Posted on Fri 23rd March 2012 by admin2
Today’s Budget is not good news for pensioners, who will be hit hard by its provisions.
The Government has announced plans to phase out the age-related personal allowance and instead have a single personal tax allowance regardless of age.
From April 2013 existing age-related allowances will be frozen at their 2012-13 levels (£10,500 for those born between 6 April 1938 and 5 April 1948, and £10,660 for those born before 6 April 1938) until the personal allowance for the under-65s catches up. The personal allowance for the under-65s will be £9,205 in 2013-14. The income limit at which the age-related allowances begin to be clawed back will rise to £25,400 in 2012-13 and will presumably remain at this level.
From April 2013, age-related allowances will no longer be available to people who turn 65 after 6 April 1948.
The Government has given as its motivation the desire to simplify the tax system and reduce the number of pensioners in self-assessment. The measure will also save the Government a great deal of money – £360m in 2013-14, rising to £1.25bn a year by 2016-17.
The PSPC has always supported the age-related personal allowance as a measure that recognises the extra costs that pensioners face. It is deeply regrettable that the Government sees fit to fund some of its other measures by targeting pensioners.
Single tier pension
The Government announced plans to reform the state pension into a single tier pension for future pensioners. This would replace the current system whereby individuals can get part of their state pension through the basic state pension and part through the additional state pension.
The Government plans to introduce the new system early in the next Parliament and to set the new single-tier at above the level of the means-tested minimum income guarantee. The Budget documents state that ‘all State Pension records will be recognised’, so we assume that accrued state earnings-related pension scheme and state second pension rights would be respected.
The single-tier pension scheme will not cover existing pensioners. The PSPC made the point in its 2011 submission to the Department for Work and Pensions that just under half of current pensioners are eligible for Pension Credit. The effect of the planned reforms would have the effect of leaving these people on means-tested support.
The PSPC believes that it is impractical, unfair and politically unacceptable to leave existing pensioners on the current system. We face the prospect that in the middle of this century there will be a large surviving cohort of pensioners in their 90s and beyond who have to suffer the indignity of means-testing because of a system introduced a generation before.
The Government plans to bring forward a White Paper with further detail, with final decisions on the detailed implementation of the policy being taken at the next spending review. The PSPC believes it will be necessary to raise awareness of the implications of this change and campaign to have older people currently subject to means-testing included.
Automatic mechanism for state pension age
The Chancellor also confirmed that, as previously indicated, there will be an automatic review of the state pension age to ensure it keeps pace with increases in longevity.
Details of how this will operate will be published alongside the Office for Budget Responsibility’s long term fiscal sustainability report this summer. The Chancellor has already indicated that he intends to accelerate the increase in the state pension age to 67 by 2026. An automatic mechanism could accelerate this further and would almost certainly bring forward the increase to 68 from the current timetable of 2046.
Integration of income tax and National Insurance
The Chancellor also announced that the Government will launch a detailed consultation on integrating the operation of income tax and National Insurance Contributions (NICs). It is unclear at this stage what this means.
The long-term fear with any integration of income tax and NICs is that pensioners above state pension age would eventually become subject to the full combined rate of tax, where at present they do not pay National Insurance. It should be made clear that the Chancellor announced in the 2011 Budget that that he would not extend NICs to individuals above state pension age or to other forms of income such as pensions, savings and dividends.