“A teenage dream’s so hard to beat..
Just say those words and I’m thinking 1978, radio under the pillow – John Peel show – 11pm.
But I could relive the TEEN- AGE kicks in a few years time, if that crazy maverick Michael Johnson gets his way!
Michael’s latest idea is what he calls TEEN taxation and it’s for those teenagers of the seventies who will be retiring from now on.
Here’s how it works. You pay your Taxes as you put money into your pension through PAYE – T
You are Exempt on your investments between then and the point you start spending your savings – E
And you get an ENhanced retirement pot at “spending time” if you agree to spend your money in a sensible way – EN.
Now there’s a value judgement in that word “sensible”. It ties in with the Social Market Foundation paper this week which lays out what “sensible” is.
Sensible is not spending all your pot and running out in later years
Sensible is not putting all your money under the bed and “dying loaded”.
Sensible is establishing a plan of action that makes sure that you’re not going to be a burden on another generation of tax-payers.
So in practical terms, sensible is insuring against extreme old age, making provision for later life expenses and setting the rate of targeted pension at a reasonable level to sustain it till death do thee part,
Of course- if you are an annuity provider – sensible is providing an annuity. But that need not be the only sensible way to spend your savings. You might set up a plan which does what NEST is suggesting, keeping money in cash to make income payments, investing some in shares for the long term and planning for an annuity purchase when your cognitive faculties desert you quite!
You might, and say this very quietly as this financial heresy, club together with others and form a spending club where your money is pooled to provide protection against extreme old age and an investment strategy that provides economies of scale enhancing the regular income.
All of these ideas seems a sensible strategy and without starting that “in my garden a thousand flowers should bloom” nonsense that so messed up the DA policy, I do think there’s more than one way to skin a cat. There cold be more than one way to get back to TEEN.
Michael explained this idea at a conference organised by Professional Pensions on the future of pension consulting. Frankly I don’t see it does much for pension consulting – accept reduce the amount of it!
Unless you are going to pay someone to review the level of income you take every year, which most people are reluctant to do- the annuity, the NEST hybrid or the CDC decumulator described above are the alternatives. None of them need a lot of love and attention, they are what Paul Lewis calls “Fire and Forget” strategies.
Of course all of the Fire and Forget strategies need to have some form of flexibility. The NEST strategy gives a bail out option and property rights can be built into the collective decumulator I mention at the end. Even annuities look set to have a second hand value for those who get fed up with their guaranteed income streams.
But Michael’s ENhancement can cope with even that, it would of course be recovered if someone decided to get dippy with their savings and become a tax disincentive to jack a sensible strategy in.
Which might sound a bit recidivist to the lover of pure freedom. But nobody said that the freedom to be feckless was to be encouraged. Right now people pay enormous tax penalties to be a “tax-muppet” and cash in their pension for a “Lamborghini”. If we move to TEE, the disincentive to spend it all at once gets taken away.
TEEN may involve a value judgement on what qualifies for the incentive and what doesn’t , but heh- what are Regulators for?
So I like Michael’s idea, I think it makes TEE responsible and it allows me to sing that song to myself
Altogether now…
A teenage dream’s so hard to beat
Every time she walks down the street
Another girl in the neighbourhood
Wish she was mine, she looks so good
I wanna hold her, wanna hold her tight
Get teenage kicks right through the night
I’m gonna call her on the telephone
Have her over cos I’m all alone
I need excitement, oh I need it bad
And it’s the best I’ve ever had
I wanna hold her, wanna hold her tight
Get teenage kicks right through the night
Alright!
