It’s not me, it’s you.

Before I get started, I want to make absolutely clear that this is really all your fault. You are entirely at fault here, and I take no responsibility whatsoever for your actions.

First up, you’ve also got a savings account. That’s money you’ve put away – you’re quite proud of that. But the truth? You failed. You spent it.

Because you’ve borrowed money on a credit card. You don’t realize how daft it is that you pay a huge amount of interest to the bank each year, because it’s only a tenner or so each month, so you don’t notice how it adds up.

£ 178m is paid in personal interest in the UK every day.

Effectively, you’ve borrowed money on your credit card from the bank, and then you put that money back in the bank. You’ve developed an ingenious scheme for giving money to banks.

Average household debt in the UK is about £ 8,076 (excluding mortgages).

Spend your “savings” on paying off your debt. Be honest with yourself. Because nobody made you borrow that money, on that credit card of yours. That was you.

This is just an example of the way that you, you personally, got us into the economic mess we find ourselves in.

You see, there’s really only two ways to make money: work and risk. Obviously you can earn money through your job, that’s real money. And then you can invest or gamble your money to increase that sum.

An investment in property is generally considered a low-risk investment. With low risk comes small reward. You won’t make much money, but you’re also unlikely to lose much. If you live in the house you own, you also reduce the risk that your rent will fluctuate. A sound investment.

But property still obeys the laws of supply and demand. When there’s problems in the stock market, many investors will sell their shares to invest in property, reducing their exposure to an unpredictable stock market. This demand drives property prices up, which makes property investments seem even more attractive. And of course, this brings yet more investment.

After a few years, your house has doubled in value. On paper, you’re in the money. Naturally you want that feel of that green between your fingers. So you remortgage your house, getting cash out now. In return, you’ve got a low rate on a loan.

But wait, where did that money come from? You had a property, and now you’ve got property and a big wad of cash. That cash didn’t appear from nowhere – you didn’t win the lottery. What happened was that you exchanged cash for increased risk on your property.

You took that cash and bought another property. Buy-to-let they call it. You get a mortgage on a house, and pay that mortgage off with the rent you receive from the tenant. After twenty years, you’ll basically have a free house.

Again, this house has simply come at the cost of increased exposure to risk. Your buy-to-let is only feasible if the rent income is greater than the mortgage costs. Those costs are dependent on the mortgage interest rate. Also, you assume your property will increase in value.

If there is increased confidence in the stock market, investors will tend to reduce their investments in property to find greater flexibility and returns from stocks and shares.

Supply and demand comes into effect once again. As demand drops, so will prices, albeit slowly. You might find yourself in negative equity as the property value drops lower than the amount you borrowed to buy it. With low demand, you’ll have difficulty selling up. Should rent demand drop or mortgage rates increase during this period, you, and millions like you, will be in huge trouble.

331 people every day of the year will be declared insolvent or bankrupt. This is equivalent to 1 person every 60 seconds during a working day.

And of course, huge trouble doesn’t work out well for the banks either. Foreclosing on a loan means cancelling the repayment of a huge percentage of the debt. As they do so, tax revenues drop, and the whole country falls into difficulties. That is why the governments are spending billions to prop up the property values and keep interest rates down.

£ 20.71m of loans is written off each day by banks & building societies.

Yup, it’s all for you. We’ve put ourselves into twenty years of debt because we can’t let you go bankrupt. I didn’t do that. You did that.

And the bankers of course. They did that. But how they did that, and why they did that, are because of you.

You see, investment bankers basically gamble with money. However, they’ve found a clever way to cheat the system, because they don’t gamble with their own money. They gamble with other people’s money, and take a percentage of the winnings. When they lose, they don’t actually lose a dime.

So whose money do they risk? Pension funds, on the whole. These investment giants are big movers on the stock market. The managers of pension funds are paid reasonably well for their jobs – “reasonable”, based on the standard market rate. The standard rate is based on the pay of the famous “fat cat” company directors, whose pay is decided by themselves, but must be confirmed by their shareholders at the annual AGM. Of course, it is the pension funds who are the biggest shareholders, represented by the pension fund managers themselves, and so executive pay rises are rarely disputed.

The value of assets held in UK-funded pensions was £ 1.92 trillion in 2009 (138 per cent of GDP).

The Pension Fund is a curious animal in that regard. The money in your pension is your money. Earned by you, saved by you. The only problem is that you can’t get your hands on it, and you have no influence over the investments it makes. You get no say at the company meetings where your pension is invested. You can’t refuse to pay bonuses to your fund managers in a year where your pension halved in value. It is money without worth.

Your pension is one area where you let everybody down. It’s your money paying the bankers, the fat cats, the expenses bills in swanky wine bars. You did that. I didn’t.

You see, the truth is that you don’t need a pension. Invest instead in bricks and mortar. Something you can see and feel and touch and trust. A property investment is the exact opposite of a pension fund – for the majority of the time, you get all the control, but the money is invested by the bank.

All you have to do is leave it be. When property prices rocket, don’t get carried away. Just smile smugly to yourself with your paper riches and just keep steadily paying your mortgage. When prices drop again, you’ll still have a roof over your head. When you’re eighty, then sell it and move on. It’s only a house, but there’s money in those bricks. Real money, money you worked for.

Voting with your feet like this is the best way to take control. Stop whinging that you didn’t get a say. This was actually your fault all along. Let’s learn your lessons from this debacle of yours, and grow up.

Finally, a suggestion for the manifesto. Because you see, a property is not quite like a pension. A pension has tax exemptions and employer matching, designed to help you put money away for the future, to stop you from frittering it away like so many credit cards.

Let us treat our house like our pension. Give us the same benefits as pensions, with the same lockins, but put us in control.

Because money is all about control. And I intend to hang on to mine.

http://www.creditaction.org.uk/helpful-resources/debt-statistics.html
http://www.statistics.gov.uk/cci/nugget.asp?id=1282

  • Richard

    So, in summary, your recommended retirement plan is:
     1. No pension or other long term savings which involve giving a “banker” access to your money.
     2. Invest in real estate, but only a single property at a time – your home
     3. Don’t retire until you are 80
     4. At 80 sell your home and live off the proceeds (Including paying for somewhere to live now you’ve sold your home)

    That’s … erm … bold. I think I’ll stick to owning a home AND having a pension, thanks. 

  • Anonymous

    1. Yes, though I’m assuming that calculated investments in something you might actually understand may be worthwhile risk too.
    2. No, you can have more than one, as long as you don’t overextend.
    3. Hypothetical. Random figure. 80. 40. 100. Whatever.
    4. Yep.

    You can have both. Just don’t complain about bankers and CEOs getting paid a fortune, or the hugely variable value of it. The pension money is your money, but you don’t get control over any of the companies you’re invested in. To me, that seems weird.

    I’d rather get something tangible. Like a house. Or something I control. Like shares.

  • Richard

    Your main concern seems to be control.

    If you want control over where your pension is invested, that easy. Mine allows me to choose from hundreds of funds, specify the percentage of my money I want to invest in each and change whenever I like. It doesn’t let me pick individual shares but there are other types of pensions (SIPPS) where you can. I could even decide to invest my pension 100% into real estate if I wanted to, while keeping the pension tax advantages and avoiding the problems of being a landlord myself.If it’s control over the companies you’re invested in that you want, then yes it’s true that my pension doesn’t give me any say at BP’s AGM. But given that the average market cap of a FTSE 100 company is 50+ billion, I don’t think the shares you buy directly are going to get you much control either.

    Control over the pay of the fund manager? Not directly no. But I don’t really care what they are paid. Only what I pay to their employer, and there are no surprises there.

  • Anonymous

    Ok, so if the average market cap is 50+billion, and the total UK pension pot is £1.9 trillion, then how many FTSE100 companies can you buy outright?  Lots.  And a controlling interest could be had for as little as 10% of each.  So, actually, there’s some control to be had somewhere there.

    Maybe you don’t care what they’re paid. Maybe I do. Maybe the millions of people out there who own part of the £1.9trillion do, and they don’t realize they have chips in play.