Should the triple lock on pensions continue?

[SuspectUsual]

I've just alarmed myself by consulting the Office for National Statistics life expectancy calculator and found a male of my age (74) and gender can expect to live to...75. B****y Nora!

I just tried that out of (morbid) curiosity and it’s telling me a 74 year old man has a life expectancy of 87

 

[JamesT]

Income tax allowances were last increased in April 2021.

And that is the culmination of several years of increases. In 2010/11 the personal allowance was £6,475, according to the BoE's inflation calculator that would be £8,916.95 in August 2022 money. The personal allowance this year is £12,570.
Though @Tetchytyke is possibly concerned more with the threshold for 40%, which has been pretty much frozen in comparison to the personal allowance. It was £37,400 then and is £37,700 this year.

 

[Busaholic]

I just tried that out of (morbid) curiosity and it’s telling me a 74 year old man has a life expectancy of 87

Suddenly I get another twelve years - I should be so lucky! Didn't realise Liz Truss standing down could have such an immediate impact. Must play the lottery tonight.

 

[Pete_uk]

Yes

 

[Tetchytyke]

Income tax allowances were last increased in April 2021.

The 40% and 45% thresholds haven't.

== Doublepost prevention - post automatically merged: 21 Oct 2022 ==

But you'll be already receiving your state pension by then, surely?

I'm 39 now. I genuinely don't expect to get to retire till 70.

 

[najaB]

The 40% and 45% thresholds haven't.

Well, for about six days the 45% threshold didn't exist...

 

[Tetchytyke]

Well, for about six days the 45% threshold didn't exist...

True.

Full disclosure: it doesn't affect me here, our basic rate is 10% with a top rate of tax is 20%.

But the upper thresholds not changing drags more and more people into the higher tax rates. It's pretty shoddy.

 

[DynamicSpirit]

I've just alarmed myself by consulting the Office for National Statistics life expectancy calculator and found a male of my age (74) and gender can expect to live to...75. B****y Nora!

Do you mean this life expectancy calculator? If so, typing in '74' and male gives the answer, 87 when I try it (with a 10% chance of living to 97).

Maybe the calculated life expectancy depends on your skill at using online computer forms


(EDIT: Ooops - I see this has already been pointed out. I somehow missed that there was a 2nd page of posts before I replied! Those darned skills at using online forms...)

 

[Busaholic]

Do you mean this life expectancy calculator? If so, typing in '74' and male gives the answer, 87 when I try it (with a 10% chance of living to 97).

Maybe the calculated life expectancy depends on your skill at using online computer forms


(EDIT: Ooops - I see this has already been pointed out. I somehow missed that there was a 2nd page of posts before I replied! Those darned skills at using online forms...)

The one I used only gave a 'definitive' answer, no % chances, and I checked I'd got my age and sex right.

Maybe the Russians had hacked it.

 

[Stathern Jc]

The one I used only gave a 'definitive' answer, no % chances, and I checked I'd got my age and sex right.

Maybe the Russians had hacked it.

Not been having any clandestine phone calls with Liz Truss then?

 

[miklcct]

True.

Full disclosure: it doesn't affect me here, our basic rate is 10% with a top rate of tax is 20%.

But the upper thresholds not changing drags more and more people into the higher tax rates. It's pretty shoddy.

The high tax rate in the UK in fact discourages people to work once they earn to the point of the 40% threshold.

However, as the cost of living (especially rent) rises, it will soon gets to a point that the 40% threshold can only barely make the ends meet, creating massive social unrest.

Why does the UK has such a high tax rate compared to the Crown Dependencies and the Colonies?

 

[Phil56]

The high tax rate in the UK in fact discourages people to work once they earn to the point of the 40% threshold.

However, as the cost of living (especially rent) rises, it will soon gets to a point that the 40% threshold can only barely make the ends meet, creating massive social unrest.

Why does the UK has such a high tax rate compared to the Crown Dependencies and the Colonies?

Tax havens attract rich individuals to base themselves there, thus paying 20% on half a million of income, rather than 40/45% on that same income in the UK. Ideal for people who've retired or who earn enough to "commute" longer than average distances, i.e. lots of people live in the IOM and then fly to London to work when they have to (richer people often have more flexibility with when and where they work).

As for companies, again, they place their "head office" in a tax haven which is basically an administrative address - some offices (even in IOM) are the registered office for hundreds of limited companies, despite being small and only having a handful of staff! If I remember rightly, a limited company based in IOM pays a fixed annual charge to their parliament, rather than a percentage of profits.

So it's a numbers game. A disproportionate number of richer people and limited companies paying relatively small amounts, but in high numbers, compared to relatively small/cheap islands. Of course, "richer" people will probably also place less burden on local services, i.e. more likely to have private healthcare, private education for their children, pay for their own social care (probably already have household staff anyway), less likely to resort to crime or anti-social behaviour, etc.

Nigel Mansell didn't "move" to the IOM to travel on the steam trains and look at the Laxey Wheel! Lewis Hamiltion didn't buy his private jet via the IOM because he liked looking at castles and riding the horse drawn tram! IOM benefit from being a tax haven, and the residents (whether they're rich or not) benefit from the low tax, same as other tax havens.

 

[Yew]

Nigel Mansell didn't "move" to the IOM to travel on the steam trains and look at the Laxey Wheel! Lewis Hamiltion didn't buy his private jet via the IOM because he liked looking at castles and riding the horse drawn tram! IOM benefit from being a tax haven, and the residents (whether they're rich or not) benefit from the low tax, same as other tax havens.

Quite simply, it's time to tell the overseas territories to stop being tax havens, or otherwise we'll take the same approach as the French, and consider the Isle of Mann the same as the Isle of Wight.

== Doublepost prevention - post automatically merged: 2 Nov 2022 ==

The high tax rate in the UK in fact discourages people to work once they earn to the point of the 40% threshold.

Is that a bad thing? surely it means that more people can share well paid jobs?

 

[contrex]

The Tories see different, presumably hoping to bank on the pensioner vote at the forthcoming general election.

Managed to get the trademark triple repetition in there too!

As a retired lifelong Labour voter (and party member) I'll happily pocket the increase and vote Labour. I've retired, not had a lobotomy.

 

[Tetchytyke]

The high tax rate in the UK in fact discourages people to work once they earn to the point of the 40% threshold.

I think that misunderstands the threshold. It only applies to income *over* the threshold, not all income. Where it is an issue is on the margins of a threshold, where the extra income from extra hours won't cover the extra costs (childcare etc) of those extra hours. But that doesn't apply to most people who end up in a higher threshold due to pay rises or promotion.

We pay tax here on worldwide income, not just income from the IOM. I pay tax here on my UK income, as well as in the UK if I earn more than my personal allowance in the UK, although there is double taxation relief.

We also offer a scheme where you can agree to cap your income tax bill at £100K per year, regardless of your income, but to enjoy this you have to agree to pay £100K a year for five years. I'm conflicted on this, as it's not fair as a percentage but equally it's unlikely I'll pay much more than £100K income tax in my entire career.

Corporation tax here is 0% for many companies, which had created a market in corporate management services which employs a lot of people. Again I'm conflicted, as it doesn't necessarily sit right but it creates a lot of jobs.

Tax havens attract rich individuals to base themselves there, thus paying 20% on half a million of income, rather than 40/45% on that same income in the UK.

 

[JamesT]

The high tax rate in the UK in fact discourages people to work once they earn to the point of the 40% threshold.

However, as the cost of living (especially rent) rises, it will soon gets to a point that the 40% threshold can only barely make the ends meet, creating massive social unrest.

Why does the UK has such a high tax rate compared to the Crown Dependencies and the Colonies?

If you think the UK’s tax rates are high, you’re going to have a shock if you see what the tax rates in most of Europe are.

The UK has a higher level of spending, especially on things the IoM don’t spend on at all (E.g. defence, foreign affairs). So it’s unsurprising they have to raise more money in taxation.

 

[DelayRepay]

The high tax rate in the UK in fact discourages people to work once they earn to the point of the 40% threshold.

This isn't true, generally. I pay higher rate tax on a portion of my income but I still get to keep 60% of that income so am better off than if I didn't have it. I've certainly never considered reducing my hours or taking a lower paid job in order to pay less tax. What I do, though, is take advantage of pension contributions to defer some of my tax liability until I am retired, when I expect to be in the 20% band.

The other thing is that for these higher paid jobs, employers set salaries to attract the kind of employees they need. When setting salaries, they take into account the difference between gross and net pay. The point I'm making is that if government removed the 40% band, I think over time we'd see gross pay fall as employers could offer the same net benefit through a smaller increase.

However, as the cost of living (especially rent) rises, it will soon gets to a point that the 40% threshold can only barely make the ends meet, creating massive social unrest.

I think we've already reached the point where people at the lower end of the 40% threshold are struggling, especially those who have families. This problem has arisen partly because the bandings have not increased in line with inflation.

I want to pay less tax. Show me someone who doesn't. But I also want a National Health Service that will be there for me and my family if we need it. I want a police force and courts and transport infrastructure and social care and the armed forces and all sorts of other things that have to be paid for out of tax receipts. So on balance I don't mind paying my share and I accept that as someone who is fortunate enough to earn a higher wage, I should pay a higher share.

 

[miklcct]

I want to pay less tax. Show me someone who doesn't. But I also want a National Health Service that will be there for me and my family if we need it. I want a police force and courts and transport infrastructure and social care and the armed forces and all sorts of other things that have to be paid for out of tax receipts. So on balance I don't mind paying my share and I accept that as someone who is fortunate enough to earn a higher wage, I should pay a higher share.

In the past, British Citizens could move to other low-tax eastern EU countries (which generally offers better transport infrastructure as well). But we have voted against this so we have to face the consequences now.

 

[Phil56]

I think that misunderstands the threshold. It only applies to income *over* the threshold, not all income. Where it is an issue is on the margins of a threshold, where the extra income from extra hours won't cover the extra costs (childcare etc) of those extra hours. But that doesn't apply to most people who end up in a higher threshold due to pay rises or promotion.

We pay tax here on worldwide income, not just income from the IOM. I pay tax here on my UK income, as well as in the UK if I earn more than my personal allowance in the UK, although there is double taxation relief.

We also offer a scheme where you can agree to cap your income tax bill at £100K per year, regardless of your income, but to enjoy this you have to agree to pay £100K a year for five years. I'm conflicted on this, as it's not fair as a percentage but equally it's unlikely I'll pay much more than £100K income tax in my entire career.

Corporation tax here is 0% for many companies, which had created a market in corporate management services which employs a lot of people. Again I'm conflicted, as it doesn't necessarily sit right but it creates a lot of jobs.

This graph illustrates the ludicrously high marginal tax rates at various income points, not just income tax, but also NIC, student loan repayments, child benefit clawback and removal of the tax free personal allowance over £100k. It doesn't include the loss of free childcare though which makes the marginal "tax" rate on incomes over £100k even higher!

 

[jfollows]

The high tax rate in the UK in fact discourages people to work once they earn to the point of the 40% threshold.

It certainly discouraged me. To put it in context, I paid some income tax at 40% until I changed job to a better albeit lower-paying job in 2008.
The good effect of the 40% tax rate is that it encouraged me to avoid it by putting money into pensions, which I now live off, and the good effect is that I don't have to claim anything from the state.
The bad effect was that I applied for a new post in my later job, but I didn't really want it, because it would have involved a lot more work and all the extra money I would have earned would have been taxed at 40%. So I was glad not to get the job, I think I applied for it to be seen to be "keen" and to play the game.
But the real point at which 40% is the tax rate on income has come down and down over the years, and is going to continue in this direction. As others have said, in many ways paying the 40% tax rate doesn't mean you're a "high earner" any more, just a "higher earner" for what that means. People complain about punitive tax rates in the 1970s but forget that almost nobody earned enough to pay them.

 

[najaB]

The bad effect was that I applied for a new post in my later job, but I didn't really want it, because it would have involved a lot more work and all the extra money I would have earned would have been taxed at 40%.

Would you have had more money in your pocket/bank account at the end of the month? Yes.

 

[miklcct]

Would you have had more money in your pocket/bank account at the end of the month? Yes.

Would the extra money worth the extra work? No.

 

[DelayRepay]

In the past, British Citizens could move to other low-tax eastern EU countries (which generally offers better transport infrastructure as well). But we have voted against this so we have to face the consequences now.

Well, yes, but my job is in the United Kingdom and even with more working from home post Covid, I need to go into work regularly, so living in an eastern EU country would not have been practical. And working for a UK based employer I would have still be subject to UK income tax anyway.

If I had taken a job doing similar work in an eastern EU country, my wages would have been lower. Plus I would have been thousands of miles from my family and friends. Plus I would have had to learn a different language.

So all in all, even when we were in the EU, upping sticks wasn't a practical way of reducing tax for me, and I think that's the same for most people.

== Doublepost prevention - post automatically merged: 3 Nov 2022 ==

The bad effect was that I applied for a new post in my later job, but I didn't really want it, because it would have involved a lot more work and all the extra money I would have earned would have been taxed at 40%. So I was glad not to get the job, I think I applied for it to be seen to be "keen" and to play the game.

When I moved into the 40% tax band, I didn't really think about how much tax I was going to pay. I worked out what my net salary would be, and compared that to my net salary in the previous job. I was happy with the extra money I'd receive each month even after the extra tax had been deducted.

I do this every time I change roles - compare net salaries rather than gross. And on the rare occasions I am able to negotiate, I do it based on net salary.

I'm in this position at the moment - there's an opening following a restructure. It's the same band as my job current job, but more responsibility. I'm not sure whether I am interested yet but if I am I will only apply if I'm happy with the net salary increase.

 

[jfollows]

Would the extra money worth the extra work? No.

Yes, that was the point I was making, for me at the time and under the particular circumstances it wasn't worth it. However DelayRepay also observes that the opposite may be true. In my case the new job came with more pay and more work so there was a balance. In the past (prior to 2008) I had moved into paying 40% tax through promotions with pay rises in essentially the same job, so the extra money was worth it and the higher marginal tax rate didn't matter that much.

 

[AlterEgo]

The high tax rate in the UK in fact discourages people to work once they earn to the point of the 40% threshold.

Hmmm, not sure about that one.

However, as the cost of living (especially rent) rises, it will soon gets to a point that the 40% threshold can only barely make the ends meet, creating massive social unrest.

The middle classes don't create social unrest in the United Kingdom. Unrest comes from the disenfranchised and ghettoised at the bottom. The middle classes are generally submissive with being squeezed financially and will communicate their displeasure with voting. What is a risk is a spontaneous riot in urban area.

Why does the UK has such a high tax rate compared to the Crown Dependencies and the Colonies?

We aren't an island tax haven, for one. We also don't have any colonies - I wouldn't refer to Overseas Territories like that, they don't see themselves as colonies.

 

[Butts]

I think the State Pension should be based on how many years contributions you have made - if like me you have paid over 35 Years (the current limit for max pension) the balance attracts no further benefits. Retain the Pension Credit so those at the lower end still have enough to live on.

Alternatively once you have coughed up for the 35 Years you pay no more National Insurance ?

The elephant in the room are Government Pensions which are funded from current income through taxation.

An argument could be made as to why non-beneficiaries should effectively subsidise the recipients ?

 

[ainsworth74]

I think the State Pension should be based on how many years contributions you have made - if like me you have paid over 35 Years (the current limit for max pension) the balance attracts no further benefits.

That is of course how it works, it just caps out at the maximum at 35 years. If you've only made say 20 years contributions you'll get a reduced rate pension.

Alternatively once you have coughed up for the 35 Years you pay no more National Insurance ?

Though National Insurance isn't just about State Pension. It also provides entitlement to contribution based Jobseekers and Employment and Support Allowance as well as being part of the funding pot for the NHS and social care services. There's certainly an argument to be made that we should just roll it into income tax and be done with it rather than having a separate line item. NI would then just be a credit on your record. Effectively meet criteria x gain one years credit which is close to the current system just without any taxation element.

The elephant in the room are Government Pensions which are funded from current income through taxation.

An argument could be made as to why non-beneficiaries should effectively subsidise the recipients ?

That is the current state of play with the State Pension! Todays State Pension's are being paid for by today's tax payers, if I get that far and it still exists my State Pension will be paid the taxpayers of the late 2050s.

 

[HSTEd]

I'd argue the primary purpose of National Insurance is to provide tax cuts to pensioners in return for voting loyalty - and to allow the government to increase income tax whilst pretending it has not.

All payroll and income taxes should be folded into one, rational tax schedule: The Health and Social Care Levy, Income Tax and both Employee and Employer National Insurance. The latter is especially egregious because it is hidden from the public.

Only then can we have a reasonable and honest debate with the public about the role of taxation in our society.

 

[al78]

Why do you think young people locked out of capital aren’t working *as hard* as you or I are? Housing is extremely expensive, and takes up a massive portion of younger peoples’ incomes than it used to.

It is called the just world fallacy, I've seen it used frequently by people who lack empathy.

"The Misconception: People who are losing at the game of life must have done something to deserve it.

The Truth: The beneficiaries of good fortune often do nothing to earn it, and bad people often get away with their actions without consequences."

== Doublepost prevention - post automatically merged: 3 Nov 2022 ==

I don't have an issue with assets being sold to pay for care. A house you no longer live in is no different to any other asset. But the amount being left over ought to rise with inflation.

I suspect the real gipe comes from those in line to inherit such assets that need to be sold to pay for the nursing care. Having to sell one's home is not physically impactful to the person who will be spending the rest of their life in a nursing home, emotionally maybe.

 

[johncrossley]

The good effect of the 40% tax rate is that it encouraged me to avoid it by putting money into pensions, which I now live off, and the good effect is that I don't have to claim anything from the state.

Exactly. The vast majority of people can avoid the 40% tax rate by putting the exceess into a pension. The tax free allowances are huge. 40% tax only becomes an issue once you pass the total lifetime limit. But if you have contributed over £1 million in your pension then you are probably going to have a decent enough retirement anyway.

== Doublepost prevention - post automatically merged: 4 Nov 2022 ==

I think we've already reached the point where people at the lower end of the 40% threshold are struggling, especially those who have families. This problem has arisen partly because the bandings have not increased in line with inflation.

That implies that most people on basic rate are struggling, which is over 80% of income tax payers. So I think that is a bit of an exaggeration. Most people who are 'struggling' on higher rate don't know how to budget properly.