Newsnight Friday, and Rowenna Davis is defending (eulogising) Ed Miiliband's speech:

I have just returned from a holiday in Laos with my wife and 11 year old daughter.

It is an amazing place : beautiful countryside, mountains, temples, the breadth of the Mekong river, waterfalls, and buddhas. 

From being welcomed into their new year celebrations ( and good luck from water soaking), to the mysterious plain of jars, to crossing the Mekong on an elephant to Luang Prabang the city of 1000 temples in the land of a million elephants.

And the people are incredibly welcoming and peaceful : more so than anywhere else I've been in the world.

I couldn't more highly recommend a holiday there : you must go !!

And openness and welcoming of the people is remarkable. They would have every reason to be resentful. For almost their entire history, they have been sandwiched between, and dominated by, powerful neighbours - Thailand, Vietnam and China - only to have these replaced by France and the US.

It is also an incredibly poor country. Hospitals and medical care is at best rudimentary: as a tourist, essentially you would be flown to Bangkok for any treatment. Many village families can't afford the modest fees and costs of books to allow their children 3 years of basic schooling.

But that is not the tragedy.

The politics are not entirely clear to me, but the tragedy comes from being in the wrong place in the Vietnam war :

- Whilst its neutrality was guaranteed by a Geneva accord this was ignored by both the US and Vietnam

- The outcome is that during 1964-1973 US made Laos the most bombed country in history

- more bombs were dropped on Laos that were dropped during the whole of World War II

     - 580,000 bombing missions, dropping over 270 million bombies - over 50 for each Lao person

- They weren't even at war ... indeed it is typically referred to as the secret war as the US denied it even existed, keeping it secret from both the congress and senate

- and indeed, when the uproar of the bombings in Vietnam, caused the US to stop bombing there ... it promoting Laos from secondary to primary targets - increasing the amount of bombing in Laos. 

- 25% of the Laos became refugees. 

- The whole land has been deforested and is pock-marked with bomb craters

And today, 40 years later, and pretty much every day, someone was killed or injured by one of the bombs (bombies) that was left behind.

- Between 10% and 30% of the bombies didn't explode. An estimated 72 million UXOs ( unexploded ordinance) remain.. for scale, the population is 5 million.

- 20,000 have been killed in or maimed by UXO since the end of hostilities; one third of these are children

- 25% of villages are contaminated by UXO : schools, playgrounds, fields

- It is an active brake on progress : clearing a new field for planting is a major clearance exercise ; building a new highway a major and risk logistics exercise

So on returning, we want to do something. 

Firstly, I ask you to watch this short video:

As I wish to do 3 things : 

1. Raise awareness of the plight of the Lao

2. Help campaign for the worldwide ban on Cluster bombs and destruction of stockpiles. Of the treaty signed in 2008, I understand the US, China, Russian and Israel are amongst the non-signatories.  Ultimately, I think the removal of UXO should be the responsibility of those who dropped the bombs.

3. Provide support and help raise funds for MAG and the work they are doing in removing the bombs - and encourage others to do so as well.

I'm pleased that one of the British government commitment to overseas aid is for mine clearance in Laos.

Thank you for reading and watching.

More information and details can also be found on MAG ( mine action group's) website : http://www.maginternational.org/laopdr/ or via this short BBC documentary by victoria wood 

Most of the industry comment on the ECJ is unsurprisingly horrified. It attacks the current structure of the industry, its homeostasis and cherished principles of risk alignment. A very few, but minority, voices have spoken up in defence.  

But there is not a dialogue between these positions - merely shouty acclaim of personal virtue served alongside scorn, indignation and vitriol.

So why no debate? It's a classic case - there is no common ground as there is no common perspective and each side refuses to step into the others shoes.

What are these perspectives? Firstly the need in insurance for homogeneity of risk: common risks gaining a common premium. It's a central tenant of an efficient insurance market that an insurer making a more accurate classification of risk will price more efficiently and thus do better than peers. Indeed those with weaker classifications will suffer adverse selection (as the better insurer is taking the better risks from their pool) and may significantly underprice insurance.

Insurance axiomatically requires a certain level of collectivism and the key issue of homogeneity of risk is that of adverse selection. If however adverse selection is banned, then this risk is greatly mitigated. There remain secondary impacts - biases in focus, marketing and proxy factors such as occupation or lifestyle. But after an initial disruption it is likely that most of these can be resolved through other factors. By using a wide enough set of factors, it is typically possible to reduce any excluded factor to a modest effect. The transition would certainly be somewhat disruptive but I have seen no evidence to suggest that a lack of sex discrimination is fundamentally destabilising or likely to be so.

The proponents arguments are largely societal wanting to remove types of collective discrimination. Would everyone really be comfortable with charging Jews, or blacks, or gays, or one parent families higher premiums simply on the basis of their status? I believe we should live in a society with equal access to goods and services. Particularly given the historical context of discrimination against these groups, shouldn't society put a very high standard and test before allowing such discrimination to continue? 

The key purpose here is however to re-frame a debate.  With two competing arguments there are rarely absolutes however, in proposing one or other side of the argument, I ask everyone to frame their beliefs in acceptable or unacceptable discrimination and what test they believe should apply in each instance. My preference is to banish collective discrimination wherever possible and set a very high test, fundamental disruption.

Note that I am not precluding in all cases for all discrimination, albeit I can't think of a present one for sex discrimination. The key issue in insurance is moral hazard and asymmetry of information between the insured and insurer, where those of high risk know they are being underchanrged take advantage of the pool. This is particularly the case in regards to small premium/high payout categories such as term assurance where there is much incentive for moral hazard and thus risk of fundamental disruption. The industry has already faced these questions in regards to AIDS for the gay community and there are growing issues with the increasing availability genetic testing. Fortunately AIDS has not turned out to be the risk that it may have posed - so there is no need for such discrimination today. However, there could be such cases in the future, and if the balance of probability is for a fundamental disruption then there are two options. Either permission for price discrimination should exist and/or governments would need to step up as an insurer of last resort.

Still expermenting, but as I'm blogging elsewhere on investments, I may roam wider in this blog.

So should Prisoners have the right to vote whilst in Prison ?

I find much of the discussion  glib and mostly revolving around a schoolboy-ish I don't want to do it simply because it comes from someone in authority.  I would dearly love to hear an articulate view of why inceration is prime facae cause to withhold a democratic right.

Frankly, the starting point is  thus does it matter that much? Why shouldn't they vote?

I think you can construct an argument that a temporary with-holding of democratic rights can part of the punishment from society along with a loss of liberty (another human right).... But I don't see it as necessary and indeed, taking a more reformist view, encouragement to engage with society and retain an interest in outside world is surely a positive and looks for reintegration.

Clearly, the need to assist the reintegration into society post criminalisation is not a human right - but surely an intellegent thing and consistent with a temporary block on liberty. And furthermore, perminant punishment, without remit, can surely only be retained in the most serious of circumstances.

Ok, but even if you wanted to proceed, I think there are two further considerations :

1. Equity:  Given we don't vote everyday, should an sentence that spans an election suffer more than ones that don't ?  That doesn't seem proportionate.  Slightly harder in the UK without a fixed electoral cycle, but in broad terms you could take 5 years as minimum and argue for those with sentences under 5 years. However, an alternative equalisation, might be to ban all those sentenced to a 5 year ban on voting.
2. Practicalities: In case it slips the attention, prisons are full of criminals. The cost of organising voting rights that were practical, private and free from fraud may be disproportionate relative to the temporary loss of rights particularly in context of recent criminal behaviour.  I think great care needs to be taken for this route to be taken - and a comparison of say a week's housing cost for this to be meaningful.  But in such case, it could be reasonable. Although if this is the case, let the opponents say so. And I don't think that the cost of say 1 day's housing is a sufficient cost to justify not going ahead.   This could also be applied in the case of equity as well - it may be too cumbersome vs cost to monitor for all, so only effectively applied to those in custody at the time of the electon, rough justice but too bad.

And that's all I can think of.  Are there some key issues I'm missing ? Sure as heck, haven't heard them from the politicans.

The BBC has just posted an article asking: should British Pensions be more like the Dutch ? http://tinyurl.com/34pftcj

Now notwithstanding the quality & fee calculations THAT panoroma progam, nor why the survey might sponsored by Royal Society for the encouragement of Arts (RSA): do they have a point?

I have a huge respect for the Dutch and their pension schemes. They are amongst the most sophisticated and rigourous in their scrutiny of investment opportunities, they have a significant focus on driving down costs although this has not excluded them from being European leaders in investing in more sophisticated investment approaches and products.

However, within the Dutch system there has been some debate about the appropriateness of size and whether cost conquers all. I understand that as a whole there has been little difference in outcomes between the larger and smaller schemes. ( I am trying to source this research.)

And actually are our differences much more ingrained than large vs small? How much is due to ingrained complexity and compliance ?

Consider 3 recent observations:

1. PPF entry requirements are so complex you can pay the levy and still not get in. Amazing ...http://tinyurl.com/2u9mtb4 ..

2. Jennie K's recent blog on auto-enrolment mind boogling hard to comply with http://www.pensionlawyerblog.com/pensions-autoenrolment

3. The difference in political understanding. I recall in April a dutch MP discussing whether pension increases should be frozen to stop older pensioners dis-inheriting the younger ones - reflecting quite a sophisticated and long term understading of underfunding issues. Here we have 10 (or was it merely 8) pension ministers in 10 years ; and a media, unions and politicians that don't understand the difference between tax deferment and tax relief. Cf Labour's proposal to TET high earners pensions - double tax !

So back to the orginal poser: should we be more like the dutch ? And in what ways ... including but beyond just size.

A false dichotomy is a logical fallacy involves a situation in which only two alternatives are considered, when in fact there are other options.

The panaroma program did a good job last night in terms of raising the issue of costs and awareness of the impact they can do.  However, it oversensationalised and glamourised the production (limo to smart car) and created an apparent false dichotomy by only focusing on reducing cost. It did not really consider "value" or define what a "good performing" investment might mean.  It also made no real distinction between the mainstream products and frankly ursurial commissions from shady operators.

Listen, costs are critically wealth destructive, everything else being equal lower cost equals more wealth and more added value. "Save the pennies and the pounds will take care of itself."

However, the key phrase is "everything else being equal". "Pennywise, pound foolish" is the other side of this equation.  Guess what, assets with higher expected or higher quality returns typically cost more to manage and service.  However, they also tend to have more variable outcomes: equities were typically poor investments in the noughties but great ones in the eighties and nineties. 

So the real question is what is appropriate method of investing, what are the required outcomes and what are competitive rates ?  It is totally fair to ask whether funds with higher fees generate better returns than lower fees - and how lucky/sucessful in picking the winning funds do you have to be.  But the key question is whether net of a competitive fee does equity (or bond, or hedge fund ...) investing makes sense given the spectrum of possible returns against lower cost, cash-like alternatives ?

The disappointment with these style of programs is that it sensationalises problems and leaves the viewer feeling better not to trust anyone and better not to save. Furthermore it creates the desire to focus on "no cost" / "safe" investment choices. Well, the route of "with profits" is hardly littered with sucess and US academics have long pointed out the risks of "reckless conservatism" within 401k plans.

A far more helpful if boring question is the observation that if cash is currently yielding around 0.5% how are you going to get the 7% return that the progam was predicting - and/or does this expectation need adjusting?   There is a huge public service in providing education at this level.  However, I guess it is less journalistic, doesn't generate the sensation headlines let alone give us twee versions of cars to drive around in. 

There are changes that are required by the industry and focus on cost and value is extremely important.  But some of the fair comments on costs are drowned out by lack of framework to evaluate alternatives - and failing to address the key issue that the majority of your retirement income and level depends on how much you save. It's the lack contributions that is the first issue to address. (See my blog "I'd like to contribute".)

Sensationalising stories, creating false dilemnas and damation without solution is a purely destructive process.  Ask the question: on average having watched panorama last night are people likely to make better or worse decisions on their pension and saving choices?  I fear levels of contributions will go down, which is the worse answer of all.  A public service can be defined as one creating a public good. Lower levels of contributions would be a public harm.

A slightly experimental extension to my blog - a few short lines in response to a news item which too much to fit into a tweet.  This is a little more on the fly so not necessarily as thought through as other pieces. Please let me know if you think it works !

I recently saw an article on ETFs for Hedge Funds - and how they can improve liquidity for investors.  No disrespect to the authors, and underlying companies - but the search for better liquidity from instruments is many financial products Holy Grail.  Just take care that true chemistry and not alchemy is involved.

The key features to consider are: 

        - how is this higher liquidity achieved  ? Any reliance on higher buyers and sellers is at best temporal - and working against you in a crisis or in "shrink" vs "growth" mode

        - how much underlying liquidity is there ?  This is the natural rate for the fund - what is the degree of mismatch between natural rate and that offered. How is the mismatch handled ? What degree is there pricing or gating options to manage such events - how are they handled and under whose control ?

        - how well will the structure cope with a liquidity crisis ?  Do early exiters get better liquidity with the remaining investors being saddled with ever worsening quality and liquidity. If so, this will exacerbate any "rush for the door" and a crisis of confidence, as well as true underlying issues, may be enough to trigger a liquidity event.

        - specifically for Hedge funds : how much is based on direct hedge fund investments and how much on replicators.  Note replication is very much an art and not a commodity - who is doing the replication matters.  The liquidity of replication may be good in normal market conditions - but needs to be separately considered in crisis conditions.  Given the potential for liquidity drawn against these strategies at the worse time, there could be negative selection bias in both categories. (ie if you are a high quality fund with access to investors capital, why would you want this type of business ?).

This doesn't rule out the role and value of these products.  But it is very important to understand how the additional liquidity is created, and do considerable due diligence especially around stress periods.  Having determined this, then worth standing back and considering what this additional liquidity would be used for, the conditions when it is needed - and if a different part of the portfolio would be better suited to providing it.

It is quite clear that only pension guarantee is change. As the principle of a tax deferred vehicle is currently destroyed by the double tax proposal for higher earners is it clear there are not so much untouchable principles but reform does not have to be logical or rational let alone economically consistent.  There is also the not quite so minor issue that neither state pension, public pensions nor corporate pensions look affordable on their historic models.

The lack of trust of the “pensions industry” is a significant worry.  Not that the comment that it’s expensive is particular unfair, if somewhat pejoratively expressed but consider some of the root causes:

-       Complexity: complexity is expensive. The complexity of our pension system is mind-blowing: and the only question is whether corporate or personal pensions are more idiosyncratic and complex.

-       Regulated excesses and enhancements: for corporate schemes regulations and enforced enhancements have added at least 50% to costs and efforts.  Whilst accountancy is often blamed, and certainly has not helped, in practice it has only shone a spotlight on the unsustainability of the current approaches.

-       Fragmentation, tyranny of choice and lack of compulsion: Many of the difficulties of cost arise from issues around small account sizes, providing too much optionality and choice. If pensions where compulsory with no choice of vehicle options, deducted as part of PAYE: then they would be much cheaper.

-       Aiming for low contributions and thus desire to gain excess returns through investment: making money from investments is an expense business.  The alternative is to pay more contributions and accept simplest minimum return solutions.  When they do these sums, most take the Faustian bargain of paying and seek excess returns.

This is not exhaustive but strikes me as some of the key causes. If we are to make a better value system, with lower costs, then it has to improve these aspects or believe that the complexity / cost is worthwhile.

Given the talk of radical reform, let’s start at the beginning with the ultra-basics: what is the purpose of saving for pensions ? Should the saving be incentivised?  Should this incentivisation be available to all ?

The simple rationale for pensions is to smooth consumption from working life to allow work-free period before death.  Socially it is probably beneficial to smooth wealth across people’s life rather than have step changes, certainly to reduce potential dependency in old age and arguably to focus work on the more productive years of life

Incentivisation would not be required if such saving was compulsory but will clearly increase saving if voluntarily.  Whilst compulsion looks simplest, many would state a society where incentivisation encouraged everyone to do the right thing would be far preferable to a society was forced to do the right thing. Compulsion could be equated to a tax : whether or not this tax had special properties.

Incentivisation for all ?  Economically certainly this would not be required.  The richest are likely to have both a strong aversion to future poverty and to have current income to afford to defer consumption : the degree of incentivisation required is likely to fall quite rapidly with income.   However, this may conflict with broader notions of fairness, engagement and collectivism.  

If we are agreed, pension saving is good, a modestly incentivised voluntary system preferable then I believe fairness would require incentivisation and access for all. Indeed, I think excluding the higher paid, may be negative at may levels. If the higher paid stop having pensions, then pensions may be seen as “second class” and reduce take up. Furthermore,  modestly incentised pensions may provide a simple route for savings – and a disincentive to pursue more aggressive tax management options : and thus accessing pension may provide more tax than restricting them.

I don’t have a magic solution for the current pension woes. The only clear answer is that from Ros Altmann: we need a pensions commission – to remove the politicing, build concenus and approach around pension future. A commission is critical to maintain a consistent approach outside of an election cycle which is way too short for such long term perspective.  However, there are some urgent misconceptions to address within current regime before decisions are made:

1.    “Pensions industry is polite but its main focus is greed” : Listen, it's not perfect. There are some bad incentives within the structure and that has created some bad behaviour.  However, it is also full of smart people, passionate people and knowledgeable ones.  Yes, it wants to keep pensions – but hopefully this is agreed. Listen to the warnings about changes: they are closest to the market.   Use the industry in your favour: set out want you want to achieve and get them to measure their recommendations against this. If your solution would effectively be a natural monopoly: consider that competition may be good but likely to deliver much less value for money. A regulated oligarchy may offer both choice and similar value to a regulated monopoly.

2.    Tax myths:

                              I.        Reducing pensions tax relief for higher rate tax payers:

This is nonsense. The current pension system works off a principle of deferment not exception. From a tax basis, pensions are not taxed immediately but in retirement.  “Reducing tax relief” partially taxes them initially, then taxes them again in retirement. For a 50% tax payer, then this is 30% initially, and (lets assume) 40% in retirement – a tax rate of 70%. I don’t think this is the intention – but if it is please at least say so.  It doesn’t ban such tax payers from pensions but makes it clear they are not wanted.

The only true tax relief is that of the tax free lump sum.  This could be considered tax relief – and would be far more rationale to “limit” the relief to higher rate tax payers on the tax-free cash.

II  Inheritance tax and pension funds

Consistent with deferred tax principle, on death of the last beneficiary (ie no spouse) the residual element of drawdown pension should be taxed and this applied to the estate ( ie subject to inheritance tax). Some complain this is “double taxed” and this residual element should not be part of the inheritance tax.  Well, I'm happy to be corrected but for consistency I think it should. The taxation from the drawdown is simply the first taxation of the income- and brings it into line with the other assets that form part of the estate ( and were taxed once).  Inheritance tax should then be applied to the whole sum.  [ In extremis, consider £100 k earnt just before retirement with death straight after.  If taken as income, then it would be taxed ( say £60 K) and then be subject to inheritance tax.  If put into a pension for drawdown it would be £100k. It is clear this should be both taxed first and then included as part of the estate to be equivalent tax basis to the income route. (I’ve sidestepped the issue of tax rates as fairness gets into issue of tax free lump sums and other matters …) ]

Finally, what would I include within a new pensions framework :

1.    Threshold pension:  The drawdown regime, should be based not to a maximum age nor complexities on levels of income taken.  It should simply be based on a minimum annuity that needs to be brought.  The excess can then be used as desired. It also means that drawdown will only be offered to those with larger pensions.

2.    Flexible retirement age: remove laws on compulsory retirement.  Use a scaling factor (for early/late retirement) to allow for drawing state pension at any age.  At the current state pension age (SPA) the factor will be 1.0.  However, this can naturally allow and smooth the increases already planned to SPA … and in future can continue to be adjusted smoothly for changes in longevity.

3.    Higher income earners only taxed once. 

4.    Vast simplification of pension regimes:  £50,000 annual contribution limit looks sensible if it allows for back-dating as well.  And rather than all these interacting maxima and rules, why not simply a max pension of £80,000 (Approx 2/3 of current earnings cap).

5.    Incentivisation of collectivism: be that of corporate schemes, industry, trade union or other affiliations.  But scale is important to driving down costs.

6.    Inclusion of pension planning within maths curriculum: Understanding why 15% is the right contribution level should be on every school curriculum.

This was a valid command on old network computers and identified how you were logged on.

In our lives we have many identities we "log-onto" with different groups.  When I blog and tweet who am I being? Are my identities melded into one - or separated ? Should I create multiple SM identities for multiple lives - can they meet?

Most of us live a very conservative business persona - anecdotes about family, sport or pets never cause too much trouble.  But how about religion ? More particularly how about prejudice and intolerance - should you stand up and be counted? It's what riles on a daily basis but is it suitable for a tweet.  Should you unfollow any one who is repeatedly offensive - should you encourage others to unfollow ?

There is something more definitive and perminant in a tweet - compared with what might be said over drinks in a pub. May be you misheard, or didn't have the context; also the conversation moves on. The moment may have been lost - for simply something quick and intelligent to say.  But online, it stays - and hangs - and doesn't move on. Much harder to ignore or "not hear".

#2 Who's going to be on top?

Clearly an important question for all SM relationships ;n).

It must be around 15 years since I heard Charles Handy talk about portfolio careers and portfolio companies.  It seemed remote at the time but two waves of market crises have created such structures and companies. The large rises in independent, sole or small advisors was based mainly on shifts in  technology at that time - laptop computing and effectively basic office processing. This was ahead of the internet burst, broadband and depth of information availability.

Many of the advantages of large professional service firms arose from their ability to dedicate resources to the capture and organise information alongside professional debate and input on how to tackle new issues.

Surely Handy could not have foreseen the speed, depth and informational growth of the internet ( pre-wikipedia, google ... And so much more). Yet, these only address the informational gap albeit with some organisation as well.

The second revolution comes with social media  - connecting not just information but also insight and expertise.  This is a crucial factor for individual advisors - and combined with network of "trusted associates" truly virtual companies are created bound by interlinked requirements  and mutual respect for each others expertise.

Its not only advisors set to gain. Pension funds represent lone warriors, typically incidental, occasionally critical, to the broader business around them.  Many funds share the same issues - but have been isolated.  Social media provides an opportunity to come together and share experience and expertise. There is a very natural basis here and very powerful.

Ironically, I believe this collectivism is creating more individualism - but that is a good thing. By being part to the whole range of opportunities and options, you can pick and mix the approaches which best suit. It means that there isn't a single model or approach that is appropriate.  Thus we are seeing the rise of the individual advisor someone who can understand the needs or provide expertise in a particular role.  The informational advantages of the large firms are reduced due to the wide availability of data. Specific knowledge and expertise can be brought in through the virtual networks.  Furthermore, the larger firms now face a challenge in moving to a more bespoke , individualistic approaches. The very advantages of organisation, scale and knowledge of the right model - are now hurdles to the creation of the individual approaches that clients desire. 

In response the larger firms, focus on the quantification of their informational advantage looking to demonstrate the addition value in the consistency and greater depth a singular approach of information searching acquires relative to freer but less organised alternatives.  It is quite natural for these firms to then seek to demonstrate and apply this directly. Looking both to more singular value added services and to increase share with clients who focus on these metrics and are prepared to be charged in proportion to the value added.  This should not be considered wrong - far from it, it is very natural.  The issue is to recognise the dynamics and understand how best to adept. To the extent that both "old" and "new" businesses are desirable then it is a question of how to adapt the current dynamics both to take advantage of the new opportunities but also to re-engineer the older parts of the engine to reflect the newer needs and demands.