Government intransigence over the so-called granny tax means pensioners will still be hurt

Published on 08/12/2012 11:54

PENSIONERS were given an easy ride in the Autumn Statement, yet changes coming into force in April will leave many worse off after the government refused to back down over the so-called “granny tax”.

Many low and middle income pensioners, who will get what’s likely to be a sub-inflation hike in state pension benefits in April, also face paying more tax because of a change to personal allowances.

The state pension escaped the 1 per cent cap on the annual increase in a range of benefit payments that was announced on Wednesday, with payments going up 2.5 per cent on 6 April to £110.15.

But the increase still fails to protect pensioners from the effects of inflation, according to Dot Gibson, general secretary of the National Pensioners Convention.

“This is just £2.70 a week extra and only £1.60 a week more for millions of older women who do not get a full pension,” she said.

“Even with this increase, one in five older people continue to live in poverty, three million pensioner households are in fuel poverty and millions more are struggling just to make ends meet.”

April is also when the freeze on age-related personal allowances begins. The move – dubbed the “granny tax” – was the most controversial measure unveiled in the Budget earlier this year.

The chancellor this week revealed that personal tax allowances – the amount that can be earned before income tax kicks in – will rise to £9,400 in April, up from £8,105 now and by £235 more than had been planned.

But hopes of a climbdown on the so-called granny tax were dashed, with no mention of age-related personal allowances in the Autumn statement.

Personal allowances would normally rise for all ages in April, but it was announced in the March Budget that they would be frozen at £10,500 for pensioners aged 65 to 74 and at £10,660 for those aged 75 or older. (The extra allowance for pensioners tapers out for those earning more than £24,000 a year, before disappearing on earnings above £29,000).

The extra allowance is being scrapped altogether for anyone who turns 65 after 5 April next year, with the aim being the alignment of the personal allowance across all ages.

Robin Williamson, technical director of the Low Incomes Tax Reform Group, said: “Although nobody will lose in cash terms, those approaching 65 now may have to revise their expectations and prepare to pay more tax than they might have anticipated. Also, by freezing those who are entitled to the increased age allowances at their 2012-13 level, some pensioners will become worse off in real terms as their pensions are indexed over the next few years.”