Hands up: Who wants to carry on working until they’re 75? Did you just yank the mouse cable out? No, didn’t think so. That’s the big problem. Nobody wants to carry on working longer than they’ve planned.
The debate’s raging. Everyone’s going to have to work longer. But for most people I’ve spoken to, this isn’t their problem.
Some thoughts from my acquaintances:
The school teacher: his pension’s backed up by the state, he’s not going to try to control a load of yobs after he’s even got to 60. It’s our friend the accountant who’s going to have to reconsider retiring at 55.
The accountant: it’s the state employees who’ll have to think again. After all, it’s the state that’s strapped for cash. I’ve got my pension sorted, thank you very much.
The already-retireds: Everyone’s going to have to work longer. But not us. We’ve secured our share!
This is the trickiest hot potato I’ve juggled in a while. But I’ve got an idea. In fact, I’ve got two ideas to get us out of this pickle. First, how to make people want to stay in work for longer. Then, if that doesn’t work, how you can protect yourself from a dwindling pension pot. We’ll have a look at that in a moment, but first I’d like to show you why things are so bad, and getting worse.
How did we end up here?
The baby-boomers have already started cashing in their pensions. And there are a lot more readying themselves for retirement too. Maybe that’s you?
The big problem is that we’re all living longer. At the same time, the workforce is stretched as more people than ever are in further education and delaying their debut at the coalface. And then there’s the welfare state – let’s not even go there!
As my friend (who shall remain nameless) says: who’s doing all the work if the students, pensioners and invalids are at home watching TV? It’s an interesting, if not politically correct point. And Jimbo, I’ll try to answer it as best I can.
Up until now, we’ve got by. If there have been problems, we’ve used our (relatively) strong currency to import workers and other daily necessities. You know, plumbers from Poland, nurses from the Philippines and just about all our consumer goods from China.
We’ve been running a trade deficit for years as emerging Europe and the Far East have been happy to give us what we need in return for our 1st world British pound. But sadly, the best years lie behind us.
Things are going to get worse
Life’s going to get more difficult. Over the last couple of years, the pound’s value has been sliding. This means that the eastern Europeans aren’t as keen to work for our devalued currency. At the same time it makes our imports expensive too. You’ve seen the inflation figures.
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The problem is, I can see the pound falling for decades as the emerging markets catch up to the West. Worse still, as well as their currency, those foreign workers are getting more expensive. Remember the Chinese guy working for $2 a day? Well, those days are gone. Wages are spiralling upwards and it’s only a matter of time before that’s reflected in their export prices.
This all means we’ll have to pay more and/or start making things ourselves again. Things are going to have to change around here.
Two solutions
First: If you want people to keep on working beyond retirement age, then you’ve got to let them work tax free. If you take normal retirement, your pension’s taxed (like it is today). The carrot rather than the stick. Give people a choice. Use tax breaks to incentivise people to stay chained to their desks, spanners, and kitchens.
Nobody’s going to take to the streets because they don’t want a tax break. But you go and tear up an employment contract to make someone work longer, just see what happens!
But of course this is out of our control. though you can relay the idea to your MP if you think it’s a good one. Here’s a more pragmatic solution.
One of the best ways to protect against our submerging Western economy is to get into the emerging Eastern economies. By putting your money on emerging markets, you’ll get on the right side of demographics and get a strengthening currency too.
But we’re not alone in this trade and the emerging markets are fraught with political issues too. I mean, do you think that these guys are just going to hand over their hard earned profits to you, Jonny foreigner? Anyway, the emerging markets have had a pretty good run of late, so value is getting harder to find.
Buying an emerging market ETF (a fund that tracks the local index) can be a good idea. But as I said, it’s a crowded trade. For the interesting deals we need to be talking to the right people, the people in the know that understand where the smart local money is heading. And for this I turn to my friend Cris Sholto Heaton.
Cris is an Asia buff. He really knows what’s going on in Asia at the ground level. He’s just been telling me about a stock he reckons could be the Asian equivalent of Coca Cola. No broker we know of has this stock on his list. But sales just grew 50% last year and he’s excited about this company’s next move.
This stock will get noticed by the big guys at some point. But for now it’s the smart money that’s heading in.
Asia is a ‘must-have’ for your portfolio. It’s not too late to join the party, you just need to know where to look for the bargains.
• This article was first published in the free investment email
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