Tears of joy?
A friend to this blog, Arun Muralidhar, has sent me a timely academic paper . It has an abstract but I have called in another friend Mr Chas Grip Pitt who has summed it up so that only the most diligent will download the paper Arun’s site or from this blog after Pitt’s summation
Tears of joy for those still to retire
As Rachel Reeves marked her one-year anniversary as Chancellor, a curious scene played out in Parliament: visible tears from the minister. While speculation ran wild, economist Arun Muralidhar suggests an unconventional but optimistic reason—tears of joy.
Under Labour’s tenure, Britons may have received one of the greatest, yet unheralded, boosts to retirement security in recent memory. According to Muralidhar’s analysis, the cost of securing real, guaranteed retirement income has dropped dramatically—by around 15% for 60-year-olds and up to 50% for 30-year-olds. The driver? Shifting monetary and fiscal conditions under Labour, and the Bank of England’s rate cuts, which have altered the shape of the real yield curve.
For retirement savers, that means buying tomorrow’s income has become cheaper—potentially much cheaper.
But there’s a catch: this financial tailwind remains largely theoretical unless the government takes the next step. Muralidhar argues that the UK should urgently issue a novel class of retirement bonds known as SeLFIES—Standard-of-Living-indexed, Forward-starting, Income- only Securities—to help citizens lock in these gains.
A Fault in Finance Orthodoxy
The crux of Muralidhar’s argument is that there is a fundamental flaw in mainstream economics and finance/investment theory. Standard models assume that investors seek to maximize expected utility of wealth, often using concepts like the risk-free rate or Sharpe ratio. But this approach, inherited from Nobel laureates such as Profs. Sharpe, Markowitz, and Tobin, rests on a silent assumption: that liabilities—future needs—are fixed and predictable.
Reality is messier. Whether it’s retirement, education, or healthcare, goals are stochastic and personal. What investors actually care about is maintaining a pre-retirement standard of living, not simply maximizing account balances. In fact, traditional “risk-free” assets like Treasury bonds often mismatch the timing and nature of real retirement needs.
The Case for SeLFIES
To address this disconnect, Muralidhar proposes SeLFIES: government-issued bonds that begin paying a guaranteed, inflation-adjusted income stream at retirement and continue for a defined period, such as 20 years. These bonds would mirror the retirement cash flows people actually want—steady, predictable, and real.
In practice, SeLFIES are elegantly simple. A 25-year-old today could buy small
denominations—say even £1 per purchase —accumulating over time to fund a retirement
income target (e.g., £50,000 per year). A person needing that amount would buy 10,000 units because each SeLFIES bond pays £5/real per year. The appeal is universal: easy to understand, low-cost, government-backed so low-risk, liquid, inheritable, and indexed to inflation or consumption to preserve purchasing power.
Moreover, SeLFIES could be offered through existing vehicles like ISAs or workplace pensions, and even for the self-employed—often left behind in pension reform—could participate directly.
Labour’s Unintentional Gift
Using a proprietary SeLFIES pricing model developed by his co-author, Adam Kobor, Muralidhar demonstrates a surprising benefit of Labour’s first year in office. As interest rates fell at the short end in 2024-2025, but rose at the long end of the curve, the prices of long-duration SeLFIES—those targeting retirement for young people—fell significantly.
This means the cost of securing a fixed retirement income became more affordable, particularly for younger cohorts.
By contrast, similar monetary easing in the United States in 2024 increased retirement planning costs, due to differences in yield curve behavior. For UK citizens, this creates a unique opportunity—but only if it’s seized. Muralidhar calculates that a 30-year-old today can fund a £25,000/year real retirement income for £168,500, down from £343,000 in 2023—a staggering 50.9% decrease. Yet these gains cannot be locked in unless the appropriate instruments—like SeLFIES—are made available now.
Broader Benefits
SeLFIES aren’t just good for individuals. For governments, they offer strategic advantages:
Reduce future reliance on DB pensions to fund debt, but capture an alternative
domestic market segment
Enhance financial inclusion, especially for underserved groups
Extend the yield curve and support long-term infrastructure finance Lower future bailout risks through more predictable household income streams
Brazil’s success with a similar product launched in 2023, RendA+, suggests feasibility and
voluntary demand. Over 320,000 Brazilians have already bought into the idea. With UK
infrastructure in place and strong public interest in pension reform, the time may be ripe.
A Political and Financial Crossroads
The upcoming Mansion House speech on July 15 could offer the perfect platform for the Hon. Ms. Reeves to announce a SeLFIES initiative—sealing Labour’s legacy as the party that modernized retirement finance. The irony, of course, is that without SeLFIES, these policy- driven improvements may evaporate as markets shift. In that case, Reeves’ tears might not remain joyful for long.
With minimal cost and substantial upside, SeLFIES represent a rare win-win-win for citizens, government, and markets alike. Whether Labour chooses to act—or misses the moment—will determine whether this opportunity becomes a footnote in a technical paper, or a landmark in UK pension history.
Arun does not mess about, he calls on Rachel Reeves to take action
