fatvegan

I have a business idea. That's an unusual thing for me. Most of my ideas involve breaking other people's business models. Or my better ideas anyway. But this idea is a business idea, and it's an idea that would make money, and solve some problems for insurance companies, and solve some problems for the government, and even solve some problems for vulnerable old people. Actually the bit that solves some problems for insurance companies is a separate idea that could motor along on its own if it felt so inclined.

So the main idea is simply property-backed annuities. Retirees can sign over their houses to insurance companies in return for a guaranteed pension and the guarantee that they won't be kicked out. Capital growth in the house goes to the insurance company - who eventually sells it - but they can use the assumption of eventual profit to subsidise the pension. The retirees don't have to worry about land taxes or managing cash flow, or having to get a mortgage on their house to pay for food. It means the government won't have to pay pensions to asset-rich retirees - who then just leave the in-tact house to their children when they die. Unless you have some funny system like I've suggested I suspect there would be a lot of pressure for the government to give pensions to people who are actually very rich, but appear poor when plastered on the front of The Australian.

Part of the problem we have is that my parents generation have accumulated large amounts of property, partly because they haven't paid anywhere enough tax over the past few decades. While it's probably too hard to collect back-tax (not to mention a little unfair), and a lot of that wealth has disappeared as consumption, there is still a lot of that unpaid tax holed up in houses and such. You could argue that if the property just gets left to their children then maybe it doesn't matter that much. My generation won't have to pay that much rent or much of a mortgage, because the average 1.7 children is probably close to the average 1.7 investment properties. So all us kiddies get our own house, but the flipside is that we have to pay 60% income tax or something so the government can feed and medicate our ailing property mogul parents.

One reason not to do that is that it's probably better to get the capital markets to put up the the cash for food and medication, rather than the government. Another is that those nice houses would have been effectively partly owned by the government if taxes had been at the right level, so it's not really fair that those assets are passed on to those people lucky enough to have parents wealthy enough to really benefit from low taxes. So it might be better than those assets get redistributed around the place when that generation dies, and that the government saves a whole bunch of money on pension payments.

So people with property are guaranteed a pretty nice income, which could be subsidised by the government possibly if it's not quite nice enough. People without property get a less nice (probably) government pension. The insurance companies get houses and capital growth for as long as our parents are alive. Children of rich parents get nothing. Children of rich and poor parents get a government with a balanced budget and income taxes somewhere below 60%.

There is still the problem of healthy people being more likely to take up the offer than sick people. Insurance companies have to break even so the more healthy people there are, the less of a bargain the deal looks like to sick people. Because sick people might have to put up their whole house and then die 12 months later.

I think maybe that can be overcome, although not because of anything special about my idea. The government can insure very healthy people, or subsidise people who end up living for a long time. The government would have to pay pensions to those people anyway, if the insurance companies don't, so the government doesn't lose. I suspect maybe it will generally seem like a good deal to health and sick people alike, just because they don't have to worry about stuff.

I had this other idea, that people could choose a number of years, after which they want to have a reduced payment. A sick person might choose 12 months, and get a lot of money early on, but less afterwards. A health person might choose somewhere way down the line, because they expect to live a long time. They'll want to spread out their pension. The insurance company can use that information to give sicker people a better deal for their house. The cost of trying to pretend to be sick in order to get the better deal is that healthy people might live for 20 years on a reduced pension. I'm not very good at those sorts of numbers (or most sorts), so I'm not positive that will work as I'm expecting.... I just had a little fiddle in Excel and I think it does work. You need to pay sick people more at the beginning, and healthy people more overall, but not pay sick people so much more at the beginning that healthy people are better of pretending to be sick and putting their extra money in the bank. I don't know if that makes sense. I'd post the Excel spreadsheet, but everyone who had got this far would truly want to stop being my friend.

I reckon maybe that thing I just talked about might work for all insurance pension sorts of things. You just have to wangle the numbers the right way. Give healthy people an incentive to tell you they're healthy, and sick people no incentive to pretend to be healthy, and you're all set. You can work out who is who, and give them all the right amount of money. At least I think so.

I've forgotten if there were still other things I needed to talk about. Insurance companies are happy... yes. Old people are happy... yes. Government is happy... yes.

Except bugger. It started out being a business idea, where I would make lots of money. But it ended up being another rant about how if everyone does what I tell them to, things will sort themselves out nicely.

Unless I go start my own insurance company, which was my original plan I think.

So then so far on my list of things to do this life:

• Start microfinance bank with consumer retail arm
• Start global superannuation behemoth that dominates all political decision-making
• Start an insurance company large enough to pay out billions of dollars in pensions every year
• Be an astronaut
• Start a cheese farm