement working for him in one form or another. But The Man prefers younger models usually – they’re cheaper, probably more pliable, and in some industries like tech there’s the Zuckerberg doctrine of which more later. For occupations that need some skills he doesn’t like ’em too young, because he can’t see track record, but I’d say late twenties to mid thirties seems to be his favoured the age bracket, old rich favouring the young is not just a dating problem.

There’s more change in technologies and ways of working now. Pretty much everything a young web designer starting now knows will be hopelessly obsolete in thirty years’ time, and this trend devalues and depreciates skills quicker than before. On the flipside things often improve faster now and we will probably be able to do more with less in those thirty years, whatever the equivalent of the Internet will be then. For consumers and users this isn’t all bad at all. There is a corollary of this.

Your peak earnings are probably coming earlier in your career than for previous generations

This is a terribly difficult one to tease out of the statistics. The ONS published this report that seemed to indicate this is true –


but they do make the fair point that for five years wages have been stagnating, which has hit everybody. When it did depends on how old you were in 2009. I do have great feeling for those who were 21 in 2005 (or particularly 2008/9) who are entirely unrepresented in these stats and who took a gut punch from the economic crisis. I had the bad luck to start looking for work in 1982 (this was Thatcher’s first economic crisis, a price worth paying, eh, Geoffrey Howe?)

Experience was more valuable in the slower paced workplaces and technologies of the past. Taking my career  – in my early days working as a studio engineer and then as a design engineer for The Firm, experience counted. When I was at Television Centre in the mid 1980s, much of the production equipment and cameras in use were still from the inception of colour TV in the UK in 1967, this kit was more than 15 years old.

Later as I moved into analogue electronics design experience helps massively. That much is clear from the endless tyro questions on internet maker sites – there aren’t that many people in this analogue design now but the same gotchas that got me in the 1980s get Arduinio and PIC microcontroller people before they get their signals into the safety of the digital world. A crusty diatribe from the late Bob Pease[ref]I also kinda like the way he quit Teledyne Philbrick 😉 The modern workplace doesn’t really tolerate that sort of idiosyncratic behaviour.[/ref] on why Life doesn’t imitate Virtual Reality sketches out the problem, and there’s still a fair amount of art as well as craft in analogue electronics. At least more signal processing can be done digitally or integrated so fewer people get had that way now.  Decades of experience are less valuable with software coding, too much changes over the years.

The response to this is to keep learning, though Zuckerberg has something to say about your ability to do that with family responsibilities. The Man doesn’t want to pay for this but he wants to track it, so he does this with vendor accreditations and metrics and Continuous Personal Development and tickboxes and internal skills databases[ref] The Firm tried four times to establish an internal skills database and failed to come up with anything useful to anybody each time[/ref] and automated CV scanning. Boy am I glad I am out of that sort of garbage. It’s not like I haven’t learned anything since retiring, but I can do it without filling in forms and shit. I’ve learned video editing, mixing in key, a fair amount of stuff on soil science and how to use a microscope, GIS and coordinate transformation and all sorts. There’s no paper trail or tickboxery – all I need is an inquisitive mind and it’s more interesting to do that across a range of areas, but it leads to a scattergun random CV, which would probably choke The Man’s automated systems that seem to search for more and more across less and less. This is fortunately not my problem anymore.

Gen X and the following cohort saw greater career progression in absolute terms than the baby boomers[ref]the middle trace is closest to my age, I was fortunate enough to get more career progression than that[/ref], and started from a higher datum, which you wouldn’t guess from some of the carping that goes on. It somewhat supports my observation that Britain is a rich country and that it’s richer in many, many ways than the Britain I grew up in. It’s also becoming more unequal and communications are better, so the average may feel the draught more because they can see how the 1% live, but that’s a different story.

If careers really are peaking earlier in one’s working life, then pension savings in the peak years will be tough, because it is a lot easier to relate to maximising pension savings 5-10 years away from being able to benefit from the upside, compared to  15-20 years away from being able to lay claim to your savings. It’s also a tough time because of all the other calls on your income in the 30-45 age range, particularly if you are in with a spendy crowd who doesn’t save for retirement but spends the money on housing, holidays and kids. They’re going to have a better lifestyle. The YOLO approach may catch up with them later, but you’re going to stick out as being skint and come across as poor if you direct more of your income into a pension. It isn’t all downside – if you do manage to save more earlier and take a breather as you slide down the other side of the greasy pole, compounding will increase your hoard a bit more than those who save most in the runup to retirement.

The Zuckerberg Doctrine: “Young people are just smarter”

Thus quoth Mark Zuckerberg. He’s got an interesting rationale for this.People might think our Mark is an arrogant tosser, but he’s a smart arrogant tosser. Let’s hear it from Mark

“I want to stress the importance of being young and technical,” he stated. If you want to found a successful company, you should only hire young people with technical expertise.

“Young people are just smarter,” he said with a straight face. “Why are most chess masters under 30?” he asked. “I don’t know,” he answered. “Young people just have simpler lives. We may not own a car. We may not have family.” In the absence of those distractions, he says, you can focus on big ideologies. He added, “I only own a mattress.” Later: “Simplicity in life allows you to focus on what’s important.”

I happen to agree with him on the simplicity thing, although you do probably want to keep such folk away from other people[ref]In my first real job a digital designer had designed an analogue sensor front-end around a virtual earth configuration. Much head scratching as to why this was ratty as they thought it was a high impedance. The young ermine, with the youthful 23-year old purity of purpose, laserlike focus and confidence of the Zuckerberg doctrine delivered himself of the statement “well it’s a low impedance, the clue is in the name virtual earth that’s why this rolls off low frequencies”. I was dead right, this was exactly the reason this was unreliable and occasionally burst into oscillation, but the delivery stank. for some reason I didn’t see any progression in that firm ;)[/ref]  like customers until they’ve knocked off some rough edges. There’s truth in what he says. Young people have simpler lives unencumbered by family, and focus benefits from fewer distractions 😉

IT and coding is a very specialised field of human endeavour, that kind of geekiness is not always well socialised, so the Zuckerberg Doctrine isn’t universal.  But it would be unwise to ignore this dynamic, after all most of us do get older. The Man’s age discrimination probably varies across industries – in finance, creative industries and Silicon Valley grey hair is probably a rarity. In doctors, and engineers less so.

man-with-savingsYou need to be more enterprising or have significant savings earlier in life if The Man is going to finish with you early

Something else common to all of the LA Times’ crew was that they didn’t have a lot of savings. Thrift used to be one of the virtues of the middle class in bygone times even in consumer America. As the 1960s ad sort of said, a man with savings can tell The Man to get on his bike.

Those that had savings didn’t have enough, or were unable to reduce their outgoings enough to make these savings last. The way things are going you want to be able to seriously control outgoings or have a dependable independent income by the time The Man finds you less attractive. For many people an independent income via self-employment is the answer. It’s not a bad match – get your experience and contacts on The Man’s dime and then launch out on your own as a consultant. Cynical bastard that I am, when I get handed a business card where the ink smudges that says consultant and I look up and see grey hair I wonder if that isn’t shorthand for un(der)employed. Sometimes you subliminally pick up the general air of desperation of the good people who are finished at fifty. It’s a hard act to pull off. I am in the same age group, but I’ve never yet self-identified as a consultant 😉  Engineer was good enough for Bob Pease, it’s good enough for me, though if what I am offering better fits scientist, surveyor, carpenter or general dogsbody that’s what I’ll run with . If you’re going to self-identify as a consultant, at least spring for a properly printed business card that doesn’t smudge when your stressed and sweaty hand passes it over to the client. There’s nothing inherently wrong with being a ‘consultant’, but performance art in oozing confidence and savoir-faire is part of the job!

For many people self-employment is the answer, but in the UK the self-employment experience seems to be getting worse

According to the ONS in 2012/13 the average median income from self-employment was £207 per week. It’s probably iffy to take that at face value since the whole point of self-employment is to minimise your income tax and favour dividend income, which is less adversely taxed. Ten years of inflation-adjusted earnings from self-employment isn’t going to a good place, and there’s more and more of it.

ONS - Median self-employed income, 2002/03 - 2012/13, UK
ONS – Median self-employed income, 2002/03 – 2012/13, UK

I have been self-employed – once at the bottom end as an agency kitchen porter between school and university and then a second time for a few years moonlighting doing multimedia and web design on the side in the Web 1.0 days of late 1990s, before World + Dog started doing it.

Self-employment bugged me, I have no real taste for it, I far preferred working for a company. You have shedloads of paperwork, government departments write to you considering you guilty until proven innocent with hostile language even if it’s just to fill in your VAT return. On top of that the income is often not dependable – how the hell do you you plan for the future or take on a mortgage with an income that varies 2:1 year on year?

Concern: I appreciate the predictability of a regular job.
Answer: Envision yourself as a medieval serf who will till the same soil for the rest of your life. Mind numbing, right?

Paul Graham, Y Combinator

Ermine: Work is overrated. It ain’t all that… Give me William Godwin’s Leisure of a cultivated understanding any day, Paul

There’s more to Life than Work, Paul. I suspect that maybe 10% of the self-employed are true entrepreneurs doing well because they are The Right Stuff.  We need these guys, but the statistics point to most people being employees, presumably by preference.

Where to go from here?

The baby boomers could get away with slowly increasing their spending through their working lives until they got to retirement. For the next generation the peak is in the child-rearing years, which matches parents’ spending requirements better, but it has long term risks, since parental spending seems to be able to rise to match any available resources. There’s always a better public school than the one you can ‘afford’ if you had more money…

The expectation that you gradually increase your lifestyle in rough proportion to your income needs to change. The middle class need to relearn those principles of thrift, push back on the consumerism and design their lives more. Designing The Man out of your later working life would be a good move. Pitching for financial independence is a good way of doing that – you don’t have to retire if you don’t want to, but the tribulations of the LA Times people would be avoided if you did discover yourself finished at fifty.

The UK is becoming much more entrepreneurial. That’s probably all A Good Thing, though such a working life sounds like purgatory to me, but in the end if this is what we are designing the economy to select for adaptation is usually better than resistance. Presumably introversion will eventually be stamped out of the population that way, and introverts can take solace that they may be better suited to bailing out earlier.

One thing will have to be surrendered, however.

The promise that your kids would have a better life than you,

This is a subset of a wider problem, but it is an emotive area so it is felt deeply. The tide is running out fast. There is just too much ever-increasing wealth of the 1% for the middle class to get a look in, they’ll be outbought on housing and on school fees. The 1% will eat them for breakfast – they’re just that much better resourced, and when it comes to aggressively promoting the interests of their children they have deeper pockets

Too much ambition for too many children is what scuppered Shona Sibary. You’re not going to send four children to public school on a journalist’s wage or two. It appears by now that you’re pushing the boat out to send two to public school on a ‘middle class’ wage of two people earning each twice the average UK wage. Let’s take this putative household of two people each earning £50,000 gross so a household net income of £72,000 and with two kids.For starters, it isn’t middle class – these dudes are well-off compared to other households, look for the itty red bit around £1350 p.w. They’re better off than about 85% of other British households.

IFS position of this £72k net household relative to others in the UK
IFS position of this £72k net household relative to others in the UK

It still can’t stretch to four lots of public school fees (> £40k)  and the house and the three holidays a year.  Maybe the Telegraph is right and getting a pension for your newborn is a more realistic way to deploy those dwindling middle class resources – it’s an out of the box answer to there being fewer and fewer jobs for them.

31 thoughts on “Working for The Man post 45 is a risky business”

  1. “Working for The Man post 45 is a risky business.” Phew, makes me glad I’ve gone down the financial independence in less than 10 years route. By that time I’ll be close to the grand old age of 44 at current run rate. The Man can then do with me as he wishes which hopefully will include a few extra £’s as he throws me out the door (or maybe just disables all my accounts and door access so I can’t get in) so he can take on a younger lower cost model.


  2. I hadn’t realised that Bob Pease had died.

    I haven’t worked in EE since 2002 so have been out of the business, but I still have a copy of “Troubleshooting Analog Circuits” on my bookshelf.

    He was a true one-off. RIP.


  3. 21yr old in 2008 checking in. What a hell of a time to graduate and one of the main reasons I decided to go traveling after university instead of going straight into work as I’d always intended.

    My parents had 6 kids between them and still managed to retire well before the government would have liked them to. I think we’d struggle to emulate that with even 2 kids now.


  4. I’m currently reading Danny Dorling “Inequality and the 1%” if you want more figures to bandy about. He certainly seems to agree with you on destruction of middle class.

    On the age thing, the NHS has the opposite problem. It’s staff is overwhelmingly old. So much so that although I am approaching 50, I am still the youngest person in my dept!!
    But cost savings means almost no external recruitment so the staff just get recycled around. And those staff are hanging on for grim death to those jobs, cos they know it’s cold out there.


  5. What I’m wondering is how the trend for employers preferring younger workers ties in with the governments progressive heightening of the state pension age and rapid reduction in working age benefits … plus a huge spending deficit for the fastest growing economy in Europe


  6. As a late forties IT project manager with two redundancies under my belt – one due to new manager kicking out people so they could bring in their own and the second due to the company going pop. I am sickend by the way the job culture has changed. Luckily I have been a saver all my life and although I haven’t been very canny with it. I now have the money in the bank to say FU to The Man. I will have to survive on my money as the likely hood of another job is slim (over forty – over the hill) and going contracting is my only choice if I want to stay in my current work sector and one that people say I should do. If I can survive between now and 67 then I can draw my final salary pension from an old employer and battle on. So glad I have no kids or big debts!!!! The next generation is going to have it tough with flexible work forces and no job security. Everything the 1% don’t need to worry about!
    Life needs to be more than just going to work!


  7. The consequences of these trends have not been thought through by the government partly because governments rarely look beyond the next election. MSM are largely concerned with froth and celebrity culture so the current headlines are about trivia such as TV debates.
    On current trends, a sizeable proportion (30%-60%?) of the population between the age of 45 and State Pension age are either going to be formally unemployed or sham self-employed. Either way, they’re not going to be paying income tax and NI and not very much in VAT and excise duties either. Most of that age group will not be receiving any child-related benefits. This will become more broadly the case once benefits of various kinds are axed for children beyond the 3rd; I regard that change as being an odds-on bet within the next few years.

    A fair proportion of the under-45 populace are in low-paid and part-time employment and therefore pay little tax or NI and are in receipt of tax credits and other top-ups which are effectively often a subsidy to low-paying employers.

    So my question is ‘Where is the tax revenue to come from to pay for triple-locked state pensions, start paying down the deficit, ring-fenced expenditure on the NHS and so forth?’

    Like Ermine, I just cannot see where large numbers of well-paid jobs are going to come from for the average or slightly-above average Joe or Jill.


  8. @ermine My inspiration to save for financial independence was no high tech guru. It was my father-in-law – a reasonable guy who made his living as a concrete finisher. He wanted to see his family educated and his wife secure and he accomplished that. His philosophy was always to save, since you never knew when the employer wouldn’t get a contract or your back would give out.


  9. @RIT didn’t quite mean a sharp cutoff like Logan’s run 😉 I was over 50 when I did scarper, though I realised there were problems in my late 40s. Congratulations on a well-planned exit path!

    @SpreadsheetMan Texas instruments have a website with a link to some of stuff. Seems rough that he went in a car crash after the funeral of Jim Williams, but I suppose it was quick.

    Oddly enough I talked a young Indian student through why his electret mic/common emitter amp didn’t play. I recall struggling with this sort of thing at 11 or 12, no scope, loady 20k/V meters and no real clue. Four decades on, I can pay it forward now 😉 Basic analogue EE knowledge seems to be fading fast in college.

    @EarlyRetirementGuy – that was a seriously courageous thing to do – congratulations!

    @Sarah – So far I’m made a thing of avoiding doctors, but when I do see them a bit of grey hair gives confidence 😉 But I can see that elsewhere in the organisation that leads to over-conservatism. Really young workplaces and really old ones get weird. Balance in all things and all that!

    @Neverland lots of hacked off middle-aged folk I guess! And the fall in living standards. The finished at Fifty programme compared the UK and Chinese roles for a company making lighting bits. The UK fella had a shedload of nice stuff in his house and a lotta house, on a mortgage, natch. He wasn’t earning that much more than I did, I confess to a twinge of “Where’s My Stuff” after watching that 😉 Time will tell if YOLO was the way to go.

    @Sparklebee Contracting does seem the way to go as you get older in IT, but it needs a curious mix of gravitas and very specific experience. I was never that great a coder if truth be known. Sometimes I wonder if I wouldn’t care to be an analogue electronics engineer for some sensor maker or medical equipment designer. But it’s all in Cambridge and I’m not that fussed for the money. I’ve paid my dues to The Man.

    @Grumpy Old Paul – personally I’m in favour of icing CB for > 2 😉 There are some od implcations of so many non-taxpayers. Although I can understand no taxation without representation, I do wonder if the reverse has some value too!

    @Ray ah, those values of the middle class of old, eh? FWIW I don’t think Bob Pease had anything to say on FI – I got mine from my parents, who both in word and deed lived Micawber’s doctrine and passed it on – “Don’t spend more than you earn, son, unless the target will earn you more than its cost.”

    The middle class needs to rediscover that principle PDQ, and a bit of long term financial planning wouldn’t go amiss rather than four holidays a year IMO. Looks like they worked for your father in law and ERG’s parents (and mine)!


  10. Must admit, the thing I find most unusual is the absolute tiny minority of people who just don’t see this. I was lucky enough to wake up about 8 years ago, just at the peak of my earnings and have made it to FI without much pain by the age of 43. Out of about 1000 employee’s total at the company where I worked, there were only three of us who were paying more than the 3% standard salary sacrifice into the company pension. I think part of the problem is that everyone works on such small timeframes these days – the thought of committing to a plan of action that will take 8 to 15 years to complete is just so alien to the vast majority of people that most simply choose to ignore it. Most people think I quit my job to retire because I “Got Lucky”. None of them realise the planning and effort that had gone in to be able to do it.


  11. Born in 84 – twenty one years old in 2005. I ducked out of the recession (like a lot of other people!) to do a PhD, which didn’t hurt but probably didn’t really help. Luckily I learned mathematics and programming, which takes you a long way. We’ll see what the future holds, but I’m not optimistic.

    What a mess we’ve ended up in.


  12. Well, The Firm are doing exactly this, right now. According to a union person I recently spoke to they are aware of a lot of “conversations” going on with the more senior and higher paid people on the payroll.

    I am leaving myself, as part of a division wide leaver offer, having saved enough, I hope, to be completely FI from now on, at 52. I could struggle on trying to avoid the axe, but as you say Ermine, the pressures from HR and management are constant and getting worse. the troiuble is the new guys don’t in fact know it all, and while they are in the office a lot, I am not convinced in the slightest they are as effective of the older crew they are replacing.

    I must say I am amazed how much it works out that I am going to be foresaking in lost pay, reduced pension and further reduced pension due to actuarial reductions – nearly £1m if I live 30 more years. My pension alone will be £16k every year lower than it could have been if I’d stayed for the next 8 years, as that double whammy kicks in.

    So, now I’ll have to live off my savings and investments, live the Ermine, for 3 more years until my reduced pension starts.

    Thanks heavens for AVCs and savings!


  13. @Mr Moolah – I’d agree, but my amazement is tempered by the fact I missed this. I picked up the credit crunch earlier than my own sands running out of time!

    @Brendan – hopefully the maths and programming will serve you well! Just don’t call yourself a programmer it seems…

    @TNT congratulations – the best time of your life starts now!

    I am amazed how much it works out that I am going to be foresaking in lost pay

    Yeah, doesn’t pay to dwell on that calculation. On the other hand, you get 10% of your Life back from The Man, and an even higher percentage of your adult life.

    Specific to The Firm – have you investigated whether deferring your pension but taking the AVC and moving all/part into a SIPP and taking the PCLS and the personal allowance as cash annually isn’t a better deal, given Osborne’s changes? You can then toss some of the redundancy into the AVCs but get that out soonish. ESIP is also a good way of winning £1500/£3000 tax-free as it becomes unembargoed on leaving with VR.


  14. Hi Ermine,

    No, I have not looked into this, so thanks for tip which I will now do. I am thinking of putting the whole of my redundancy payments into the AVCs, and with The sums I already have in this fund I could well have around £100k in the AVC pot in 2.5 years time when I hit 55. I’ll definitely need to understand what I can do with this pot, and if it means I can defer payment of the pension for three or four years then I will definitely do that as it will chip away a big chunk of the actuarial reduction,

    I was not aware you can take the AVC but defer the pension – which is what I assume you are saying?

    I do have a couple of Directshares that are still within the normal 5 year term, but as you say, on redundancy I get to take these out without penalty. A nice 40% free ride on both, and a nearly doubling of the share price in the meantime. Can’t be bad, it’s just a shame the amount you can put in is so low. If it was unlimited I’d have put £20k in per year!


  15. > I was not aware you can take the AVC but defer the pension – which is what I assume you are saying?

    Strictly speaking you can’t take the AVC at any time other than the main pension. But it appears you can transfer it separately from the main pension. You lose a large part of the point of it (the 25% PCLS) but if you can transfer _part_ of it, then there are opportunities to be had. Or if your distance ‘twixt 55 and 60 (NRA for most of your pension) lets you run down 75% of your AVC capital within the personal allowance, that it also good.

    I have too much AVC for this to work, but if I could take _part_ of the AVC this could work very well. You need to ask these questions, they could alter your prospects bigtime. As a general rule, it makes sense to run down nearly all other options before taking a DB pension earlier than NRA. The defined nature works for you at NRA but also against you as an early retiree…


  16. Ermine, I’m definitely not quite getting this point. I’ll check whether I might be able to transfer the AVC into my own SIPP, then draw that down. That would be a transfer, not a double tax relief cheat, of course?

    I wonder who in the firm might even know about this. I don’t recall it being in any of the pensions guidance, which of course may not have been updated recently and so is behind the curve on the recent pension changes.

    I assume I don’t need to know right now, as i have 2.5 years to go before i can do anything with the pension anyway.


  17. @TNT assuming we are talking about the same Firm 😉 if you go onto the external facing (xyz) website and go to FAQs – AVC FAQs

    I have built up an AVC fund in the PS. Can I transfer the value of that fund to a Self Invested Personal Pension (SIPP) scheme?

    Yes, you can transfer. For more information please go to AVCs

    Until Osborne’s changes there was no point, because transfer and you can only take 25% of the AVC, as opposed to 25% of (AVC + capital value of main pension) tax free, and had to annuitise the rest.

    But with his changes you can take out 25% of the AVC, and then run out 10k p.a. tax free if you aren’t earning. Depending on how long you have to NRA and what other resources you have, you may still be able to get the entirety of the AVC tax free. With five years (age 55 to 60) the max AVC you could run out tax free that way would be roughly £67,000 – you would take nearly £17k PCLS and five lots of £10k over five years. You main pension is actuarially reduced roughly 5% a year early, so that five years using the AVC could save you a 25% hit on your main pension.


  18. Just had my 3rd helping of redundancy at 47. After a brief soujourn at home was offered a new job at about half my total comp of my old job. I second the concept but wonder if 45 might just be too high. For all the younger readers of your blog I would reiterate the themes – earn what you can, save all you can, be clever about tax and be ready and able to deal with some bumps on the road.


  19. Yes, it is indeed the same Firm!

    I have asked the question of the HR team about how a transfer could work, but that aside, as I have two or more years to decide how to handle it, I am in the meantime going to put everything above the £30k tax free into the AVC pot, then declare myself as a non tax payer to my savings account providers and start getting my interest paid gross, as I will now have no income for the next two and half years. Won’t make me a fortune, but it will be a few more k per year not stolen off me by the tax man.


  20. @Paul – sorry to hear that! It’s definitely a good idea to slowly derisk yourself relative to The Man. The age threshold does seem to be falling, certainly in some industries 😦

    @TNT HR can’t tell you about an AVC -> SIPP transfer because it’s not their job. The transfer of the would be done by the pensions administration lot, who are separate from The Firm, as is right and proper.

    Assuming you are set for a March 31 exit and have some holiday set – before I went I printed out the pension projections for each year to NRA. This slowly drifts out of track with what you get because you have 7 years to NRA (for most of your contributions) and the projection assumes you’ll have been working until leaving, accruing more. But they’re handy to give you a feeling of what gives.

    The other thing you might like to do is print out the result of the tool that gives you the amount of annual allowance you have left. It was called Tax Planner in my day. You can carry forward three years of annual allowance, this tells you what the notional value of your contributions was for the three years. That’s a terribly difficult calculation to do yourself in a DB pension. Of the amount of annual allowance you have left, you knock off the amount you will toss into your AVCs. If you have any AA left, you can chuck that into a SIPP as long as it is before the end of this tax year (because all your relevant earnings will have been in 2014/15). That would get bumped up by 20%, and available in 2.5 years – you could shift your AVC cash to the same SIPP, take the 25% PCLS and then run down over 5 years as above.

    You also may as well contribute £2880 to that SIPP in March 2016, March 2017 and May 2017. You get a free tax bung of £720 each year, risk-free, that you can get at in late 2017/2018. I personally used Hargeaves Lansdown for that as their charges are okay if you just keep it in cash, which is the obvious way to go at a time of low inflation and interest rates if your investment horizon is only 2.5 years.

    If you have no income for the next two years have you considered Spread Your Payment as well – you have £20k of personal allowance for those years you could use with SYP.

    If you haven’t bought ESIP this year then you can lose another £1500 of taxable income that way – it becomes unembargoed if you take VR so you can sell in a couple of months to spring the cash and get the tax back. Obviously you take stock market risk while holding.

    As ever, of course, DYOR! You have a narrow window now to optimise this. It’s easier if you aren’t harried out of the company so close to the end of the tax year. Although I applied and got VR in March 2012 local management managed to get the leaving date deferred to June 2012 for me because they didn’t want to lose my skills until London 2012 was well under way. June is a more relaxed time to leave because you don’t have the end of tax year portcullis slamming down. However, you still have a couple of weeks to get your ducks in a row!


  21. Hi Ermine,

    You have described many of the things I have done or planned – I have downloaded pretty much every page, projection, faq, fact sheet I could think up, including the annual allowance numbers – which have some odd numbers, as you say this is complicated. The only area I am unsure of is this idea of yours of transferring the AVCs

    I have asked the question re transfer via the Ask a question link in the pension planner. I’m not sure where else to ask, can you point me to it?

    I actually have 4 ESIPs, as I buy one a year, and will be taking all of those out, for some pretty good gains which I’ll have to sell over the coming years, and also can pay in the last 4 months of a three year sharesave which has nearly doubled, so getting some good returns from these.

    The thing I am not sure of is how the maths works out for the options of taking the whole AVC as a tax free lump sum, and maybe waiting a year or two to do that to reduce the actuarial hit of taking the pension early, versus your transfer idea which would give me a lower tax free lump sum up front but then I could take the rest over time as you say, which I could potentially make even this tax free depending on other income and/or interest and dividends.

    I would have enough cash presumably earning next to nothing to enable me to live longer on savings and still delay taking the pension for maybe two more years, then replace that money with the AVC pot taken tax free, so this is a complex calculation, which I need to sit down and put into excel.

    Whatever happens I am assuming it is best to put all the leaver payment above £30k into the AVC, though the first £10k of that could be tax free too if I earn nothing else in the year, though I’ll have considerable savings income to contend with.

    Where are you getting the £20k number from on your point about Spread Your Payments – I assume you mean £10k per year?

    I do indeed plan to add the £2880 per year into my existing SIPP, washing regular cash through, though I had not thought to keep it as actual cash, which I guess I’ll consider.

    I need to get some time to hit the excel!


  22. @TNT (and bearing in mind this is not financial advice, but things to consider, as always DYOR 🙂 )

    Whatever happens I am assuming it is best to put all the leaver payment above £30k into the AVC, though the first £10k of that could be tax free too if I earn nothing else in the year, though I’ll have considerable savings income to contend with.

    Yes. You have to be bananas or desperate to be prepared to pay tax on that. In my options I could do both SYP and put the rest into AVCs. Depending on when you leave, SYP runs across two or three tax years ISTR. If two you have about 20k, with the first lump coming end April 2015. Although I didn’t do SYP for specific reasons, the obvious way to go was to take 30k tax-free, of the remainder do 20 or 30k as SYP over two or three years and any residual as AVCs.

    The same logic seems to hold for you now, assuming you can select the choice, you weren’t able to change once selected. You have an extra option, which is to toss any spare 2014/5 annual allowance into a SIPP this tax year (ie from savings and by April 5th 2015), which I didn’t have because I didn’t know I’d have the option to run it down over five years.

    The actuarial reduction is roughly 5% p.a.. Consider any year you don’t take your pension (ie the cost of the payment you forgo) as an investment in an inflation-linked annuity of 5% of your pension at NRA, or 4% when you are paying 20% tax on it.

    In general you’d struggle to get that good a annuity deal on the open market – your pension terms are a bit better than Joint life 50%, 3% escalation, hence the general principle of delaying a DB pension until NRA, provided you can, and are in good health 🙂

    The only area I am unsure of is this idea of yours of transferring the AVCs

    You ask the question about AVCs of Accenture, you can find the phone number on the external facing pensions website.

    You probably want to leave it a few months because they will get a load of phone calls in April, including from prize berks who will want to turn their pension into a DC lump sum…facepalm.

    The FAQ is pretty clear than you can do it, the unknown is whether you have to shift all of the AVC or if you can do part. Whether that matters to you depends on if your AVC fund plus any SIPP contribs you will make in the next two years is > £67k.

    I had not thought to keep it as actual cash, which I guess I’ll consider.

    Since you can draw it in 2.5 years cash seems a good option, given the usual only be in equities for > 5 years rule of thumb. For a young person investing over 30 years that would be barmy. But with all due respect you are no spring chicken, so you may as well consider the option since you can get at this in two years. Obviously if you can find an investment in a SIPP you expect to soar over the next two and a half years, knock yourself out 😉 But given it’s probably part of the income that would help you defer your pension to NRA, you have to set the risk of losing that option on the downside.

    Your interest on your unwrapped cash has probably just become tax-free as of yesterday!


  23. Thanks again, good discussion, confirming my own thoughts and challenging me!

    Re ESIPs, I do have a few of these, including one I took this year, as I generally do one as a lump sum every year. So, great returns from those, and at least 3 of them are technically still in term, but as you say get released tax free on redundancy. Nice.

    I have considered your point about not taking the pension early, or less early, in the past, and have today again run the maths to make sure I am not remembering this wrong. The interesting thing is the way I see it, you are best off in the longer term, and even short term, if you take the pension as soon as you can, as the 5% extra you get is more than offset by the 95% you did not take in the first, and subsequent years.

    I seem to recall working out that it takes about 17 years to recoup the lost 95%, but in fact if you run the maths in excel, you never actually catch up. Ever.

    As an example of the numbers, using my calcs, if I take the reducti0n into account for each year my pension goes from £22k at 55, 5 years early (I have factored in that it is 10 years early for the newer scheme) to £28k (in round numbers) if I leave it until 60, i.e. no reduction on the main and 25% reduction on the new scheme.

    But if you add those numbers up, year on year, ignoring inflation which works the same on both deferred and non-deffered (CPI) you find that no matter how far you go (I have gone out to age 101) you never catch up those missing year/s.

    After 10 years the numbers are:
    Pension taken 5 years early = £221k
    Pension taken 3 years early = £180k
    Pension taken at 60 = £139k

    After 25 years (I had thought it would catch up by then):
    Pension taken 5 years early = £553k
    Pension taken 3 years early = £512k
    Pension taken at 60 = £471k

    and as I say, at age 101 it has never caught up.

    Taking 3% inflation into account gives the same result, as those early year/s missed compound up the number gap actually gets bigger:
    at 10 years I calculate total pension is £260k, ££207k and £158k respectively.

    So it seems obvious to me I should take the pension at 55, accepting it is lower for life, but getting a greater sum out of the pension in total. I do appreciate that having the higher income feels better within each year, but for me the forgone amount in the early years beats this.

    Am i missing a trick here?

    Re the tax free interest – yes, nice to have, but to be honest, even at today’s terrible rates it’s only going to affect the first £75k or so, assuming you get a good rate. I’ll have way more than that, unless i pile all into equities, which I am edging towards but will probably end up with a 70/30 split, with the 70 being in high income shares, etfs, trackers and bonds/prefs. that will still mean I’ll have to pay tax on some of it (though thinking about it as I type I do also have my wife’s allowance, so in fact it will cover a big chunk. Yay!


  24. appreciate that having the higher income feels better within each year, but for me the forgone amount in the early years beats this.

    Am i missing a trick here?

    I believe you are. I spent far too much time trying to convince myself it was better to draw early, because that is the answer I wanted 😉 In the end I threw in the towel, and concluded the draw at NRA naysayers were right, even after I took taxation into account – you lose a higher percentage to tax as the headline amount rises and tax with the SP at 67. While it doesn’t feel right to pay more tax it doesn’t shift the needle that much on the dial, though it pushes the breakeven point about three years back for me. It’s still better to draw at NRA and pay tax than not for me, and looks like for you IMO. I don’t know if your having more money in the NRA 65 component makes this difference – >80% of mine is in the NRA 60 part. I ignore the NRA65 part and take my last 2009 statement and adjust for final salary – the last three years is worth less than a year for me I believe, because of the lower accrual rate and 25% actuarial reduction.

    Both at the Wealth at Work seminar and indeed when I plot the cumulative income using excel, the cross-point seems to be about 78 using your values and factoring tax but assuming NRA 60.

    You worked a bit harder and/or climbed a little further up the greasy pole than I did, but there isn’t a huge amount in it. W@W seemed to figure a cross-point between 70 and 80. They did make the reasonable case that you can use the money better when you are younger. There is something to that, but using my AVCs to make up the hole works for me.

    Against that I would set that I don’t have a huge self-belief that I am an outstanding investor, yes, I’ve done better than VGLS100 to date but I would be foolhardy to say that is definitely skill rather than luck.

    Another factor is that my wife is younger than I am, she could reasonably be expected to take the half pension another 10 years; this is also scaled down by drawing early.

    Both of my parents live(d) beyond 76, they were both in poorer health at my current age than I am now.

    Of course, your circumstances are different – you may be a better investor, you may be less fearful, you may be in differing health or simply a more literal interpreter of three-score-years and ten. Even a inflation-linked FS pension falls behind the average wage, because it’s inflation not earnings linked – this was notable in my Dad’s FS pension after 20 odd years. A competently run equity portfolio would be expected to broadly track earnings growth, because it will hopefully capture gains in productivity.

    You are derisking your retirement income in one specific way if you draw early and make it up with investment income, because the investment income is a larger portion of your income but comes from a different source. Etc etc – there’s no right answer.

    But I believe you are doing something wrong if you don’t find a pension cumulative income cross-point in a reasonable part of your lifetime. I would like to live to 80. I’m not sure I’m that fussed for 101, though my maternal grandmother got close.

    So you can make a strong case to draw early and effectively shift some of your DB to a DC pension through the agency of the actuarial reduction because it leaves you more investment capital. The Firm seems fair with that – the cross-point of 78 is close enough to 80, which is when they expect us to die, on average – the actuarial reduction and the NRA of 60 (for most accrual) point to that, it’s revenue neutral for them then. Die before then and you gain drawing early, die later and you lose.

    There’s nothing wrong in drawing early despite this if you have good reasons, but unless there’s something really weird going on with that NRA60 and NRA65 component I would question your assumptions or calculations. Even on a simplistic basis, ask yourself why the hell would The Firm be more generous to people who draw early? The pension scheme is underfunded as it is, unlike in the 1990s it’s not in a fit state to give out freebies if it doesn’t have to. It is contractually forced to give you a defined amount at NRA. I was surprised when I did this exercise to find out the breakeven isn’t even earlier. If I were in charge I would actively penalise early takers, just to save money and because I could (by pushing up the actuarial reduction) without breaching contractual terms.

    Although again this is not financial advice, why a 30% bond allocation? What is your DB pension other than something that is the spitting image of a bond? As long as your DB pension annual income *20 is more than 30% of your investment capital you have as much bond-like assets as you need. In a bear market that slaughters your shares to 50% market cap, you do of course need to factor in that your 30% ‘bond’ allocation is solid, so your investment capital has fallen to (70%/2) + 30% = 65% of the original, rather than 50%.

    I will always be overweight bonds – even though I don’t have any 😉


  25. Back to the spreadhseet then! Still, if the crossover really is 78 then I’m back in the take it early camp, I think.

    Re the bonds part, yes, I agree the DB pension is effectively bond. When I said bonds I really mean cash held in long term accounts and corporate bonds paying double the ftse average, rather than gilts and the like.

    Other than in recent years, and periods of mega inflation such as the 70s I have seen several items of research that shows 3-5 year fixed savings are usually well ahead of inflation. Recency bias will make us all think that is not the case, but it is over most years. Even now, in fact, as inflation has fallen recently, a 5 year account is generating considerably more than inflation, indeed even a 1 year at this precise moment.


  26. Damn! Spreadhseet error – as you say, maybe seeing what I want to see, as I definitely did this before and got a 17 year crossover. Corrected now and with 3% inflation I see cross over at between 19 and 23 years, for a relatively young age of 73 to 77.

    I’m still erring on the side of taking early (bird in the hand, never know what rule change might come out which might not be applied to pensions already in payment), but I do agree that on balance NRA or somewhere between 5 years and zero years early is likely to be the safer option.

    One of the key factors is the unknown – can I rely on the shares portfolio (which could be nearly £1m) to outpace inflation and potentially have some upside, using the pension as the safe base? I am not really into stock-picking any more, so it’s trackers and ITs, fixed savings and corporate bonds, plus my property.

    Oh well, two and half years to decide – plenty more Ermine and Monevator articles in the meantime to help me think this through!

    Thanks again.



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