Hacker News Reader

Comment by sefrost | Hacker News Reader

The economic situation in the UK has become bizarre.

I would recommend interested HNers to read up on the State Pension Triple Lock; and the various income tax cliff edges as some key examples.

With respect to the income tax, it is possible for higher earning (not by US standards) employees to receive a bonus and actually take home less money than before they received the bonus.

The triple lock is a politically motivated policy which always grows the state pension (given to essentially all UK citizens and anybody that ever worked there for more than 3 years) at a rate faster than earnings grow or faster than the economy grows. It will subsume the entire government budget.

Given the extremely high cost of energy, and housing in many places, younger people also seem to be opting out entirely. Disability payments the government pays are increasing at a rapid rate. (1 in 13 of the population are currently receiving this benefit).

View on HN

You touch on the core issue of the UK, but there's both a cultural and policy aspect.

1. As you say, an aging population has placed the entire country into a gridlock - the pensions system as it stands is ridiculous and unsustainable. Unfortunately, it is an almost immediate political suicide to even attempt to reform it. Young people are disillusioned and wield little monetary or political power. The old generation has all the cards, and are actively destroying their children's future for their own short term benefit. They have mortgaged their children's future, which they won't get to see, for the short period of time they still have remaining. 2. There's no investment culture in the UK. Literally everything and everyone is rent seeking. Want a retirement? Buy property and rent it out. Want a pension? Pension funds just buy gilts - government bonds. Very little money goes into productive assets. This creates a vicious cycle where money is simply siphoned away from the little productivity that remains to an ever growing number of rent seekers.

There's no easy way out of this. One generation will effectively have to give up their welfare, but nobody wants to do this (understandable). The UK cannot afford to be the welfare state it wants to be.

> There's no easy way out of this. One generation will effectively have to give up their welfare, but nobody wants to do this (understandable). The UK cannot afford to be the welfare state it wants to be.

It can be done over a period of time. Canada moved from a non-funded pension model like the UK currently has, to a partially funded model which currently has over $731 billion in assets.

They began this change in 1999. If they hadn't made that change in direction they'd be in a much worse situation today.

It's possible to change from one system to another, if a government is able to look much further ahead than its own term in government.

With the Canadian model, your payments out at the end are tied to what you put in. Which is not quite the case in the UK, which allows extremely low payments in for just 10 years to get a very high amount out indefinitely.

The British government must take the same path the Canadians took.

This is happening elsewhere too. France is in a very similar situation which keeps causing their government to fall apart.

>anybody that ever worked there for more than 3 years

To be fair what you get is proportional. If you are an NI payer for 4 years then you only get 4/32 of the state pension.

Having said that the triple lock is a ridiculous idea. The trouble is people are loss averse so it is really hard to take away things people have got used to.

Actually once you are back in your home country (or in fact any other country) you can pay an optional £180/year to buy a full qualifying year.

Anybody who ever worked in the UK can do it and you don’t need to have ever been a citizen.

There are adverts on Irish radio about it quite often.

It’s an absolutely terrible deal for the British government when you consider how high the state pension annual payout is.

I live in another country right now and I do it myself!

A minimum amount of 10 years is needed to get the basic pension (which is proportional to years worked), but years on Universal Credit (benefits) count towards this. Also, anyone who is of pension age is entitled to a Pension Credit top-up to a weekly income of £227.10.

>Also, anyone who is of pension age is entitled to a Pension Credit top-up to a weekly income of £227.10.

As long as you have less than £8,000 in the bank.

> With respect to the income tax, it is possible for higher earning (not by US standards) employees to receive a bonus and actually take home less money than before they received the bonus.

What are you referring to here? Higher rates of income tax are only taken on the money earned over the band. So If you earn £50,271, you pay 20% on £50,270 and 40% on £1.

Are you referring to some other kind of tax then?

https://www.gov.uk/income-tax-rates

As well as the childcare benefit removal others have mentioned, you also begin losing your "tax free allowance".

The marginal tax rate for 100k -> 125k is 60% (due to losing the ~£12k tax free allowance)

  "Your personal allowance goes down by £1 for every £2 that your adjusted net income is above £100,000. This means your allowance is zero if your income is £125,140 or above."

there are benefits such as child tax credits which are not tapered. You either get the full benefit if earning £99,999 a year, or nothing at £100,000. This benefit if you have children can be worth tens of thousands of pounds, thus resulting in a net loss. If you look at income data after tax this causes a weird drop in take home pay in the roughly 100-130k range, where people just salary sacrifice all their extra pay to make sure they are under 100k. This is not productive to the economy.

After 100k, you get childcare benefit removed. This mean less money you pocket going from 99999 to 100k.

Reply on news.ycombinator.com