I am posting this week details of a conversation between one of my sons and myself. While the conversation never took place exactly as I narrate it, the views are ones that my son has made clear to me over some time. I find it alarming that he needs to come to the conclusion he has.
While I believe in free market capitalism largely because the alternatives are dire, there is no question that we have got certain aspects fundamentally wrong. When I hear, as I did from an economist on the Today programme this morning, that the median family income in the UK has not increased in the last 10 years, and the median family income in the US has not increased for the last 30 years, it becomes clear that we have been living in a fool’s paradise.
I do have some ideas as to how the situation might be rectified over time. They are fairly radical, but I am no expert – only taking grim consolation that no one else appears to be either. But I do know that the present alarms provide an opportunity for deep reform. If we lose this opportunity the roundabout will continue to turn. But the next time around I will not hear it from 6 foot deep. Will you?
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You could regard this as a personal coda to Well – Fair? of a week or two back. It reflects conversations with one of my sons, who is entering middle age. I had been telling him how important I thought it was for him to build up pension funds for himself and my daughter in law.
He knows that I have savings, so he asked me what rate of interest I was earning. I told him that 3.5% was about the mark. “And then” he said “you have to give nearly half away in tax. And your savings are from taxed income?” I had to agree. Then he reminded me of the rate of inflation.
So my savings are not increasing year by year, they are simply decreasing. I am, in effect, being penalised for daring to have them. I said “I could sell the house, and move into something smaller.” “Yes” he said, and we did a calculation. I realised that the stamp duty price I would be paying for the privilege of downsizing and saving on resources would have provided deposits for house purchase for four of my young, adult, grandchildren.
He went on, “But at least it would free up money to spend. As it is, you realise that nearly half the house’s value is in hock .
“No it’s not. I followed all the pundits’ advice and paid off the mortgage decades ago.”
“That shows you why you should take no notice of pundits. Given inflation, borrowing money is ridiculously cheap right now. But I’m not talking about mortgages. This is called Inheritance Tax; it’s at 40%. And as you were foolish enough to have a large family, whatever you are good enough to leave us will have to be divided between 5 children and 14 grandchildren.
I pleaded that at least I had enough money to live in a care home if I needed to. He agreed with that but pointed out that I might well be in a room next to someone who had never saved a penny. “And you realise that your fees will be bumped up to pay his fees because the councils don’t pay the care home owners the proper price. Who’s got the best bargain there?”
But I was determined to win this one. So I pointed out that I was fortunate in having had a final salary pension, while he had no such thing. “Yes,” he said to me “And I’ve seen what happened. People who retire now will have had their pension pot collapse in value – and their annuities are going to be based on low rates of interest and lengthening life spans. That’s a real reward for savings!”
“Why are you looking so cheerful?” I asked. “Oh, nothing really. It’s just that Jeanine and I are off to the States next week, for Christmas. That’ll be our second trip this year. Thank Heavens the welfare state teaches us to spend rather than save.”
Where did I go wrong?