Budget 2012: Over-65s' tax-free income freeze

 

George Osborne: "No pensioner will lose in cash terms"

The amount of income that is not taxed will be frozen for those aged over 65, affecting the financial plans for those approaching retirement.

From April 2013, those hitting 65 will no longer receive a larger personal allowance than people of working age.

This will save the government £1bn by 2015, Budget documents have revealed.

The government said it wanted to "simplify" the tax system and spread tax relief across everyone, regardless of age.

But the National Association of Pension Funds said: "Over the course of this Parliament, pensioners stand to lose over £2bn in age-related tax allowance.

"This will come as a blow to millions of pensioners who have paid in to the tax system throughout their working lives. Pensioners with modest amounts of pension saving stand to be the biggest losers."

Key facts

  • The amount of income that is tax-free - the personal allowance - is greater at present for most people aged over 65
  • The system will be changed so eventually, everyone will have the same personal allowance
  • Some 4.41 million people will be worse off in real terms in 2013-14, losing £83 on average
  • Within that, 360,000 people aged 65 lose an average of £285

Source: HMRC

An accountant has warned that the change could cause difficulties for the UK tax authority's computer system and leave some people paying the wrong amount of tax.

"It is going to impact those least able to detect whether they are paying the wrong amount of tax," said Chas Roy-Chowdhury, of the ACCA tax body.

Major change

For those aged between 65 and 74, the personal allowance, the amount of income that is tax-free, has been set at £10,500 from April. For those aged 75 and over, the allowance will be £10,660.

Full Budget Documents

PDF download Budget 2012[707 KB]

Most computers will open PDF documents automatically, but you may need Adobe Reader

This extra allowance gradually reduces for pensioners, whose taxable income is between £24,000 and about £29,000. It disappears for any pensioner earning more than £29,000. There is also a gradual withdrawal of the basic personal allowance for everyone with income above £100,000, regardless of age.

In a major shift in the way tax is calculated, already dubbed a "grannytax" on Twitter, Chancellor George Osborne has said that income tax personal allowances will change in the following way:

  • The under 65s' personal allowance will increase to £9,205 in April 2013 - that relates to people born after 5 April 1948
  • A personal allowance of £10,500 will be restricted to most people born after 5 April 1938, but before 6 April 1948
  • The personal allowance of most people born before 6 April 1938 will be £10,660

The change means that as people turn 65, they will not be entitled to the higher personal allowance set aside for most pensioners.

Instead, they will receive the same as everyone else. As time goes on, more and more people will fall into this group.

As a result, in 2013-14, some 4.41 million people will be worse off in real terms with an average loss of £83, HMRC said.

Dot Gibson, National Pensioners Convention: "Pensioners are very, very worried"

Within the total, 360,000 individuals aged 65 lose an average £285. Some 230,000 people will be brought into income tax.

So this will save the government £360m in the year it is introduced, rising to £1.25bn a year by 2016-17.

"This measure will support the goal of a single personal allowance for all taxpayers regardless of age, and spread tax relief fairly across working-age people and pensioners," said HM Revenue and Customs (HMRC).

Pension age

Although the tax-free income allowance is rising for the under-65s, HMRC has confirmed that 300,000 will be drawn into higher rate tax from 2013/14.

The change comes as a result of the higher rate threshold being reduced from £42,475 to £41,450 - the point at which people start paying 40% tax on their income.

Meanwhile, the chancellor confirmed that he would set up an "automatic review" of the state pension age to make sure it keeps on rising if people keep on living even longer, which means to 68 and beyond.

The state pension age is already scheduled to rise to 67, for both men and women, by 2026.

 

More on This Story

The BBC is not responsible for the content of external Internet sites

Comments

This entry is now closed for comments

Jump to comments pagination
 
  • rate this
    +10

    Comment number 125.

    For all those who think they have contributed to a pension pot, well, they haven't. There is no pot. The contributions they made were used by the government of the day as income.There is an accrued intitlement to an income but that income comes from the tax-payer of today.
    This is the start of a general attack on all pensions. No one is safe!

  • rate this
    +8

    Comment number 124.

    This is especially mean spirited as it hurts the poorer pensioners who have a little extra income, but doesn't affect the wealthy pensioners at all. I suppose the only way to protest is to hurt the Government at the ballot box and if pensioners voted against the Government they will soon be out of power. Roll on 2015, only 3 more years and they will be gone.

  • rate this
    +7

    Comment number 123.

    As one of the many of the upcoming pensioners born after the war I always suspected the politicians would devalue our entitlement. Serps/S2p has been reduced and may disappear. G Brown took away dividend tax relief. Annuity rates have plummetted. Now this. Don't trust politicians. They look after their friends.

  • rate this
    +12

    Comment number 122.

    The 50% tax band for those "earning" over £150,000 was abolished because it "only" brought in £1 billion and so that £1 billion was deemed "not worth collecting". So why is the £1 billion or less which the abolition of the Higher Personal Allowance for pensioners will bring in worth collecting!! Pensioners are a large group so the next election will be "pay-back" time.

  • rate this
    +2

    Comment number 121.

    Brism1948 - good idea! Make state pension tax free and it can offset the additional tax many pensioners would need to find when Income Tax and NIC are merged (which is now on the front burner). It could have a taper to ensure no pensioner was better off than currently. At least merged tax/NIC will pick up more from the extremely highly paid.

  • rate this
    +8

    Comment number 120.

    There is always going to be something to complain about in every budget and this one has something for everyone. Although effected like everyone lese one way or another I can see how they have fairly limited options to screw more money out of us. However, I don't get the logic of this one unless it's to starve the wrinklies to death. One way of reducing strain on the NHS I suppose.

  • rate this
    -6

    Comment number 119.

    I'm just about to reach 65. I am getting a bit fed up with pensioners moaning about paying in. OAPension £140 a week for all. How many of you even paid that much in NI per week when you were working, not many.
    It's about time we thought about the youngsters and gave them a chance
    to enjoy what we have had.

  • rate this
    +3

    Comment number 118.

    Withdrawal of tiered age relief for pensioners is indefensible. Both this government and Labour governments have got a strange approach to pensions: they seem to delight in discouraging people to save and defined benefit schemes have disappeared.. This means that pensioners will be become poorer and poorer as time goes by. Will the State look after them?.

  • rate this
    +2

    Comment number 117.

    I can't stand it when people cry about the age increase. Something has to give. You can not pay the same amount and live longer thus living off a pension longer. It's not an infinite pot of money.

  • rate this
    +1

    Comment number 116.

    Redrawing the constituency boundaries may well boomerang on the Tory party? By 2015 there will be even more hard pressed pensioners who already feel cheated by this latest budget and we can't all be lottery winners. Just watch the M.P's voting to increase their pay and allowances once there are fewer of them so no savings there you can bet.

  • rate this
    -8

    Comment number 115.

    So according to HMRC pensioners will be £83 worse off but they have just given them more than a £5 pw increase on the state pension which is £260 over the year. Unlike workers they do not have to pay travel costs to work and receive a myriad of benefits which governments of all colours are afraid to tamper with. I do not have a lot of sympathy for them on this.

  • rate this
    +3

    Comment number 114.

    I think it is appalling that he can even think about cutting pensioners tax free allowance he has cut the 50p rate which will benefit most Mps it absolutely disgusting i just hope all pensioners remember this at the next general election and kick them OUT. the coalition has a down on the elderlyand the disabled and they need to go

  • rate this
    +6

    Comment number 113.

    And so it begins...

    First, the "choice" to work longer, then the obligation and the removal of any added benefit.
    The young are out of work and the old are forced into work - hardly sensible! But then the young, inexperienced people are in charge of the country and the old, experienced are in charge of a checkout!!!

  • rate this
    +5

    Comment number 112.

    Well having struggled through the 1980s and early 1990s and broken several bikes on the way (OK Tebbit) I knew what to expect from this lot before the election. Creeping privatisation takes another spurt most obviously in the NHS. So many broken promises Nick and Dave, I never expected 'the smirk' to do act any other way. What to do? LibDems cross en-mass precipitating a general election.

  • rate this
    +2

    Comment number 111.

    At the risk of upsetting my fellow pensioners, I don't understand why reaching the magic age of 65 results in a higher personal allowance. What happens to a person suddenly at 65? When I reached 65, I was still working but was given the higher allowance. Why? In my book, income is income regardless of whether you are 17 or 70. Mind you, GO should also go after non-residents like Philip Green

  • rate this
    +8

    Comment number 110.

    The whole concept of taxing pension income is an outrage. It should be tax free! Any parties out there willing to put that in their next manifesto will get the wrinkly vote.

  • rate this
    +7

    Comment number 109.

    Supported the liberals for years & actually stood as a candidate in county council elections in the 1970s , but what happened to everything we stood for ? The Lib Dems have committed suicide - who do I support now ? Older people in this country are not valued in any way at all - we are just potential nuisances !

  • rate this
    +10

    Comment number 108.

    This attack on pensioners will come back to haunt the Coalition. Even if we can't remember something we did yesterday, our longer term memories are still intact. And I think the Coalition has just lost themselves a few million pensioner votes at the next election. One way they can partially redeem themselves is to make the state pension 'non-taxable' income. Some hopes!

  • rate this
    +2

    Comment number 107.

    Osbourne must think we pensioners are either not numerate or just plain stupid. Pensioners are seen as an easy target by con men and this tawdry set of politicians certainly are proving the point. Roll on the next election, I would rather vote for the Monster Raving Loony Party than Conservative or Liberal.

  • rate this
    0

    Comment number 106.

    24. ATNotts "I have little sympathy with pensioners on this... The change has made the whole system fairer".

    As a worker (?) you will enjoy your full personal allowance. As an OAP, I only benefit from less than 50% of my allowance. How is that fairer?

 

Page 8 of 14

 

More Business stories

RSS

Features

BBC © 2014 The BBC is not responsible for the content of external sites. Read more.

This page is best viewed in an up-to-date web browser with style sheets (CSS) enabled. While you will be able to view the content of this page in your current browser, you will not be able to get the full visual experience. Please consider upgrading your browser software or enabling style sheets (CSS) if you are able to do so.