Budget bashes pensioners
Pensioners are the biggest losers from George Osborne's latest budget.
George Osborne said in his Budget speech that "no pensioner will lose in cash terms" from today’s proposed changes to income tax.
Strictly speaking, that’s correct. If a pensioner’s income is unchanged, he won’t have to pay any more income tax. But once you take inflation into account, pensioners will lose out. In fact, pensioners are the biggest losers from the budget.
Income tax
Under current rules, pensioners don’t pay any tax on income up to £10,500 a year. That’s a higher allowance than for younger folk, but the bad news for pensioners is that the allowance is now going to be frozen. So as prices rise, the real value of the allowance for pensioners will fall.
Indeed the Government thinks that this freeze will boost revenue by £360 million in the year to April 2013, rising to £1.25 billion in 2016. That’s a healthy boost to revenue which will help pay for the Government’s Corporation Tax cut.
I suspect this is going to be the issue that will really annoy people over the next few weeks. There’s already a fair bit of fuss on Twitter. Check out the #GrannyTax hashtag.
State pension age
And the Government isn’t just hurting current pensioners, today’s budget will also hurt people who retire in the future. That’s because the state pension age is set to go up.
It’s true that future increases to the pension age have been announced in previous budgets, but today’s news is that the Government wants to introduce an automatic review of the pension age.
In other words, if average UK life expectancy rises, the state pension age will go up in line with that increase. As a result, people who are 33 now may not be able to retire until they reach 73, according to Andrew Tully of MGM Advantage.
Pushing up the pension age in line with life expectancy may sound reasonable but it ignores the fact that life expectancy for poorer folk may not rise as fast.
What’s more, even if life expectancy does rise uniformly across the population, that doesn’t mean that manual workers will be physically able to carry on doing their jobs until they reach 73.
I think you can make a decent case that increases in the pension age discriminate against poorer pensioners.
Universal pension
The other big change is that the Government plans to introduce a ‘universal pension’ in 2015, which will apply to anyone who retires from that date onwards.
The State Second Pension (S2P) will be abolished and all new pensioners will receive a state pension of £140 a week at today’s prices. That’s as long as the pensioner has paid National Insurance for at least 30 years.
The big advantage of the Universal Pension is that it won’t discourage saving. It doesn’t matter how much money you have in the bank, you’ll still get £140 a week. It will also makes things simpler.
So, in principle, I’m in favour. However, the devil will be in the detail, and it’s possible that some pensioners with a State Second Pension may end up with a lower income. I’ll keep a watching brief on this issue.
Anyway, even if the universal pension does prove to be good news for all future retirees, you can’t say that this Budget has been good news overall for pensioners. That’s a shame.
Postscript: I should have said that I was pleased to see that the Chancellor hasn't made any changes to higher rate tax relief for pension saving. Maybe he was persuaded by my article: Tax raid could cut your pension by £3000 a year. Or maybe not.
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Something that has been overlooked is the housing benefit reduction for pensioners. Nothing was mentioned about this but this year, along with families that live in privately rented accomodation, pensioners housing benefit will be reduced by approx. 10%. As with most people that privately rent, the housing benefit does not cover the rent to start with. Nor is this for a London mansion. An example is a small, run down two bed bungalow. The couple will have to pay £400 per month over the housing benefit allowance from next month. This along with the rises in fuel and food gives a very miserable picture to an old couple that are unable to go out and get a job or alter their life in any way. This is cruel and completely insensitive by a government that really does not care for the poor.
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A few years ago there was a series of programs on TV about this country's current structural issues and what could happen if they weren't fixed soon. One of these episodes was on the pensions crisis. After describing the problem and showing a possible future Britain they then had an interview with a Boomer who was nearing retirement. After watching it I came away with three very clear things in my mind, all of which are evident here in these comments: 1. The Boomers are very militant and likely to stand up for what they think are their rights, something which my generation has sadly so far failed to develop. 2. The Boomers are very greedy. 3. As far as the Boomers are concerned it's not their fault. And even though it is they shouldn't have to pay for it because they're old/worked hard in unproductive jobs/voted in people who didn't care about the future. Now in that particular episode they suggested we were heading for a crunch. I wonder.
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I have worked for 46 years and I am now to have my pension decreased because with the money that my late husband paid into the pot, which will be deemed a second pension, the £140 will be a decrease for me. I am also still working but when then new tax threshold comes in it will no longer make it worth my while working (and I run my own business so so much for encouraging enterprise and growth). Also if people retire at a much greater age (rises from 60 for women to 70 plus) before they get their pensions it won't be worth the youngsters working in the first place if all they can look forward to is a long life of work and drudgery and then to retire just in time to live with alzheimers or be put on a life support machine. However, with all the new tax breaks that the ministers and politicians will get on their enormous salaries (£50,000 less for every £1,000,000 roughly) I am sure that they will be able to afford to retire when they want to . I and many others could live for 2/3 years on that £50,000 alone. When they retire they will still have their directorships or silent partners positions to keep them going. With regards to having to the old horsechesnut of "paying to keep talent" then I have seen much talent in ordinary people so let them go elsewhere I say. Still, what can we expect from a load of people who think nothing of fiddling their parliamentary expenses (no, we haven't forgot that either). Their game is to divide and rule. Cut jobs for the many so they are grateful for anything and take from the old whilst giving handouts to those still in work (via the tax rise) and to the very weathly, just so they keep people to vote for them. So much for the "caring Conservative" party. By the way, I am a card carrying Consevative member but just an old, expendable one now it appears. I have never been so ASHAMED of you politicians. I didn't think you would attack the old and weak. This is the act of COWARDS.
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26 March 2012