George Osborne has delivered a £1 billion Budget tax hit to pensioners as he cut the top rate of tax for Britain’s wealthiest earners. The Treasury acknowledged that 4.5 million pensioners would lose out as a result of the decision to phase out their additional age-related allowances.
Age UK said it was “disappointed” with the move warning that it could leave some pensioners up to £259-a-year worse off, with little chance to change their retirement plan. However, Treasury sources pointed to a report by the Office for Tax Simplification which claimed many pensioners did not understand the allowances and found claiming them “burdensome”.
Under the Chancellor’s plans allowances will be withdrawn for new pensioners from April next year while existing pensioners will have their allowances frozen at £10,500 for the over 60s and £10,660 for the over 75s until overall tax thresholds catch up with them. According to the Budget red book, the measure will raise an additional £1.01 billion for the Exchequer by 2015-16.
Although Mr Osborne insisted there would be no cash loss to pensioners, Treasury sources said existing pensioners would be, on average, £63 a year worse off while new pensioners would lose out to the tune of £197 a year on average.
Mr Osborne said of the allowances: “The National Audit Office points out that many pensioners don’t understand them. These allowances require around 150,000 pensioners to fill in self-assessment forms, and as we have real increases in the personal allowances, their value is being eroded all the time.”