Deflation - Inflation - Hyper Inflation & Interest Rates Questions?

zagfles

itwasntme001 said:

zagfles said:

itwasntme001 said:

zagfles said:

itwasntme001 said:

zagfles said:

itwasntme001 said:

Linton said:

itwasntme001 said:

It does seem like the last 4 decades have truly been a goldilocks period of disinflation, asset price (and therefore wealth) appreciation, low cost of capital (financial and human) etc.  Unlikely to repeat again.  It would be incredibly disingenuous to think that the boomer generation had it anything but easy.  It is very unlikely to repeat for younger generations unless some major advancement in tech is achieved such as robotics and AI that sees galloping leaps in productivity.

How can people be so stupid on these forums and elsewhere to think that 8-10% GARs, inflation linked DB pension annuities, state pensions, low house prices relative to earnings, rapid wage inflation, cheap emerging market labour resulting in cheaper and cheaper goods are not at all hugely beneficial to the boomers???????????????????????????????????????????????????

Yes but it was only the past 15 years or so that hands on investing was available to most people.  Many people did not have a DB pension and if they did, it may well not have been inflation linked.   In fact many people did not have an employers pension at all.  That was why SERPs was introduced. When I started work as a computer programmer with a degree (which only about 5% of people leaving school were able to get, most leaving any form of eductaion at 15-16) a pension was a management perk.

Dont confuse the lucky few with how the vast majority of the population fared.

You will of course get many people who did not benefit.  The point is much more did benefit in your generation compared to the younger generation.  Even without inflation linkage, there were still generous high rate annuities available such as GARs.  My father has one taken out at a rate of 10%.  No degree.  Average intellect.  Worked in average jobs.  Highly risk averse.  But wealth wise has done incredibly well.  Savings at high real rates (RISK FREE) of interest and buying homes when they were cheap makes a massive difference.

The young now, even with lower than average intellect have to go to uni to do pointless crappy degrees like media studies because of social pressures and every job pointlessly requires a degree.  That too saddled with £50k of debt....

DB pensions in the 70's and 80's are nowhere near as generous as their equivalents today, which is why they hardly exist in the private sector any more. No inflation protection, imagine leaving a job in the mid 70's and having your pension frozen at the level you left and seeing it plummet in value with the high inflation of the time, so by the time you draw it it is worthless. Companies used pensions as golden handcuffs to stop staff leaving.

Re student loans - Martin has tried to educate people on this, they can't be considered as normal debt. They are repaid according to income, it's a graduate tax in all but name, an extra 9% tax on income over about £26k. When I graduated in the mid 80's, I had zero "debt", but the basic rate of income tax was 29%. Now when students graduate, they pay 20% tax plus 9% student loan repayment. So pretty much the same. In fact, less now because the income tax personal allowance is higher in real terms and the student loan repayment threshold is much higher.

Houses were of course a lot cheaper, that's the main financial problem faced by the young today, but at least they don't have to contend with the 15% mortgage rates I did when I bought my first house.

Pensions - your point is irrelevant.  It is exactly why DB pensions existed in their form in the 70s and 80s that is one of the many factors for the boomer generation having such an advantage compared to the younger.  DB pensions originated back then assuming the providers were able to REINVEST at high rates of return.  No one had the foresight to see that interest rates were about to begin a secular downtrend resulting in lower and lower REINVESTMENT rates of return.  In hindsight those massively generous rates should never have been offered.  Unfortunately due to this bad judgement on interest rates, nations, municipalities and corporations are all suffering from these increasing liabilities, much of which is unfunded.  It will be the younger generation that will have to pay for this unless there are defaults on these obligations.

Student loans - your point is irrelevant.  Back in the 70s/80s less than 20% went to university.  Everyone else got jobs at age 16.  Now the vast majority go to university and I would say at least 60-70% of degrees are an utter waste of time and the debt is just a total waste (in reality it is a transfer of wealth from the taxpayer to universities and HMO landlords).  Then these graduates enter the workforce at age 22.  That's a full 6 years after the boomer generation would have.  Time wasted doing BS instead of gaining on the job skills to move up their respective professions and gaining more earning power - you earn more as you become more productive, universities for the majority DO NOT make you more productive.  Imagine 60-70% of the current massive sized student debt being a total waste compared to nearly 0% of the much smaller sized student debt being a waste in your generation.  A huge misallocation of capital and completely nonsensical giving boomers a massive productivity advantage over the current young, that too with much less debt.

Houses - your point is irrelevant.  The boomer generation had wage inflation as well and it was only a brief period of very high interest rates that you would have to suffer from.  But the nominal debt would have been much smaller.  It remains to be seen what combination of wage inflation and interest rates the young will have to contend with in the coming decades.  But certainly a lot less are able to afford as FTB than your generation.

Pensions - you think it's irrelavant that some could leave a job with 20 years service, and a deferred pension of 20/60th of their final salary, and then see inflation reduce that to a third or quarter or less of its real value. OK....

Student loans - they are not real debt. They are a graduate tax, with total taxation including them less than they were in the mid 80's. That is relevant. Decent degrees still get you decent jobs, you don't need a degree for a minimum wage job paying £18k a year today. In the 80's there was no minimum wage, my first job was £1.15 an hour.

Houses - yes this is the main issue. But there is no benefit to people like me whose house has gone up in value. Housing is a cost of living, so that's increased the same as my asset. I'd prefer it if housing was the same real value as when I bought in the late 90s. There was also negative equity people in the 90's had to contend with, the first house I bought in the early 90's had gone down in value when I sold it in the late 90's, I sold for less than I bought. For people with high LTV mortgages, this was a big problem.

There's also a lot of non financial benefits now too. Life expectancy has increased. Diseases like AIDS are no longer a death sentence. You are allowed to be gay, or trans now, with far more rights and far less bigotry. You weren't living with the constant threat of nuclear war that lots of people were convinced was imminent in the 70's and 80s. Technology is now way better, the idea that everyone has a mobile phone was a fantasy in the 80's, also the www, the idea that you can research just about anything from home rather than have to go to a library, even be able to have the debate, in the 80's it would have been letters to a magazine with a 2 month delay between replies! The idea of stuff like video calls, satnavs etc. Safety is much improved in nearly everything, cars didn't even have seat belts in the back seats in the 70's and 80's.

So in terms of quality of life overall, it's far better for kids these days IMO.

Houses - We seem to agree on this but you still point out examples of how things were for your generation but they do not really compare for the younger generation.  Plus it remains to be seen what happens to the younger generation in terms of house prices, interest rates, negative equity etc.

I agree with the rest of your post.  What I say is nothing to do with envy or out of anger.  I personally will set to benefit through gifts and inheritances.  The point I am making is simply this: That there is a significant generational wealth inequality (more specifically the ABILITY to generate it by themselves) between the boomers and millennials.  That is it.

I should add a very significant point that further worsens this inequality.  It is debt.  Debt has been accumulated by a massive amount over the decades.  Both funded and unfunded.  The baby boomers are retiring now so will be in full on consumption mode.  The tax they pay will reduce over time.  More of the tax will therefore have to paid by the younger generation.  The debt picture does not look like it will reverse anytime soon.  It will have to be paid back at some point.  It can only be the young that will pay this back.

On the debt/taxes point. It depends what taxes are levied on, for instance consumption (VAT), capital (IHT, CGT), property (council tax, stamp duty etc). Remember than taxes on earned income are now at historically low levels, the personal allowance is now much higher in real terms than it was is the 80's, the basic rate of tax is 20%, much lower than in the 80's. NI is a bit higher, but overall taxes on earnings are at an all time low.

Taxes will probably have to rise, but they don't necessarily have to rise on earnings, there is serious talk about capital taxes rising instead (eg CGT). The last decade has shown us that politicians (and mainly Tory ones) are willing to raise capital taxes eg stamp duty on second homes, CGT, big cuts in the pension lifetime allowance, but have been reducing taxes on earnings (big increases in personal allowance).

Well of course it will depend on where taxes are levied.  Does not take a genius, given the main voting block of the UK, who will be favoured more. Sheesh.

Again you are talking about things that don't and won't (a lot because of the boomer voting base) have material difference.  Last year ending March 2020, the deficit was over £60bn.  The rest of this year will be astronomical given the COVID spending.  Debt levels are at highest levels seen since WW2.  IHT intake is around £6bn a year.  CGT intake around £10bn.  Gonna take a !!!!!! load of CGT and IHT tax hikes to even cover a normal year's deficit, let alone a COVID year AND LET ALONE EVEN TOUCH THE NATIONAL DEBT ITSELF.  VAT, income tax, stamp duty raises in a time of economic uncertainty is going to be economic suicide and potentially political suicide as well.

Only the younger generations can and will have to pay for the majority of the debt.

Odd how over the last decade capital taxes have increased but earnings tax have reduced then, isn't it?

While interest rates are below inflation, there's no rush to pay down the national debt. What do think will eventually happen to the vast wealth of the boomers?

talexuser

I seem to remember large companies having "pension holidays" in the 80s for many years in a row, while the employees carried on contributing. The reasoning was that the pension fund was worth more than the company and a tasty bait for takeover. Then years later all of a sudden the pension was un-affordable and had to be first limited and then closed to new employees, then sold off. I also remember talks with younger employees about "opting out" and don't know any that turned out better off than myself on my final salary pension (private company, inflation linked). A similar thing happened with repayment mortgages and investment mortgages that promised a large surplus at termination which often turned out to be a large deficit.

zagfles

itwasntme001 said:

zagfles said:

itwasntme001 said:

zagfles said:

itwasntme001 said:

zagfles said:

itwasntme001 said:

zagfles said:

itwasntme001 said:

zagfles said:

itwasntme001 said:

Linton said:

itwasntme001 said:

It does seem like the last 4 decades have truly been a goldilocks period of disinflation, asset price (and therefore wealth) appreciation, low cost of capital (financial and human) etc.  Unlikely to repeat again.  It would be incredibly disingenuous to think that the boomer generation had it anything but easy.  It is very unlikely to repeat for younger generations unless some major advancement in tech is achieved such as robotics and AI that sees galloping leaps in productivity.

How can people be so stupid on these forums and elsewhere to think that 8-10% GARs, inflation linked DB pension annuities, state pensions, low house prices relative to earnings, rapid wage inflation, cheap emerging market labour resulting in cheaper and cheaper goods are not at all hugely beneficial to the boomers???????????????????????????????????????????????????

Yes but it was only the past 15 years or so that hands on investing was available to most people.  Many people did not have a DB pension and if they did, it may well not have been inflation linked.   In fact many people did not have an employers pension at all.  That was why SERPs was introduced. When I started work as a computer programmer with a degree (which only about 5% of people leaving school were able to get, most leaving any form of eductaion at 15-16) a pension was a management perk.

Dont confuse the lucky few with how the vast majority of the population fared.

You will of course get many people who did not benefit.  The point is much more did benefit in your generation compared to the younger generation.  Even without inflation linkage, there were still generous high rate annuities available such as GARs.  My father has one taken out at a rate of 10%.  No degree.  Average intellect.  Worked in average jobs.  Highly risk averse.  But wealth wise has done incredibly well.  Savings at high real rates (RISK FREE) of interest and buying homes when they were cheap makes a massive difference.

The young now, even with lower than average intellect have to go to uni to do pointless crappy degrees like media studies because of social pressures and every job pointlessly requires a degree.  That too saddled with £50k of debt....

DB pensions in the 70's and 80's are nowhere near as generous as their equivalents today, which is why they hardly exist in the private sector any more. No inflation protection, imagine leaving a job in the mid 70's and having your pension frozen at the level you left and seeing it plummet in value with the high inflation of the time, so by the time you draw it it is worthless. Companies used pensions as golden handcuffs to stop staff leaving.

Re student loans - Martin has tried to educate people on this, they can't be considered as normal debt. They are repaid according to income, it's a graduate tax in all but name, an extra 9% tax on income over about £26k. When I graduated in the mid 80's, I had zero "debt", but the basic rate of income tax was 29%. Now when students graduate, they pay 20% tax plus 9% student loan repayment. So pretty much the same. In fact, less now because the income tax personal allowance is higher in real terms and the student loan repayment threshold is much higher.

Houses were of course a lot cheaper, that's the main financial problem faced by the young today, but at least they don't have to contend with the 15% mortgage rates I did when I bought my first house.

Pensions - your point is irrelevant.  It is exactly why DB pensions existed in their form in the 70s and 80s that is one of the many factors for the boomer generation having such an advantage compared to the younger.  DB pensions originated back then assuming the providers were able to REINVEST at high rates of return.  No one had the foresight to see that interest rates were about to begin a secular downtrend resulting in lower and lower REINVESTMENT rates of return.  In hindsight those massively generous rates should never have been offered.  Unfortunately due to this bad judgement on interest rates, nations, municipalities and corporations are all suffering from these increasing liabilities, much of which is unfunded.  It will be the younger generation that will have to pay for this unless there are defaults on these obligations.

Student loans - your point is irrelevant.  Back in the 70s/80s less than 20% went to university.  Everyone else got jobs at age 16.  Now the vast majority go to university and I would say at least 60-70% of degrees are an utter waste of time and the debt is just a total waste (in reality it is a transfer of wealth from the taxpayer to universities and HMO landlords).  Then these graduates enter the workforce at age 22.  That's a full 6 years after the boomer generation would have.  Time wasted doing BS instead of gaining on the job skills to move up their respective professions and gaining more earning power - you earn more as you become more productive, universities for the majority DO NOT make you more productive.  Imagine 60-70% of the current massive sized student debt being a total waste compared to nearly 0% of the much smaller sized student debt being a waste in your generation.  A huge misallocation of capital and completely nonsensical giving boomers a massive productivity advantage over the current young, that too with much less debt.

Houses - your point is irrelevant.  The boomer generation had wage inflation as well and it was only a brief period of very high interest rates that you would have to suffer from.  But the nominal debt would have been much smaller.  It remains to be seen what combination of wage inflation and interest rates the young will have to contend with in the coming decades.  But certainly a lot less are able to afford as FTB than your generation.

Pensions - you think it's irrelavant that some could leave a job with 20 years service, and a deferred pension of 20/60th of their final salary, and then see inflation reduce that to a third or quarter or less of its real value. OK....

Student loans - they are not real debt. They are a graduate tax, with total taxation including them less than they were in the mid 80's. That is relevant. Decent degrees still get you decent jobs, you don't need a degree for a minimum wage job paying £18k a year today. In the 80's there was no minimum wage, my first job was £1.15 an hour.

Houses - yes this is the main issue. But there is no benefit to people like me whose house has gone up in value. Housing is a cost of living, so that's increased the same as my asset. I'd prefer it if housing was the same real value as when I bought in the late 90s. There was also negative equity people in the 90's had to contend with, the first house I bought in the early 90's had gone down in value when I sold it in the late 90's, I sold for less than I bought. For people with high LTV mortgages, this was a big problem.

There's also a lot of non financial benefits now too. Life expectancy has increased. Diseases like AIDS are no longer a death sentence. You are allowed to be gay, or trans now, with far more rights and far less bigotry. You weren't living with the constant threat of nuclear war that lots of people were convinced was imminent in the 70's and 80s. Technology is now way better, the idea that everyone has a mobile phone was a fantasy in the 80's, also the www, the idea that you can research just about anything from home rather than have to go to a library, even be able to have the debate, in the 80's it would have been letters to a magazine with a 2 month delay between replies! The idea of stuff like video calls, satnavs etc. Safety is much improved in nearly everything, cars didn't even have seat belts in the back seats in the 70's and 80's.

So in terms of quality of life overall, it's far better for kids these days IMO.

Pensions - I am sure there were some people disadvantaged by pension schemes back then.  But the point is that a significant portion of the working population in the 80s were on, what is now seen to be, very generous pensions.  You do not get DB pension schemes or GARs in the private sector any more.  You only get DB schemes in the public sector, as you did back then.  Even now they are making it more expensive (as they should) for each unit of DB pension benefit "earned".  Now in the private sector you pretty much only get DC schemes - massive difference between DC scheme RISKY wealth vs DB scheme RISK-FREE wealth.

I'll take these one at a time to avoid long posts...

Pensions - the DB schemes in the 80's were not "RISK-FREE". When I started work in 1987, the company had a DB pension scheme which you were obliged to join. In 1988 the govt changed the rules, a sort of "pensions freedom", where companies weren't allowed to force you to join/stay in their scheme, you could go with a private one if you wanted (but no company contributions if you did).

Many people opted out of the company scheme. HR organised meetings we had to go to where they were desparate to persude us to STAY IN the DB scheme! So why would people opt out? Were they stupid? No.

Because for someone like me in their early 20's, if I were to leave the company, my pension would be the value I left (eg 3/60th final salary if I'd been there 3 years) and it would only go up by inflation capped at 3%. Anyone looking at the recent history of inflation at that time, and working out what would happen if the past decade's inflation carried on into the future, a pension deferred until retirement age, 40 years later would be practically worthless. So young people at the time, who didn't see a long term future in the company, were right to consider opting out. Particularly as investment returns they could earn in a private pension were 10%+ at the time.

There was also no PPF, so if the company went bust your pension was lost completely. Also companies could take the pension off you for stuff like gross misconduct. So they weren't "RISK-FREE" at all.

DB pensions at the time weren't expensive, otherwise HR would not have been persuading people to stay in the scheme. They did it because it was a low cost way of retaining staff, as people knew they'd take a hit in the value of their pension if they left.

Willetts does however have a good point about the subsequent changes, the improvement in inflation protection, the PPF, rules to stop companies misusing the scheme (Maxwell etc) which combined with lower inflation and lower investment returns, vastly improved the value and increased the cost of DB pensions. The end result being that people who did have decades in a DB scheme did very well, and also of course most private sector companies closing their DB scheme as it became too costly.

But if you take an example of two people, both aged 21 who get a job they only stay in for 3 years till they're 24. One of them got the job in 1987 with a 1/60th DB scheme, and the other in 2017 with an auto-enrollment DC scheme. It's far from certain who'd get the better pension outcome. The risks were/are massive for both of them.

This seems to be never ending and it is because you keep bringing up fringe cases that don't really prove anything.  The fact is that a significant number of the boomer generation do have good DB pensions accrued in the private sector whereas they are non-existent for the younger generation in the private sector.  That is a generational inequality whether you think it or not (and whether it was known at the time in the 70/80s or not).  We have not even touched on state pensions and triple lock; the younger generation are likely to not have access to this until a good number of years later compared to the age at which the boomers can access it.

DB pensions may not have seen to be RISK-FREE back when they were started, but they sure appear RISK-FREE now compared to DC pensions.  Not only that, but it will be the stockholder that will be paying for the pensions for the corporations that have these liabilities.  And guess who will see the hit over time for this?  Yes that's right, its the stockholders who own equities in their DC pension schemes, i.e. the younger generation.

You seem to think someone is a "fringe case" if they don't spend 40 years in the same job. Fact was, that for people who moved jobs a few times in the 80's/90's, DB pensions did not work that well, and it certainly can't have been known, at the time, that they'd work well for them.

It would be a bit like if, in 30 years time, the stockmarket has risen massively from today, and people looking back with rose tinted spectacles saying how good minimum level AE schemes were.

Never said someone who does not spend 40 years is a fringe case.  But your example of someone spending 3 years is and that was what I was referring to.  Even if a person stayed at a company offering DB pensions for 10 years (which is not that long back then when people did not move around and were incentivised to stay longer DUE TO THE PENSION SCHEMES) they would still have accrued valuable benefits and moved onto the next employer who also offered the DB pensions.  You need to take the total benefits accrued across all employers.  Remember these schemes were common for a long time between the 1960s and the 1990s.  Prime working period for boomers.

For a start someone leaving after 3 years or so in their 20's was very common. It was even encouraged by career advisers, you should move around, gain experience in different companies, that's the way to get ahead.

But even with 10 years in one company, there was no legal obligation on the company to index link your pension at all. Some schemes like mine did, but many didn't. And those that did typically capped inflation increases at 3%.

So you leave at 30, still 30 years to retirement, your pension would be ravaged by 30 years of inflation and certainly at the inflation rates of the 70/80s be totally worthless. Transfers were available, but you couldn't just transfer into another DB scheme and retain the same years service, the transfer value accounted for the lack of inflation protection and bought far less service in the new employer's scheme than you'd actually accrued in the old one.

So a lot of people in that situation would have transferred to a private pension on leaving, there were lots of commission hungry advisers ready to help. And in most cases without the benefit of hindsight, the decision could be perfectly justified at the time. After the 1988 "pension freedoms" TV adverts were constantly telling you how private pensions were better for people who move jobs. DB in the 70/80s was not good for young people who didn't intend remaining in the same company till retirement.

Well the numbers speak for themselves so if you take a look at my reply to Linton's post, you will see the data actually proves how valuable the DB schemes turned out to be for the boomers.

What data? Just seems to be speculation. You don't know what the value of a DC pension will be at retirement. You don't know what annuity/annual income it will buy.

Pretty similar to me in my 20's when I thought I'd be moving job.

itwasntme001

zagfles said:

itwasntme001 said:

zagfles said:

itwasntme001 said:

zagfles said:

itwasntme001 said:

zagfles said:

itwasntme001 said:

Linton said:

itwasntme001 said:

It does seem like the last 4 decades have truly been a goldilocks period of disinflation, asset price (and therefore wealth) appreciation, low cost of capital (financial and human) etc.  Unlikely to repeat again.  It would be incredibly disingenuous to think that the boomer generation had it anything but easy.  It is very unlikely to repeat for younger generations unless some major advancement in tech is achieved such as robotics and AI that sees galloping leaps in productivity.

How can people be so stupid on these forums and elsewhere to think that 8-10% GARs, inflation linked DB pension annuities, state pensions, low house prices relative to earnings, rapid wage inflation, cheap emerging market labour resulting in cheaper and cheaper goods are not at all hugely beneficial to the boomers???????????????????????????????????????????????????

Yes but it was only the past 15 years or so that hands on investing was available to most people.  Many people did not have a DB pension and if they did, it may well not have been inflation linked.   In fact many people did not have an employers pension at all.  That was why SERPs was introduced. When I started work as a computer programmer with a degree (which only about 5% of people leaving school were able to get, most leaving any form of eductaion at 15-16) a pension was a management perk.

Dont confuse the lucky few with how the vast majority of the population fared.

You will of course get many people who did not benefit.  The point is much more did benefit in your generation compared to the younger generation.  Even without inflation linkage, there were still generous high rate annuities available such as GARs.  My father has one taken out at a rate of 10%.  No degree.  Average intellect.  Worked in average jobs.  Highly risk averse.  But wealth wise has done incredibly well.  Savings at high real rates (RISK FREE) of interest and buying homes when they were cheap makes a massive difference.

The young now, even with lower than average intellect have to go to uni to do pointless crappy degrees like media studies because of social pressures and every job pointlessly requires a degree.  That too saddled with £50k of debt....

DB pensions in the 70's and 80's are nowhere near as generous as their equivalents today, which is why they hardly exist in the private sector any more. No inflation protection, imagine leaving a job in the mid 70's and having your pension frozen at the level you left and seeing it plummet in value with the high inflation of the time, so by the time you draw it it is worthless. Companies used pensions as golden handcuffs to stop staff leaving.

Re student loans - Martin has tried to educate people on this, they can't be considered as normal debt. They are repaid according to income, it's a graduate tax in all but name, an extra 9% tax on income over about £26k. When I graduated in the mid 80's, I had zero "debt", but the basic rate of income tax was 29%. Now when students graduate, they pay 20% tax plus 9% student loan repayment. So pretty much the same. In fact, less now because the income tax personal allowance is higher in real terms and the student loan repayment threshold is much higher.

Houses were of course a lot cheaper, that's the main financial problem faced by the young today, but at least they don't have to contend with the 15% mortgage rates I did when I bought my first house.

Pensions - your point is irrelevant.  It is exactly why DB pensions existed in their form in the 70s and 80s that is one of the many factors for the boomer generation having such an advantage compared to the younger.  DB pensions originated back then assuming the providers were able to REINVEST at high rates of return.  No one had the foresight to see that interest rates were about to begin a secular downtrend resulting in lower and lower REINVESTMENT rates of return.  In hindsight those massively generous rates should never have been offered.  Unfortunately due to this bad judgement on interest rates, nations, municipalities and corporations are all suffering from these increasing liabilities, much of which is unfunded.  It will be the younger generation that will have to pay for this unless there are defaults on these obligations.

Student loans - your point is irrelevant.  Back in the 70s/80s less than 20% went to university.  Everyone else got jobs at age 16.  Now the vast majority go to university and I would say at least 60-70% of degrees are an utter waste of time and the debt is just a total waste (in reality it is a transfer of wealth from the taxpayer to universities and HMO landlords).  Then these graduates enter the workforce at age 22.  That's a full 6 years after the boomer generation would have.  Time wasted doing BS instead of gaining on the job skills to move up their respective professions and gaining more earning power - you earn more as you become more productive, universities for the majority DO NOT make you more productive.  Imagine 60-70% of the current massive sized student debt being a total waste compared to nearly 0% of the much smaller sized student debt being a waste in your generation.  A huge misallocation of capital and completely nonsensical giving boomers a massive productivity advantage over the current young, that too with much less debt.

Houses - your point is irrelevant.  The boomer generation had wage inflation as well and it was only a brief period of very high interest rates that you would have to suffer from.  But the nominal debt would have been much smaller.  It remains to be seen what combination of wage inflation and interest rates the young will have to contend with in the coming decades.  But certainly a lot less are able to afford as FTB than your generation.

Pensions - you think it's irrelavant that some could leave a job with 20 years service, and a deferred pension of 20/60th of their final salary, and then see inflation reduce that to a third or quarter or less of its real value. OK....

Student loans - they are not real debt. They are a graduate tax, with total taxation including them less than they were in the mid 80's. That is relevant. Decent degrees still get you decent jobs, you don't need a degree for a minimum wage job paying £18k a year today. In the 80's there was no minimum wage, my first job was £1.15 an hour.

Houses - yes this is the main issue. But there is no benefit to people like me whose house has gone up in value. Housing is a cost of living, so that's increased the same as my asset. I'd prefer it if housing was the same real value as when I bought in the late 90s. There was also negative equity people in the 90's had to contend with, the first house I bought in the early 90's had gone down in value when I sold it in the late 90's, I sold for less than I bought. For people with high LTV mortgages, this was a big problem.

There's also a lot of non financial benefits now too. Life expectancy has increased. Diseases like AIDS are no longer a death sentence. You are allowed to be gay, or trans now, with far more rights and far less bigotry. You weren't living with the constant threat of nuclear war that lots of people were convinced was imminent in the 70's and 80s. Technology is now way better, the idea that everyone has a mobile phone was a fantasy in the 80's, also the www, the idea that you can research just about anything from home rather than have to go to a library, even be able to have the debate, in the 80's it would have been letters to a magazine with a 2 month delay between replies! The idea of stuff like video calls, satnavs etc. Safety is much improved in nearly everything, cars didn't even have seat belts in the back seats in the 70's and 80's.

So in terms of quality of life overall, it's far better for kids these days IMO.

Houses - We seem to agree on this but you still point out examples of how things were for your generation but they do not really compare for the younger generation.  Plus it remains to be seen what happens to the younger generation in terms of house prices, interest rates, negative equity etc.

I agree with the rest of your post.  What I say is nothing to do with envy or out of anger.  I personally will set to benefit through gifts and inheritances.  The point I am making is simply this: That there is a significant generational wealth inequality (more specifically the ABILITY to generate it by themselves) between the boomers and millennials.  That is it.

I should add a very significant point that further worsens this inequality.  It is debt.  Debt has been accumulated by a massive amount over the decades.  Both funded and unfunded.  The baby boomers are retiring now so will be in full on consumption mode.  The tax they pay will reduce over time.  More of the tax will therefore have to paid by the younger generation.  The debt picture does not look like it will reverse anytime soon.  It will have to be paid back at some point.  It can only be the young that will pay this back.

On the debt/taxes point. It depends what taxes are levied on, for instance consumption (VAT), capital (IHT, CGT), property (council tax, stamp duty etc). Remember than taxes on earned income are now at historically low levels, the personal allowance is now much higher in real terms than it was is the 80's, the basic rate of tax is 20%, much lower than in the 80's. NI is a bit higher, but overall taxes on earnings are at an all time low.

Taxes will probably have to rise, but they don't necessarily have to rise on earnings, there is serious talk about capital taxes rising instead (eg CGT). The last decade has shown us that politicians (and mainly Tory ones) are willing to raise capital taxes eg stamp duty on second homes, CGT, big cuts in the pension lifetime allowance, but have been reducing taxes on earnings (big increases in personal allowance).

Well of course it will depend on where taxes are levied.  Does not take a genius, given the main voting block of the UK, who will be favoured more. Sheesh.

Again you are talking about things that don't and won't (a lot because of the boomer voting base) have material difference.  Last year ending March 2020, the deficit was over £60bn.  The rest of this year will be astronomical given the COVID spending.  Debt levels are at highest levels seen since WW2.  IHT intake is around £6bn a year.  CGT intake around £10bn.  Gonna take a !!!!!! load of CGT and IHT tax hikes to even cover a normal year's deficit, let alone a COVID year AND LET ALONE EVEN TOUCH THE NATIONAL DEBT ITSELF.  VAT, income tax, stamp duty raises in a time of economic uncertainty is going to be economic suicide and potentially political suicide as well.

Only the younger generations can and will have to pay for the majority of the debt.

Odd how over the last decade capital taxes have increased but earnings tax have reduced then, isn't it?

While interest rates are below inflation, there's no rush to pay down the national debt. What do think will eventually happen to the vast wealth of the boomers?

Just because interest rates are so low does not mean that someone is not paying for it.  Inflation is a way to pay for it.  Funny how state pensions and many DB pensions will be protected from this inflation isn't it?

Much of the wealth will be reduced to nil on death.  Much will be passed on to younger generations.  The point still stand however.  Boomers have had a major advantage over the younger generation in terms of wealth generation ability.

zagfles

itwasntme001 said:

zagfles said:

itwasntme001 said:

zagfles said:

itwasntme001 said:

zagfles said:

itwasntme001 said:

zagfles said:

itwasntme001 said:

Linton said:

itwasntme001 said:

It does seem like the last 4 decades have truly been a goldilocks period of disinflation, asset price (and therefore wealth) appreciation, low cost of capital (financial and human) etc.  Unlikely to repeat again.  It would be incredibly disingenuous to think that the boomer generation had it anything but easy.  It is very unlikely to repeat for younger generations unless some major advancement in tech is achieved such as robotics and AI that sees galloping leaps in productivity.

How can people be so stupid on these forums and elsewhere to think that 8-10% GARs, inflation linked DB pension annuities, state pensions, low house prices relative to earnings, rapid wage inflation, cheap emerging market labour resulting in cheaper and cheaper goods are not at all hugely beneficial to the boomers???????????????????????????????????????????????????

Yes but it was only the past 15 years or so that hands on investing was available to most people.  Many people did not have a DB pension and if they did, it may well not have been inflation linked.   In fact many people did not have an employers pension at all.  That was why SERPs was introduced. When I started work as a computer programmer with a degree (which only about 5% of people leaving school were able to get, most leaving any form of eductaion at 15-16) a pension was a management perk.

Dont confuse the lucky few with how the vast majority of the population fared.

You will of course get many people who did not benefit.  The point is much more did benefit in your generation compared to the younger generation.  Even without inflation linkage, there were still generous high rate annuities available such as GARs.  My father has one taken out at a rate of 10%.  No degree.  Average intellect.  Worked in average jobs.  Highly risk averse.  But wealth wise has done incredibly well.  Savings at high real rates (RISK FREE) of interest and buying homes when they were cheap makes a massive difference.

The young now, even with lower than average intellect have to go to uni to do pointless crappy degrees like media studies because of social pressures and every job pointlessly requires a degree.  That too saddled with £50k of debt....

DB pensions in the 70's and 80's are nowhere near as generous as their equivalents today, which is why they hardly exist in the private sector any more. No inflation protection, imagine leaving a job in the mid 70's and having your pension frozen at the level you left and seeing it plummet in value with the high inflation of the time, so by the time you draw it it is worthless. Companies used pensions as golden handcuffs to stop staff leaving.

Re student loans - Martin has tried to educate people on this, they can't be considered as normal debt. They are repaid according to income, it's a graduate tax in all but name, an extra 9% tax on income over about £26k. When I graduated in the mid 80's, I had zero "debt", but the basic rate of income tax was 29%. Now when students graduate, they pay 20% tax plus 9% student loan repayment. So pretty much the same. In fact, less now because the income tax personal allowance is higher in real terms and the student loan repayment threshold is much higher.

Houses were of course a lot cheaper, that's the main financial problem faced by the young today, but at least they don't have to contend with the 15% mortgage rates I did when I bought my first house.

Pensions - your point is irrelevant.  It is exactly why DB pensions existed in their form in the 70s and 80s that is one of the many factors for the boomer generation having such an advantage compared to the younger.  DB pensions originated back then assuming the providers were able to REINVEST at high rates of return.  No one had the foresight to see that interest rates were about to begin a secular downtrend resulting in lower and lower REINVESTMENT rates of return.  In hindsight those massively generous rates should never have been offered.  Unfortunately due to this bad judgement on interest rates, nations, municipalities and corporations are all suffering from these increasing liabilities, much of which is unfunded.  It will be the younger generation that will have to pay for this unless there are defaults on these obligations.

Student loans - your point is irrelevant.  Back in the 70s/80s less than 20% went to university.  Everyone else got jobs at age 16.  Now the vast majority go to university and I would say at least 60-70% of degrees are an utter waste of time and the debt is just a total waste (in reality it is a transfer of wealth from the taxpayer to universities and HMO landlords).  Then these graduates enter the workforce at age 22.  That's a full 6 years after the boomer generation would have.  Time wasted doing BS instead of gaining on the job skills to move up their respective professions and gaining more earning power - you earn more as you become more productive, universities for the majority DO NOT make you more productive.  Imagine 60-70% of the current massive sized student debt being a total waste compared to nearly 0% of the much smaller sized student debt being a waste in your generation.  A huge misallocation of capital and completely nonsensical giving boomers a massive productivity advantage over the current young, that too with much less debt.

Houses - your point is irrelevant.  The boomer generation had wage inflation as well and it was only a brief period of very high interest rates that you would have to suffer from.  But the nominal debt would have been much smaller.  It remains to be seen what combination of wage inflation and interest rates the young will have to contend with in the coming decades.  But certainly a lot less are able to afford as FTB than your generation.

Pensions - you think it's irrelavant that some could leave a job with 20 years service, and a deferred pension of 20/60th of their final salary, and then see inflation reduce that to a third or quarter or less of its real value. OK....

Student loans - they are not real debt. They are a graduate tax, with total taxation including them less than they were in the mid 80's. That is relevant. Decent degrees still get you decent jobs, you don't need a degree for a minimum wage job paying £18k a year today. In the 80's there was no minimum wage, my first job was £1.15 an hour.

Houses - yes this is the main issue. But there is no benefit to people like me whose house has gone up in value. Housing is a cost of living, so that's increased the same as my asset. I'd prefer it if housing was the same real value as when I bought in the late 90s. There was also negative equity people in the 90's had to contend with, the first house I bought in the early 90's had gone down in value when I sold it in the late 90's, I sold for less than I bought. For people with high LTV mortgages, this was a big problem.

There's also a lot of non financial benefits now too. Life expectancy has increased. Diseases like AIDS are no longer a death sentence. You are allowed to be gay, or trans now, with far more rights and far less bigotry. You weren't living with the constant threat of nuclear war that lots of people were convinced was imminent in the 70's and 80s. Technology is now way better, the idea that everyone has a mobile phone was a fantasy in the 80's, also the www, the idea that you can research just about anything from home rather than have to go to a library, even be able to have the debate, in the 80's it would have been letters to a magazine with a 2 month delay between replies! The idea of stuff like video calls, satnavs etc. Safety is much improved in nearly everything, cars didn't even have seat belts in the back seats in the 70's and 80's.

So in terms of quality of life overall, it's far better for kids these days IMO.

Student loans - the point is there is still debt and if you make it easy for the student to "pay it off" by structuring it as a "graduate tax", you make it harder for the taxpayer to reduce its liability (because if the student does not pay it off in its entirety, the degree would have essentially been, at least partly, funded by the taxpayer).  You seem to have ignored my very important point about starting work earlier in the 70/80s compared to now and how much of a benefit that is to the person.  Starting pay is not predictive of future earnings power.  You start a job with no skills but you rapidly gain skills as you work.  Going to do a 3-4 year course at university for the average student does not get you any skills but only debt for the student/taxpayer.  It is only a transfer of wealth from the taxpayer to the university and HMO landlords, nothing else.

Part 2 - student loans. Yes, there's a point about pointless degrees, blame Blair and his obsession with getting 50% into uni, but not all degrees are pointless and a good degree can give you a better kick start in your working life than 3-4 years of work. Our company's starting salary for graduates is over £30k, they also take on school leavers (at 18, A-levels or BTECs etc) at not much over NMW. The graduates are better paid when they start than the school leavers after 3-4 years in the company.

But the point was really to bury the myth about "student debt". It's not student debt, it's basically taxpayer funded with a graduate tax, and the degrees subsidised most are the most useless ones (as the students are less likely to get a good job and hence pay back far less).

Again fringe case argument that does not prove anything.  Companies may pay more for graduates, but that does not mean that they are actually worth more than a non-graduate.  A worker with a 6 year head-start at a company should be earning more than a graduate joining the same company and job, and with no debt.  Some degrees are useful and necessary but the vast majority are not.  Just because a company requires a degree, does not mean a non-grad won't be able to do the same job and with 6 years head start should be able to do a far superior job than a graduate starting out at age 22.  Most jobs simply do not REALLY require a degree.

Well yes I said it is taxpayer funded.  Again going round in circles.  This debt will still have to be paid off and if its not the student, it will be the younger generation in general mainly, not the boomer generation.  The majority of degrees are useless.

What's your point, that employers don't know what they're doing by insisting on a degree? Degrees are often useful to prove an ability, rather than be themselves useful in a job. Maths is a good example, most employers aren't crying out for people who understand Fermat's last theorem or advanced calculus, but the ability to get a maths degree proves an ability to take on, learn and understand complex concepts and put them to use.

When I started work in the 80's, I worked with people who'd left school at 16 and 18, who were the same age as me and so had had a 3-5 year head start on the job. I was paid more when I started, than them after 3-5 years in the job. One of them caught up and even overtook me, he deserved to, but the others never did.

Ability is usually ingrained by your late teens and you do not need a degree to prove it.  There are better ways to prove academic ability and certainly a lot cheaper.  A simple IQ test will do.  If the government did not encourage so many useless degrees being offered, employers would never require graduates, because otherwise the pool of candidates would be much smaller.

Again your example does not really mean much.  Look at the types of jobs offered in the UK, most do not really require degrees.

Well start a company then, employ non graduates, and you'll have an advantage over the competition.

zagfles

talexuser said:

I seem to remember large companies having "pension holidays" in the 80s for many years in a row, while the employees carried on contributing. The reasoning was that the pension fund was worth more than the company and a tasty bait for takeover. Then years later all of a sudden the pension was un-affordable and had to be first limited and then closed to new employees, then sold off. I also remember talks with younger employees about "opting out" and don't know any that turned out better off than myself on my final salary pension (private company, inflation linked). A similar thing happened with repayment mortgages and investment mortgages that promised a large surplus at termination which often turned out to be a large deficit.

Yes, ours did. I didn't actually mind the pension holidays, because the company supposedly took the risk, but then when they were in deficit they started wanting to change, then close the scheme!

itwasntme001

zagfles said:

itwasntme001 said:

zagfles said:

itwasntme001 said:

zagfles said:

itwasntme001 said:

zagfles said:

itwasntme001 said:

zagfles said:

itwasntme001 said:

zagfles said:

itwasntme001 said:

Linton said:

itwasntme001 said:

It does seem like the last 4 decades have truly been a goldilocks period of disinflation, asset price (and therefore wealth) appreciation, low cost of capital (financial and human) etc.  Unlikely to repeat again.  It would be incredibly disingenuous to think that the boomer generation had it anything but easy.  It is very unlikely to repeat for younger generations unless some major advancement in tech is achieved such as robotics and AI that sees galloping leaps in productivity.

How can people be so stupid on these forums and elsewhere to think that 8-10% GARs, inflation linked DB pension annuities, state pensions, low house prices relative to earnings, rapid wage inflation, cheap emerging market labour resulting in cheaper and cheaper goods are not at all hugely beneficial to the boomers???????????????????????????????????????????????????

Yes but it was only the past 15 years or so that hands on investing was available to most people.  Many people did not have a DB pension and if they did, it may well not have been inflation linked.   In fact many people did not have an employers pension at all.  That was why SERPs was introduced. When I started work as a computer programmer with a degree (which only about 5% of people leaving school were able to get, most leaving any form of eductaion at 15-16) a pension was a management perk.

Dont confuse the lucky few with how the vast majority of the population fared.

You will of course get many people who did not benefit.  The point is much more did benefit in your generation compared to the younger generation.  Even without inflation linkage, there were still generous high rate annuities available such as GARs.  My father has one taken out at a rate of 10%.  No degree.  Average intellect.  Worked in average jobs.  Highly risk averse.  But wealth wise has done incredibly well.  Savings at high real rates (RISK FREE) of interest and buying homes when they were cheap makes a massive difference.

The young now, even with lower than average intellect have to go to uni to do pointless crappy degrees like media studies because of social pressures and every job pointlessly requires a degree.  That too saddled with £50k of debt....

DB pensions in the 70's and 80's are nowhere near as generous as their equivalents today, which is why they hardly exist in the private sector any more. No inflation protection, imagine leaving a job in the mid 70's and having your pension frozen at the level you left and seeing it plummet in value with the high inflation of the time, so by the time you draw it it is worthless. Companies used pensions as golden handcuffs to stop staff leaving.

Re student loans - Martin has tried to educate people on this, they can't be considered as normal debt. They are repaid according to income, it's a graduate tax in all but name, an extra 9% tax on income over about £26k. When I graduated in the mid 80's, I had zero "debt", but the basic rate of income tax was 29%. Now when students graduate, they pay 20% tax plus 9% student loan repayment. So pretty much the same. In fact, less now because the income tax personal allowance is higher in real terms and the student loan repayment threshold is much higher.

Houses were of course a lot cheaper, that's the main financial problem faced by the young today, but at least they don't have to contend with the 15% mortgage rates I did when I bought my first house.

Pensions - your point is irrelevant.  It is exactly why DB pensions existed in their form in the 70s and 80s that is one of the many factors for the boomer generation having such an advantage compared to the younger.  DB pensions originated back then assuming the providers were able to REINVEST at high rates of return.  No one had the foresight to see that interest rates were about to begin a secular downtrend resulting in lower and lower REINVESTMENT rates of return.  In hindsight those massively generous rates should never have been offered.  Unfortunately due to this bad judgement on interest rates, nations, municipalities and corporations are all suffering from these increasing liabilities, much of which is unfunded.  It will be the younger generation that will have to pay for this unless there are defaults on these obligations.

Student loans - your point is irrelevant.  Back in the 70s/80s less than 20% went to university.  Everyone else got jobs at age 16.  Now the vast majority go to university and I would say at least 60-70% of degrees are an utter waste of time and the debt is just a total waste (in reality it is a transfer of wealth from the taxpayer to universities and HMO landlords).  Then these graduates enter the workforce at age 22.  That's a full 6 years after the boomer generation would have.  Time wasted doing BS instead of gaining on the job skills to move up their respective professions and gaining more earning power - you earn more as you become more productive, universities for the majority DO NOT make you more productive.  Imagine 60-70% of the current massive sized student debt being a total waste compared to nearly 0% of the much smaller sized student debt being a waste in your generation.  A huge misallocation of capital and completely nonsensical giving boomers a massive productivity advantage over the current young, that too with much less debt.

Houses - your point is irrelevant.  The boomer generation had wage inflation as well and it was only a brief period of very high interest rates that you would have to suffer from.  But the nominal debt would have been much smaller.  It remains to be seen what combination of wage inflation and interest rates the young will have to contend with in the coming decades.  But certainly a lot less are able to afford as FTB than your generation.

Pensions - you think it's irrelavant that some could leave a job with 20 years service, and a deferred pension of 20/60th of their final salary, and then see inflation reduce that to a third or quarter or less of its real value. OK....

Student loans - they are not real debt. They are a graduate tax, with total taxation including them less than they were in the mid 80's. That is relevant. Decent degrees still get you decent jobs, you don't need a degree for a minimum wage job paying £18k a year today. In the 80's there was no minimum wage, my first job was £1.15 an hour.

Houses - yes this is the main issue. But there is no benefit to people like me whose house has gone up in value. Housing is a cost of living, so that's increased the same as my asset. I'd prefer it if housing was the same real value as when I bought in the late 90s. There was also negative equity people in the 90's had to contend with, the first house I bought in the early 90's had gone down in value when I sold it in the late 90's, I sold for less than I bought. For people with high LTV mortgages, this was a big problem.

There's also a lot of non financial benefits now too. Life expectancy has increased. Diseases like AIDS are no longer a death sentence. You are allowed to be gay, or trans now, with far more rights and far less bigotry. You weren't living with the constant threat of nuclear war that lots of people were convinced was imminent in the 70's and 80s. Technology is now way better, the idea that everyone has a mobile phone was a fantasy in the 80's, also the www, the idea that you can research just about anything from home rather than have to go to a library, even be able to have the debate, in the 80's it would have been letters to a magazine with a 2 month delay between replies! The idea of stuff like video calls, satnavs etc. Safety is much improved in nearly everything, cars didn't even have seat belts in the back seats in the 70's and 80's.

So in terms of quality of life overall, it's far better for kids these days IMO.

Pensions - I am sure there were some people disadvantaged by pension schemes back then.  But the point is that a significant portion of the working population in the 80s were on, what is now seen to be, very generous pensions.  You do not get DB pension schemes or GARs in the private sector any more.  You only get DB schemes in the public sector, as you did back then.  Even now they are making it more expensive (as they should) for each unit of DB pension benefit "earned".  Now in the private sector you pretty much only get DC schemes - massive difference between DC scheme RISKY wealth vs DB scheme RISK-FREE wealth.

I'll take these one at a time to avoid long posts...

Pensions - the DB schemes in the 80's were not "RISK-FREE". When I started work in 1987, the company had a DB pension scheme which you were obliged to join. In 1988 the govt changed the rules, a sort of "pensions freedom", where companies weren't allowed to force you to join/stay in their scheme, you could go with a private one if you wanted (but no company contributions if you did).

Many people opted out of the company scheme. HR organised meetings we had to go to where they were desparate to persude us to STAY IN the DB scheme! So why would people opt out? Were they stupid? No.

Because for someone like me in their early 20's, if I were to leave the company, my pension would be the value I left (eg 3/60th final salary if I'd been there 3 years) and it would only go up by inflation capped at 3%. Anyone looking at the recent history of inflation at that time, and working out what would happen if the past decade's inflation carried on into the future, a pension deferred until retirement age, 40 years later would be practically worthless. So young people at the time, who didn't see a long term future in the company, were right to consider opting out. Particularly as investment returns they could earn in a private pension were 10%+ at the time.

There was also no PPF, so if the company went bust your pension was lost completely. Also companies could take the pension off you for stuff like gross misconduct. So they weren't "RISK-FREE" at all.

DB pensions at the time weren't expensive, otherwise HR would not have been persuading people to stay in the scheme. They did it because it was a low cost way of retaining staff, as people knew they'd take a hit in the value of their pension if they left.

Willetts does however have a good point about the subsequent changes, the improvement in inflation protection, the PPF, rules to stop companies misusing the scheme (Maxwell etc) which combined with lower inflation and lower investment returns, vastly improved the value and increased the cost of DB pensions. The end result being that people who did have decades in a DB scheme did very well, and also of course most private sector companies closing their DB scheme as it became too costly.

But if you take an example of two people, both aged 21 who get a job they only stay in for 3 years till they're 24. One of them got the job in 1987 with a 1/60th DB scheme, and the other in 2017 with an auto-enrollment DC scheme. It's far from certain who'd get the better pension outcome. The risks were/are massive for both of them.

This seems to be never ending and it is because you keep bringing up fringe cases that don't really prove anything.  The fact is that a significant number of the boomer generation do have good DB pensions accrued in the private sector whereas they are non-existent for the younger generation in the private sector.  That is a generational inequality whether you think it or not (and whether it was known at the time in the 70/80s or not).  We have not even touched on state pensions and triple lock; the younger generation are likely to not have access to this until a good number of years later compared to the age at which the boomers can access it.

DB pensions may not have seen to be RISK-FREE back when they were started, but they sure appear RISK-FREE now compared to DC pensions.  Not only that, but it will be the stockholder that will be paying for the pensions for the corporations that have these liabilities.  And guess who will see the hit over time for this?  Yes that's right, its the stockholders who own equities in their DC pension schemes, i.e. the younger generation.

You seem to think someone is a "fringe case" if they don't spend 40 years in the same job. Fact was, that for people who moved jobs a few times in the 80's/90's, DB pensions did not work that well, and it certainly can't have been known, at the time, that they'd work well for them.

It would be a bit like if, in 30 years time, the stockmarket has risen massively from today, and people looking back with rose tinted spectacles saying how good minimum level AE schemes were.

Never said someone who does not spend 40 years is a fringe case.  But your example of someone spending 3 years is and that was what I was referring to.  Even if a person stayed at a company offering DB pensions for 10 years (which is not that long back then when people did not move around and were incentivised to stay longer DUE TO THE PENSION SCHEMES) they would still have accrued valuable benefits and moved onto the next employer who also offered the DB pensions.  You need to take the total benefits accrued across all employers.  Remember these schemes were common for a long time between the 1960s and the 1990s.  Prime working period for boomers.

For a start someone leaving after 3 years or so in their 20's was very common. It was even encouraged by career advisers, you should move around, gain experience in different companies, that's the way to get ahead.

But even with 10 years in one company, there was no legal obligation on the company to index link your pension at all. Some schemes like mine did, but many didn't. And those that did typically capped inflation increases at 3%.

So you leave at 30, still 30 years to retirement, your pension would be ravaged by 30 years of inflation and certainly at the inflation rates of the 70/80s be totally worthless. Transfers were available, but you couldn't just transfer into another DB scheme and retain the same years service, the transfer value accounted for the lack of inflation protection and bought far less service in the new employer's scheme than you'd actually accrued in the old one.

So a lot of people in that situation would have transferred to a private pension on leaving, there were lots of commission hungry advisers ready to help. And in most cases without the benefit of hindsight, the decision could be perfectly justified at the time. After the 1988 "pension freedoms" TV adverts were constantly telling you how private pensions were better for people who move jobs. DB in the 70/80s was not good for young people who didn't intend remaining in the same company till retirement.

Well the numbers speak for themselves so if you take a look at my reply to Linton's post, you will see the data actually proves how valuable the DB schemes turned out to be for the boomers.

What data? Just seems to be speculation. You don't know what the value of a DC pension will be at retirement. You don't know what annuity/annual income it will buy.

Pretty similar to me in my 20's when I thought I'd be moving job.

See Linton's post and my subsequent reply.

No one will know for certain what the values and annuity rates will be, I agree.  But given the starting point of the boomer generation compared to the starting point of the younger generation, it seems everything points to the boomer generation having a massive tailwind compared to the younger generation.

garmeg

talexuser said:

I seem to remember large companies having "pension holidays" in the 80s for many years in a row, while the employees carried on contributing. The reasoning was that the pension fund was worth more than the company and a tasty bait for takeover. Then years later all of a sudden the pension was un-affordable and had to be first limited and then closed to new employees, then sold off. I also remember talks with younger employees about "opting out" and don't know any that turned out better off than myself on my final salary pension (private company, inflation linked). A similar thing happened with repayment mortgages and investment mortgages that promised a large surplus at termination which often turned out to be a large deficit.

Going back into the far reaches of my distant memory now ...

The reason for the contribution holidays was that if schemes were 'overfunded' (assets exceed liabilities) by something like 5% on a continuation basis (ie assuming the schemes continue in force, open to future accrual) then there was no tax relief on company contributions and quite possibly a tax penalty.

So companies were forced by the government to take contribution holidays.

Then markets fell, we got Gordon Brown and the rest is history.

zagfles

itwasntme001 said:

zagfles said:

itwasntme001 said:

zagfles said:

itwasntme001 said:

zagfles said:

itwasntme001 said:

zagfles said:

itwasntme001 said:

Linton said:

itwasntme001 said:

It does seem like the last 4 decades have truly been a goldilocks period of disinflation, asset price (and therefore wealth) appreciation, low cost of capital (financial and human) etc.  Unlikely to repeat again.  It would be incredibly disingenuous to think that the boomer generation had it anything but easy.  It is very unlikely to repeat for younger generations unless some major advancement in tech is achieved such as robotics and AI that sees galloping leaps in productivity.

How can people be so stupid on these forums and elsewhere to think that 8-10% GARs, inflation linked DB pension annuities, state pensions, low house prices relative to earnings, rapid wage inflation, cheap emerging market labour resulting in cheaper and cheaper goods are not at all hugely beneficial to the boomers???????????????????????????????????????????????????

Yes but it was only the past 15 years or so that hands on investing was available to most people.  Many people did not have a DB pension and if they did, it may well not have been inflation linked.   In fact many people did not have an employers pension at all.  That was why SERPs was introduced. When I started work as a computer programmer with a degree (which only about 5% of people leaving school were able to get, most leaving any form of eductaion at 15-16) a pension was a management perk.

Dont confuse the lucky few with how the vast majority of the population fared.

You will of course get many people who did not benefit.  The point is much more did benefit in your generation compared to the younger generation.  Even without inflation linkage, there were still generous high rate annuities available such as GARs.  My father has one taken out at a rate of 10%.  No degree.  Average intellect.  Worked in average jobs.  Highly risk averse.  But wealth wise has done incredibly well.  Savings at high real rates (RISK FREE) of interest and buying homes when they were cheap makes a massive difference.

The young now, even with lower than average intellect have to go to uni to do pointless crappy degrees like media studies because of social pressures and every job pointlessly requires a degree.  That too saddled with £50k of debt....

DB pensions in the 70's and 80's are nowhere near as generous as their equivalents today, which is why they hardly exist in the private sector any more. No inflation protection, imagine leaving a job in the mid 70's and having your pension frozen at the level you left and seeing it plummet in value with the high inflation of the time, so by the time you draw it it is worthless. Companies used pensions as golden handcuffs to stop staff leaving.

Re student loans - Martin has tried to educate people on this, they can't be considered as normal debt. They are repaid according to income, it's a graduate tax in all but name, an extra 9% tax on income over about £26k. When I graduated in the mid 80's, I had zero "debt", but the basic rate of income tax was 29%. Now when students graduate, they pay 20% tax plus 9% student loan repayment. So pretty much the same. In fact, less now because the income tax personal allowance is higher in real terms and the student loan repayment threshold is much higher.

Houses were of course a lot cheaper, that's the main financial problem faced by the young today, but at least they don't have to contend with the 15% mortgage rates I did when I bought my first house.

Pensions - your point is irrelevant.  It is exactly why DB pensions existed in their form in the 70s and 80s that is one of the many factors for the boomer generation having such an advantage compared to the younger.  DB pensions originated back then assuming the providers were able to REINVEST at high rates of return.  No one had the foresight to see that interest rates were about to begin a secular downtrend resulting in lower and lower REINVESTMENT rates of return.  In hindsight those massively generous rates should never have been offered.  Unfortunately due to this bad judgement on interest rates, nations, municipalities and corporations are all suffering from these increasing liabilities, much of which is unfunded.  It will be the younger generation that will have to pay for this unless there are defaults on these obligations.

Student loans - your point is irrelevant.  Back in the 70s/80s less than 20% went to university.  Everyone else got jobs at age 16.  Now the vast majority go to university and I would say at least 60-70% of degrees are an utter waste of time and the debt is just a total waste (in reality it is a transfer of wealth from the taxpayer to universities and HMO landlords).  Then these graduates enter the workforce at age 22.  That's a full 6 years after the boomer generation would have.  Time wasted doing BS instead of gaining on the job skills to move up their respective professions and gaining more earning power - you earn more as you become more productive, universities for the majority DO NOT make you more productive.  Imagine 60-70% of the current massive sized student debt being a total waste compared to nearly 0% of the much smaller sized student debt being a waste in your generation.  A huge misallocation of capital and completely nonsensical giving boomers a massive productivity advantage over the current young, that too with much less debt.

Houses - your point is irrelevant.  The boomer generation had wage inflation as well and it was only a brief period of very high interest rates that you would have to suffer from.  But the nominal debt would have been much smaller.  It remains to be seen what combination of wage inflation and interest rates the young will have to contend with in the coming decades.  But certainly a lot less are able to afford as FTB than your generation.

Pensions - you think it's irrelavant that some could leave a job with 20 years service, and a deferred pension of 20/60th of their final salary, and then see inflation reduce that to a third or quarter or less of its real value. OK....

Student loans - they are not real debt. They are a graduate tax, with total taxation including them less than they were in the mid 80's. That is relevant. Decent degrees still get you decent jobs, you don't need a degree for a minimum wage job paying £18k a year today. In the 80's there was no minimum wage, my first job was £1.15 an hour.

Houses - yes this is the main issue. But there is no benefit to people like me whose house has gone up in value. Housing is a cost of living, so that's increased the same as my asset. I'd prefer it if housing was the same real value as when I bought in the late 90s. There was also negative equity people in the 90's had to contend with, the first house I bought in the early 90's had gone down in value when I sold it in the late 90's, I sold for less than I bought. For people with high LTV mortgages, this was a big problem.

There's also a lot of non financial benefits now too. Life expectancy has increased. Diseases like AIDS are no longer a death sentence. You are allowed to be gay, or trans now, with far more rights and far less bigotry. You weren't living with the constant threat of nuclear war that lots of people were convinced was imminent in the 70's and 80s. Technology is now way better, the idea that everyone has a mobile phone was a fantasy in the 80's, also the www, the idea that you can research just about anything from home rather than have to go to a library, even be able to have the debate, in the 80's it would have been letters to a magazine with a 2 month delay between replies! The idea of stuff like video calls, satnavs etc. Safety is much improved in nearly everything, cars didn't even have seat belts in the back seats in the 70's and 80's.

So in terms of quality of life overall, it's far better for kids these days IMO.

Houses - We seem to agree on this but you still point out examples of how things were for your generation but they do not really compare for the younger generation.  Plus it remains to be seen what happens to the younger generation in terms of house prices, interest rates, negative equity etc.

I agree with the rest of your post.  What I say is nothing to do with envy or out of anger.  I personally will set to benefit through gifts and inheritances.  The point I am making is simply this: That there is a significant generational wealth inequality (more specifically the ABILITY to generate it by themselves) between the boomers and millennials.  That is it.

I should add a very significant point that further worsens this inequality.  It is debt.  Debt has been accumulated by a massive amount over the decades.  Both funded and unfunded.  The baby boomers are retiring now so will be in full on consumption mode.  The tax they pay will reduce over time.  More of the tax will therefore have to paid by the younger generation.  The debt picture does not look like it will reverse anytime soon.  It will have to be paid back at some point.  It can only be the young that will pay this back.

On the debt/taxes point. It depends what taxes are levied on, for instance consumption (VAT), capital (IHT, CGT), property (council tax, stamp duty etc). Remember than taxes on earned income are now at historically low levels, the personal allowance is now much higher in real terms than it was is the 80's, the basic rate of tax is 20%, much lower than in the 80's. NI is a bit higher, but overall taxes on earnings are at an all time low.

Taxes will probably have to rise, but they don't necessarily have to rise on earnings, there is serious talk about capital taxes rising instead (eg CGT). The last decade has shown us that politicians (and mainly Tory ones) are willing to raise capital taxes eg stamp duty on second homes, CGT, big cuts in the pension lifetime allowance, but have been reducing taxes on earnings (big increases in personal allowance).

Well of course it will depend on where taxes are levied.  Does not take a genius, given the main voting block of the UK, who will be favoured more. Sheesh.

Again you are talking about things that don't and won't (a lot because of the boomer voting base) have material difference.  Last year ending March 2020, the deficit was over £60bn.  The rest of this year will be astronomical given the COVID spending.  Debt levels are at highest levels seen since WW2.  IHT intake is around £6bn a year.  CGT intake around £10bn.  Gonna take a !!!!!! load of CGT and IHT tax hikes to even cover a normal year's deficit, let alone a COVID year AND LET ALONE EVEN TOUCH THE NATIONAL DEBT ITSELF.  VAT, income tax, stamp duty raises in a time of economic uncertainty is going to be economic suicide and potentially political suicide as well.

Only the younger generations can and will have to pay for the majority of the debt.

Odd how over the last decade capital taxes have increased but earnings tax have reduced then, isn't it?

While interest rates are below inflation, there's no rush to pay down the national debt. What do think will eventually happen to the vast wealth of the boomers?

Just because interest rates are so low does not mean that someone is not paying for it.  Inflation is a way to pay for it.  Funny how state pensions and many DB pensions will be protected from this inflation isn't it?

Much of the wealth will be reduced to nil on death.  Much will be passed on to younger generations.  The point still stand however.  Boomers have had a major advantage over the younger generation in terms of wealth generation ability.

NMW too, last rise was 4 times the inflation rate, next rise looks to be well over inflation too.

DB pensions in deferment are now index linked with a 5% cap (2.5% for some service), but in payment, there is no compulsory index linking on pre 97 service. Other than the GMP (SERPS replacement). Go into the PPF and there is no inflation protection on pre 97 service and 2.5% cap on post.

Nobody in their 20's in the 1980's knew what their "wealth generation ability" over the next 40 years would be, any more than people in their 20's now know what their wealth generation ability will be between now and 2060. It depends massively on growth. A few technological advances could give growth a massive boost (nuclear fusion for instance, yes it's the holy grail). The WW2 war debts, much bigger than current debt in GDP terms, were mostly cleared in a couple of decades thanks to good growth.  

talexuser

garmeg said:

So companies were forced by the government to take contribution holidays.

Well that may have been the case, but was not what we were told at the time, as described in my post. In any case it was a disaster for the long term significantly reducing surpluses for future bad times. And we did have the private pension mis-selling scandal which cost billions. I predict the more recent pension freedoms will lead to another scandal and more pensioner poverty in the future since most people have no idea of the lump sum they need to fund a longer lifespan.