Sometimes you need to look at the big picture

When I finished my HSC (Neighbours fans will know this), I became a commercial pilot. It was a great life-building achievement, made simple with skills learned over time from simple turns and climbs, to navigating across the countryside on my own. Mind you, I was only 17.

I was well and truly wet behind the ears, but keen to become a pilot with Qantas. That was all I could think about when scrubbing pots in a sweaty kitchen. It was at the test to complete my private licence though, that I learned a valuable lesson for life. Adding 1 and 1 in the air was not easy, but reading a paper map (pre-sat nav BTW) whilst buffeting about handling the controls was even harder. But it was not that I’d learned.

Whilst out on my exam, I was sent off course deliberately by the flight examiner. I had to make quick calculations and head in the right direction, dodging a fictitious thunderstorm. I was well out of my depth, despite having planned everything back on the ground. Puzzled, with no idea where I was, I looked for features that would bail me out and bring the flying exam back in my control.

The examiner, having given me 15 minutes to learn where I was, asked me if I wanted to give up? Trying for 5 more minutes, noting the fuel gauges were getting hungry, I eventually conceded defeat. It was the first thing I’d failed out of school and I was gutted. The examiner said, ‘Want me to tell you where you went wrong’? Dejected, I was keen to hear it, with the chap pulling sharply back on the yoke, leaving my stomach back at 1500’, whilst we ascended to 4000’.

At last, there was the railway line I wanted, those ruddy lakes I couldn’t see and a distant mountain range I’d been wanting so badly. I finally had more perspective on actually what was going on now. A simple remedy in a complex situation, but I couldn’t see it.

Flying is a lot like Financial Planning, you know, and probably I still owe it a lot today for my approach with clients. Not the least the Flying Instructor training I went on to do, but that I prefer things to be simple and learned to deal with change and help others prepare and cope.  That’s what we do, isn’t it?

This last week I was watching the budget, enjoying it for the theatre it is, and listened for anything of relevance. Eventually, an ISA change; ‘good start’ I’m thinking, then a 150% GAD change. Wow. I dislike GAD tables with a passion, but ‘I’ll go with that’, I thought, and then the bombshell. You could see the startled look across the house when it hit. How did this not leak?

Change just happened. Pensions in the UK, became world class, as one major impediment to the attractiveness was going.

Sure, the cynical, like me, will think it’s a tax grab. Yep, partly right there I’d reckon, though it’s bring forward taxes and taking it away from life companies from supposed Mortality Drag, but I’d prefer to put it more down to an election sweetener. I don’t care about that, as at long last, those who put aside for years and went without can build a sensible flexible income that suits their life.  Not the nanny anymore who thinks they ‘can’t be trusted with their own money’. These people who prudently saved it up, often voluntarily, can now use it with more flexibility.

I can recall a similar ground-breaking budget, back in my village in 2006. The simplification of financial products was long overdue, and in that budget (http://www.budget.gov.au/2006-07/at_a_glance/download/at_a_glance.pdf) a number of measures were introduced to make saving simpler, and more beneficial. It didn’t win the Liberals (Conservatives) the next election, but it removed the LA equivalent and it did go on to re-enforce a culture of saving for Australia. Lots of salary sacrifice and spouse contributions followed.

Suddenly you could have the whole ruddy lot out, completely tax free too, if over 60 under certain conditions. Even less impediment than the proposed UK one.

In fairness, the culture was actually kicked started by a Labor (Labour) treasurer back in the late 80s, with the compulsory pension contribution scheme. They did see the enormous problem looming for Australia to their credit. Whilst there was some valuable stuff in the ground to sell to the world, Aussies were aging better than when state pensions were first built. Today, the ONS equivalent over there says, 1 in 10 people over 85 by 2103, when currently it is 1 in 50. There won’t be many a government who can afford an unfunded State Pension under today’s rules, even 50 years from now.  Thinking back, businesses hated it when first introduced.  ‘People will be laid off’, they said.

Change needed to happen in Aus back then and certainly is needed here now in an older UK … and pronto!

As it happens, Australians are now saving much money into their own pension schemes, and due to Means Testing, those on good salaries will likely exclude themselves from a future state pension entitlement. Why on earth Sir Bufton Tuffton (worth £30 million) gets his State Pension I do not know, but these people excluded from an Aussie pension aren’t fabulously rich either.  It is intended that the compulsory scheme rises to 12% (employer only), having been the original target all those years ago. Given that it would’ve been a choice for another state pension supplement via a National Insurance scheme, Aussies are far happier being in control of their retirement options. The nanny is still there, but it tells the employer what do to, not the employee.

As Mike Smith, a fellow Brit and Chief Exec at ANZ Bank (one of Aus four AA- rated banks) said last year, ‘There are fundamental issues we have to understand. One is that capital goes where it’s most welcome. It’s like water, it goes to the place of least resistance. It trickles down to the place where you don’t have regulation and bureaucracy and hurdles’. He was talking about business, I know, but the same applies to people about savings and retirement.

That’s the next big change desperately needed to bring about a saving culture.

The Silent Generation have it big time, but not the Boomers and generations below who grew up with certain expectations; certain rights.  We need a system to encourage people looking not to the State for support any longer unless a backup, but to themselves and their lifestyle. They have the means to do it.  Don’t get me wrong, many on lower salaries will still struggle to cover life’s essentials, and that’s where the State should be focussing attention. For others, we, like the Aussies, should help ourselves. A generation of compulsory saving, would bring that about in time, even to avoid struggling with the decision to put the fire on during a bleak winter.

Sadly, I doubt though we will see compulsory pension saving for some time, needing NI reform first, but it is likely to be the next logical step once AE is fully embedded. You wouldn’t recognise Australia a generation ago, but at some stage we must make a start over here. None of us would recognise the Britain of 2103 either(if we took a trip in a TARDIS), just like the characters I watched tonight in Mr Selfridge. None of them would see the importance in saving for a retirement, as it is today.

That’s why it’s important when more changes come, pull up higher and take a look at the bigger picture. Changes like this budget can be good and in reality, we so desperately need it for our savings culture. Annuities are the trains of yesterday, important infrastructure, but not the only means of shifting stuff from A to B. Removing income barriers, encouraging inflows at income source are all important steps to making change happen for retirement.

What do you think should be the next change to encourage a new generation of savers?

BTW: ANZ actually went on to introduce a pension linked with an ATM facility. First of its kind in Australia at the time. http://www.wealth.anz.com/content/dam/anzwealth/pdfs/superannuation/ANZ-Smart-Choice-ElectronicAccess_TCs.pdf
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2 thoughts on “Sometimes you need to look at the big picture

  • What should be the next change to encourage a new generation of savers?

    The concept of “retirement” needs to be reviewed, to take account of changes in demographics. People dont need to retire until they are in their mid 70s, and we do need to have a debate about the nature of work and retirement (as you cant do all jobs until your mid 70s so some people might need to retrain). That would need some honesty from the politicians the pensions industry. So perhaps the answer should be “some honesty from the politicians and pensions industry”!

    Reply
  • Sounds like flexibility is something you would need if you’re working into later years. Assuming the job isn’t too physical.

    Good thought. Retirements look so much different to when the system was first designed, and over the last number of adjustments. What is the vision for our society now? I don’t think politicians really want to make that clear.

    My concern is that many lobby groups have held us back in the past whilst they made hay during the sunshine. Just look at the tobacco industry over recent changes. Enough said.

    Thanks for the (only) comment. I guess most of the 345 viewers are washing their hair tonight.

    Reply

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