The Unique Property
An Almost Universal Wage
Let's follow on from last week's blog where we
saw that over the next decade rather a lot of people are going
to be made redundant. With large swathes of the population out
of work, how is everyone going to survive?
Letís start by looking at what happens already. One section of
the population is already out of work permanently. I mean,
pensioners. How do they get paid?
The odd thing is, nobody seemed to have considered a pension
fund at all. Certainly not in the UK. Instead, all we got was an
idea, and a reason for collecting another tax. Pensions would be
paid out of general taxation. In other words, as far as I can
see, there was never a proper pension scheme set up in the UK.
Whatís the end reason of the system?
Answer: to provide me with an income when I reach (letís say)
the age of seventy. So letís start right there.
We start by having to make an assumption, and that is the most
difficult part of the computation. How much money is going to be
needed to provide a worthwhile payout in seventy years time?
Seventy years ago a pension of about £5 a week would have
probably been adequate. Today £5 will buy you two beers.
Luckily, there is a way of coping with this problem. Itís the
value of money that keeps falling, but the value of things
vis-a-vis each other tends to remain relatively stable.
To put that in more solid terms, if two beers now cost £5, and I
earn £20,000 a year then Iím willing to bet (and I havenít
checked) that seventy years ago if I would have been earning
£250 a year those two beers would have cost me about six pence.
Well, Iím rather chuffed. I thought it my duty after all to try
and check, and came across an interesting online thread. Hereís
It seems a beer would indeed cost about six pence. But of
course, that was six old pence, which in todayís money would be
just under three new pence. In other words, two beers would, as
near as dammit, cost the equivalent of six new pence. Things in
relation to each other tend not to move too far out of that
relationship. In other words, using currently available
statistics it would be relatively easy to create two variables
which would assist in creating a desired retirement figure to
work towards. The two variables would only need to retain a
stable relationship between each other. If they did not, then
adjustments could be made to realign the figures for future
Iím going to assume I want a pension not much less than my
current income. Looking at current pension schemes one
relationship seems to stand out: retire with two thirds your
I am told the average wage in the UK at the time of writing is
£24,000 a year. It doesnít matter if that figure is wrong, I am
concerned here with methodology, not exactitude. Do remember
that £24,000 salary is before tax. After the various deductions
the take home amount is probably closer to £19,000. Two thirds
of that is about £13,000.
I am going to assume that a pension fund should be started at
birth, and that it should be ring-fenced in a fund that cannot
be touched until the person reaches the age of thirty-one. At
that age the fund can be kept untouched and allowed to continue
growing, or the annual dividend could be taken and used as
We have to link two figures together; the average inflation rate
over a period, and the average rate of return on the invested
funds. Those figures have to be kept in a relatively tight
relationship. That means we can make a reasonable assumption as
to the figure needed to provide the pension amount mentioned
So what would provide an income, or dividend, of £13,000 a year
Assuming a 5% return on capital invested, the figure would need
to be £260,000.
Assuming the relationship between inflation and ROI can be kept
reasonably linked this should be possible. In any event, I note
that a 5% return is not particularly difficult to achieve. I
donít have a single investment that produces less than 8%, so it
should not be beyond the wits of a professional investment
committee to do better than me.
When a child is registered after birth the government will pay
the sum of £60,000 into a pension fund for that child, that will
be commercially run (not by the government) along the lines of a
sovereign fund for the exclusive use of the new arrival. That
fund will be invested in some form of securities so as to
produce capital growth and reasonably high dividends consistent
with a cautious fund.
That increasing sum will be locked in until the person reaches
the age of thirty-one. If the person dies before reaching that
age the amount in the fund will revert to the governmentís
pension fund (the Sovereign Trust), and will be available for
future persons to receive the initial starter payment. As time
goes on and inflation eats away at the value of a fiat currency,
that figure will itself have to rise.
I am going to assume that one way or another the fund will
produce at least 5% a year. That is easily achieved at the
moment by investing in a mixture of solid companies, property
markets, and new technology. If the figures I am using donít
prove to be good enough, then they will need to be adjusted so
they do produce the right end product.
At the age of thirty-one our pension person can now access their
pension fund. This means s/he is entitled to stop work and laze
around for the rest of his/her life. S/He will not be entitled
to any state benefits, such as job seekers allowance or sickness
benefit. S/He will be assumed to be a pensioner in receipt of
his?her pension and no longer dependent upon the state.
The person in my example would not have to collect the pension,
they could carry on working as long as they liked, even until
death somewhere in the eighties should s/he so wish, or they
could just take out what was needed at various times.
No-one would be allowed to take out more than a pre-determined
ratio of available funds to the underlying trust fund yield. For
instance, one would not be allowed to deplete the underlying
fund by more than the amount the fund would need in order to pay
out the pension prescribed.
When the person died their fund would revert to the Sovereign
Trust, and in this way the pension fund would, over time, be
able to up its ratio of payments to the claimants, or at the
very least, be able to keep up with the rate of inflation. The
fund would always increase in value, whereas with the current
scheme the (notional) fund is always in debt.
The result would be a pension scheme that not only functions
properly but one that probably makes surplus money. It would
also mean that no-one between birth and the age of majority
(currently eighteen) would be eligible for state support as
those of working age would be the responsibility of their
parents until they reached majority. Similarly, all those of age
thirty-one and above would be taken out of the support system
because they would be deemed to have their own pension which
should be sufficient to support them. This would cut the social
security bill by a large amount.
This scheme would also generate a very healthy investment pot.
After all, the original tranches of £60,000 would have to be
invested somewhere. It would be nice if a significant proportion
of this funding was invested in forward-looking technology, and
most certainly in companies registered in the UK.
Such a scheme would also be in place in preparation for the
massive amount of job losses there are likely to be once robots
and androids have reached the capability to do most of the jobs
That time looks to be just down the road, or rather like right
now. In fact we needed to start planning for mass redundancies
some time in the past. After all, it isnít as if this situation
was difficult to predict.