There are millions of people in this country with pension pots that are too small to convert to an annuity (or Pension SuperHaven) , that are impractical for drawdown but which people want to use to add to their state pension and/or earnings to let them retire in comfort.
We need a simple financial product that pays a guaranteed income at a fixed rate with a super-strong covenant. Arun has got Governments to use his SeFLIE structure and now he’s lobbying Rachel Reeve and Emma Reynolds to offer SeLFIES for small pots.
I’m really pleased that he’s going to be talking with us on Tuesday
Coffee Morning – Should SeLFIES now be issued by HM Treasury?
Tuesday August 27th, 2024 at 10:30 am
I am so excited I can’t wait to hear him talk to this chaotic deck which promises so much!
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The formal bit
We are delighted that Dr Arun Muralidhar will be dialling in from Washington DC (very early from him) to give us an update on what is happening with SeLFIES.
There is a looming retirement crisis in the UK as the country faces the challenge of an aging population. British citizens are fortunate to be living longer and enjoying increased life expectancy. At the same time, the country has experienced a declining birth rate, and perhaps, slower economic growth. Hence, Social Security’s sustainability has been questioned.
“SELFIES” (Standard-of-Living, Forward-starting, Income-only Securities) were first proposed by Arun in 2015.
To my mind, they are the best option for people with small pots (typically less than £10,000) after cash has been stripped.
Strips of income that can be bought easily anywhere from the Post Office to online, that carry minimal administration and pay a regular income for a fixed period of time are the answer for small pots
With a new Labour Government, HMT may now be interested in the SeLFIES concept!
Some of you may also be aware that SeLFIES were launched in Brazil and appear to have made a very positive impact; Arun will update us on this.
Following Guiide’s decumulation presentation recently the prospect of the SeLFIES idea could also help in this space?…for discussion.
Dr Arun Muralidhar is founder of Mcube Investment Technologies.
SeLFIES are “Back on the table”!
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I’m confused. Isn’t the Selfie another government-issued debt instrument? Aren’t the Selfie’s guaranteed, real rates of return another potential commitment from taxpayers – a la a Social Security sidecar where individuals buy additional pension benefits (pension income) by making an additional contribution today?
Unless the market correctly prices the unknowable (inflation, etc.), the purchase price for the bond will be inaccurate. If the market price anticipates a 2% inflation rate, what happens to the taxpayer liability if inflation actually averages 4%? That is, if the bond is priced conservatively, many won’t buy the bond. And if the bond is piced aggressively, won’t the future taxpayer be at risk?
In the States, haven’t we already accumulated a debt of $35+ Trillion and aren’t we already adding $2 trillion a year? Do we need more liability?
Perhaps things are different in the UK?
You mention Brazil has succeeded with Selfies. What happens if Brazil’s inflation rate of about 4.5% today pops up to ~2,500+% as it did 30+ years ago? Who is on the hook for the promises, or will the government just default on the Selfie’s promise?
Why should FUTURE taxpayers take on additional risk so retirees can maintain their standard of living in retirement?
“Why should FUTURE taxpayers take on additional risk so retirees can maintain their standard of living in retirement?”
They shouldn’t, and they won’t. Its akin to a ponzi created by the generation of entitled baby-boomers+ embedded in the establishment, foisting the bill for their healthcare vacations/golf/yoga/yachts/whatever, upon the future generations.
They understand it now, but still the selfish boomers are calculating that they’ll be long under the ground before the thing goes up in flames – which inevitable it will do.
But my sense is that the deck of cards can be brought down a lot lot quicker than the 10-15 years most boomers are figuring. The gen-Zers (and Ys) under invested, under education and over-indebted, just won’t pay the bills.
Thanks. I’m looking for the economic analysis that would identify the difference in funding versus benefits by generation – as if entitlements were benefit plans.
My experience is that if you imputed a reasonable rate of return, say 6% on taxes paid, I would be surprised to see that the Boomers did a worse job in shouldering the cost of their own entitlements than say the Silent Generation or the Greatest Generation – at least here in the states. A large part of the underfunding in the states came from Congress buying votes by improving benefits for the Silents and Greatest Generation without a commensurate increase in taxes for those generations. For example, when Congress added Medicare in 1964, the oldest member of the Greatest Generation was 63 – eligible to start Medicare coverage in less than 2 years. And, the initial Medicare tax (FICA-Med) was < $250/year in 1966 and really didn't take off until President Clinton removed the cap on FICA-Med in 1993. Medicare Part D was added in 2006, when the youngest member of the Greatest Generation was 82 years old, and the youngest member of the Silent Generation was 57.
For comparison, the oldest boomer was 37 years old in 1983 (the youngest was 19) when Congress cut benefits and raised taxes. Baby Boomers have paid income taxes all their working years to fund Medicare Part B, and since 2006, Medicare Part D. The oldest Boomer reached Medicare eligibility in 2011, the youngest has yet to reach eligibility for Social Security old age benefits or Medicare.
That said, seems clear that Boomers didn't contribute more than their benefits, so the unfunded liability from Congress improving benefits for the Silents and Greatest Generation is likely being handed off to Gen X, Y and Z.
As bad as that liability shift is, it may be less than the liability from running federal budget deficits the last 20+ years – since 2010, when we got health reform, we have added $25+ Trillion to our national debt, and we are currently adding $1.9T – $2.0T per year for as far as the eye can see or the Congressional Budget Office/White House cares to predict.
Are Selfies another government IOU? How will funds be invested?
I guess it is limited to small pots and similar to buying back missing years towards a State Pension. They would fill a gap in the market where the free market does not want to bother with. We have from time to time limited issues for really good value financial products from our publicly owned National Savings & Investments, but these are often over subscribed and then withdrawn or both. In short, not significant enough to upset the market but a niche product for those of modest means often neglected by the commercial suppliers out there.