Fixing the City pension fees problem

I read this Guardian article on City fees for pensions (an article which explains why I don't currently have a decent pensions), and a simple fix occurred to me: insist that the fees are charged only on growth, not on capital invested, and that fees are quoted as a %age of the expected growth as well as any absolute amounts.

After all, the reason you pay into one of these funds is that the City promises growth above and beyond keeping your money in the mattress. By restricting the fees to a proportion of the growth obtained over the time period the fees apply to, I would expect two beneficial side effects:

  1. The management fees quoted become easier to understand in comparison to other financial options like savings accounts - if you are quoted as losing 50% of the growth or £50 (whichever is higher) to management fees, and the anticipated growth rate is 4%, it's easier to see that this is likely to be equivalent to 2% interest on a bank account, but has a worse downside in the event that the growth in value never materialises.
  2. There's a built-in penalty for the City if it doesn't meet its promises; if the fees are 1% of capital managed, and you invest £5,000 in the expectation of 10% growth, they collect £55 if they achieve expectations (leaving you with £5,445); they also collect £40 if they lose £1,000 of your money (leaving you with just £3,960). If, on the other hand, fees are limited to the growth they achieve, then they get nothing if they don't achieve any growth (or make a loss with your money).

It's also my gut feeling that the City would have to try harder for its money if people understood just how high the fees they want are; 1% of capital managed doesn't sound like a huge amount. Taking my example earlier, they managed £500 of growth, so would need 11% fees to make the same money; if they average 5% growth, they'd need 22% fees to make the same income; at 1% growth, they'd need to charge fees of more than 100% of growth to make the same money they make from 1% of capital managed, making it obvious that their fees exceed the gain from investing with them.

You could go further - you could choose to insist that fees are capped to the growth obtained, but I suspect that would eliminate high-gain, high-risk investments. I would, however, choose to insist that any investment where fees can exceed the total gain in value from the investment is clearly labelled with an FSA "be aware that you can lose your entire investment to fees, even if the fund makes a profit" warning, explaining the risks clearly. With any luck, the requirement to label high-fee investments as high-risk would encourage the City to mostly offer investments where the fees are capped to growth, so that the City suffers when you make a loss.


Making car insurance affordable

Motor insurance prices have been in the news recently, as the cost of legally required third party insurance has been rising recently. The claim made by the industry is that injury claims are the biggest cause.

It seems to me that there's a pair of simple fixes, which could be funded by a further tax on motor insurance.

First, you cannot claim for injury after an accident unless the accident was reported to the police within 24 hours of the accident; if you are incapacitated by the accident, this time is extended until 24 hours after you become medically capable of reporting the accident. This ties into the requirement to report injury accidents to the police that already exists (Road Traffic Act section 170), and just has the injured party also required to report to the police if they might choose to claim later. In theory, therefore, this is no burden on the authorities, as they are dealing with these reports anyway.

Additionally, an injury claim is only valid if two things apply:

  1. You make arrangements to see an NHS doctor within 14 days of the accident - being taken to hospital by emergency ambulance counts here, as does making an appointment to see your GP.
  2. An NHS doctor, at risk of losing their licence to practice if found to be lying, agrees that your injury is such that compensation is appropriate.

In other words, make it cheap to dismiss injury claims that aren't backed by medical evidence. Put the onus on claimants to seek medical advice - if you really think you're injured, you should be seeing a GP anyway, and we should have mechanisms in place to deal with you if you're abusing NHS services (a topic for another rant).


On the cost of regulations

I've been pointed at the Telegraph article on Steve Hilton's advice to the UK government, and one thing stands out in the article; Mr Hilton is able to count the cost of regulation, but not the benefits.

It's trivially obvious that (to take one of Mr Hilton's examples) consumer rights laws cost some businesses money; what's not discussed is the benefits of those laws, and the cost to society of not having them. Let me lead you through an example, using an expensive consumer product that many people have: a television.

You can buy televisions at many different prices, each with different features; just looking at 24" screens, I can find a cheap TV at £129, or I can spend over £1,000 on a similar looking set that's the same physical size. It's when I start to look at the differences between the sets that the sheer diversity of product becomes clear; my cheap set has one HDMI input, and a DVB-T tuner. It must be powered from a 230V nominal 50Hz AC source (e.g. household mains). My expensive set has multiple HDMI inputs, a DVB-T2 tuner as well as the DVB-T tuner, the ability to be powered directly from a car "cigarette lighter" socket (e.g. for in-caravan use) as well as from AC between 75V and 250V nominal, at frequencies between 50Hz and 400Hz nominal (making it suitable for powering from a typical luxury yacht power socket). It has the ability to record TV programmes to an attached USB HDD, and to play them back later; generally, it is of much higher specification than the cheap set.

So far, this sounds reasonable; the expensive set is a much more desirable piece of equipment. Yes, I'd have to pay more for it, but I'll get what I'm paying for. Now imagine removing consumer rights laws - let's take the law that says that goods must be fit for the purpose they are sold for. Without that law, a dishonest trader could buy the £129 TV, put appropriate connectors on the case, and sell the TV for (say) £800. They'd make a hefty profit on every set they've sold, and because consumer rights laws don't exist, nothing stops them conning a few customers, changing their trading name (so all the noise about how crooked they are doesn't impact sales), and continuing to rip people off.

Who gains in this situation, and who loses? Obviously, the dishonest trader gains. The manufacturer of the cheap TV set gains. Consumers who get ripped off lose. Less obviously, honest traders lose out; because I can't be confident that a set is genuinely what it's claimed to be, I am less likely to buy an expensive set that does everything I want, preferring to buy a cheaper set, and easier-to-verify adapters to get the added functionality.

Worse, if you say that I should rely on well-written contracts to protect me, you get into a situation where every purchase I make is slowed down, as I get the retailer to read, analyse, and eventually agree to the contract terms I insist on to make the sale. The costs to all retailers and consumers of having to deal with individual contracts, each with their own quirks are high; the benefit of consumer rights laws is that we have a baseline that the retailer cannot attempt to wriggle out of that I, as a consumer, am happy to accept. Businesses thus only need spend the costs of understanding the laws once; consumers accept that they can trust businesses, and rely on the law protecting them from the few bad apples. Neither side pays day-in, day-out for the costs of protecting themselves against the rogues in the market - instead, the legal apparatus puts as much of that cost as possible on the rogues. Further, the nature of regulation means that the net cost to legitimate businesses of consumer protection is lower than it would be if each transaction attempted to include the terms required in an individual contract.

In short, even regulations that cost money in the short term don't necessarily cost money in the long run; often, the regulations exist so that honest businesses can survive in the market, even in the presence of crooks. The trouble is that the cost of regulation is obvious up-front; the benefits are not only sometimes taken for granted, but often are spread across all of society.


IPv4 run-out has started - prepare for IPv6

So, checking technical blogs and tweets this morning, I learn that APNIC have triggered IANA IPv4 exhaustion. What does this mean for the non-technical user? Well, in the short term, nothing - RIRs like RIPE and ARIN still have stocks of IPv4.

In the medium term, it means you have to move to IPv6 soon. Given the rate at which IANA ran out, you have about a year from now before IPv4 is simply unavailable to you, and services will have to be IPv6 enabled or else. If you're buying network-enabled kit that you expect to keep using in 12 months time, make sure it's IPv6 ready. If it's not, talk to your salesman, and tell them that the reason you're delaying the purchase is that you want IPv6 support.

As a product developer, I'm not seeing any pressure from the field to get IPv6 into our Internet enabled devices; it's simply not something that impinges on people who buy equipment. You need to change this now. Within the lifetime of anything you buy today, IPv4 will run out, and you will need your equipment to be IPv6 enabled if it's going to continue working.

Please, put pressure on sales teams to IPv6 enable everything - it won't happen until you do. If you don't, don't be surprised when you're rebuying everything in a year or two, simply because IPv4-only kit is no longer usable for the task you bought it for.


Why allocating /48s for end users in IPv6 is a good idea.

There are people out there already worrying that assigning /48s to end users in IPv6 is going to cause problems in the long term, matching the existing IPv4 problems with address shortages. I'm going to try and present a few ways to understand just why it's not going to happen that way.

Firstly, we'll need to think about the world population. Current figures show that we're at around 7 billion people. Taking the worst-case model the UN is prepared to consider, we're unlikely to reach more than 35 billion people worldwide before 2100. Against that, we have assigned a single /3 for unicast, and kept 5 /3 blocks in reserve.

A quick bit of maths shows us that we have 245 /48s to assign, before we have to use up more of the reserved address space. This is (roughly) 35,000 billion blocks to use. We have already determined that we're not going to have more than 35 billion people any time soon; so, let's assume that there are 3,500 billion people on Earth, or 500 times the current population. That's still enough /48s for each person to use an average of 10. So, one /48 at home (65,000 individual networks, of which a "typical" home might have two WiFi networks, one "server" network and a wired network). One /48 in the office (again, 65,000 individual networks in the office). Three /48s on the mobile network (one for each handset, plus one for your mobile broadband dongle). We're still only using 5 of the 10 we can allow after a 500 times population growth. Assume that ISP overheads (running routers and the like) cost a typical user another /48, and we're still within a safety margin.

Note also that we haven't yet permitted the use of the reserved /3s. If we have population growth well beyond that which we currently believe the planet can sustain, and we use more blocks that I have considered (I've assumed one connection at work, three mobile connections, one at home), we still have room to expand into. And it gets better: if the UN's worst-case projection is vaguely accurate, and we stabilise at under 70 billion people, we can each fill 50 /48s before we have to use some of the reserves.

In short, big numbers are hard. It's all too easy to see that the IPv6 address is only 96 bits longer than the IPv4 address, but hard to get a handle on just how much extra space that represents.


How MIMO works - and why it's amazing

Long term readers may recall my mentioning in my OFDM post that I was going to try and understand MIMO. I think I've made sense of it - and it's completely and utterly mindblowing that the processing power needed to do this exists in something I can buy for under £100.

Described simply, OFDM and related channel coding technologies produce signals of very clearly defined form, which can be arranged such that instead of interfering destructively, they interfere constructively. If I transmit two or more OFDM signals on the same frequency on different antennae (in different places), you can use the information from two or more antennae to reconstruct not just one of the original signals, but both of them. You do this by relying on the fact that each signal has taken a different path to get to each of your receive antenna; in pseudomath terms, if antenna 1 transmits signal 1, you receive "(path loss for path 1) * (signal 1) + (path loss for path 2) * (signal 2)" at your first antenna, and "(path loss for path 3) * (signal 1) + (path loss for path 4) * (signal 2)" at your second antenna. The OFDM signals are set up to include pilot tones, so that you can calculate values for each of the four path loss terms, and thus adjust and subtract to get back the original two signals.

The neat thing is that you don't have to slow down either signal to make this possible; an OFDM signal from antenna 1 at 150MBit/s can still be decoded, even as you add a second OFDM signal to antenna 2 at 150MBit/s.

So, that's how MIMO gives you more speed. How does it give you more range as well? This is a tradeoff - recall that Shannon's limit stops you going infinitely fast over a given channel. However, if I need to communicate between A and B at 1MBit/s, in a MIMO world, I can send two OFDM signals at 0.5MBit/s (with associated range). I can alternatively send two 1MBit/s signals, each of which is 50% ECC data, making dropouts easy to correct. Lots of options here, all of which can help.