Making allowances for the retiring type

Making allowances for the retiring type

Pensioners will be able to earn substantially more before paying income tax, thanks to this week's budget. But they will have to wait until 2011 for the full effect of the planned changes, which pensioner lobbying groups condemned as "empty" and "doing little for pensioner poverty".

More than 600,000 over-65s will be taken out of the income tax net by 2011, leaving just 57% still paying tax This will be by a series of increases in the "higher personal allowance" - the amount that over-65s can earn from all sources, including pensions, before income tax kicks in.

For the coming tax year, that is set at £7,550 for those up to 75 and £7,690 for the over-75s. But for 2008-09, it will rise by £1,180 over the rate of inflation - equal to around £9,200. This will remove 580,000 pensioners from tax.

And over the following years, the rate will rise again by more than inflation so that by April 2011 it will stand at around £10,000 - the exact figures will depend on inflation. The means-tested pension credit rises by £5 a week.

But for pensioners further up the earnings scale, much of these allowance increases will be offset by the ending of the 10% band. That will cost those affected up to £223, so they will need £1,150 taken out of tax to compensate.

But pensioners (and others) with some savings interest income, will continue to benefit from the 10% tax band.

The chancellor was silent on how.....continued below

Advertisement starts

---

---

Advertisement ends

the higher amounts would be treated for the "age-allowance trap" - the level at which the extra allowance compared with the basic personal allowance starts to disappear with every £2 of extra earnings losing £1 of allowance until it falls back to the under-65 level.

For the coming tax year, this "income limit for age-related allowances" will stand at £20,900 - an £800 increase. But while these better-off pensioners will also lose the 10% band, they earn enough for that to be more than offset by the reduction in the basic income tax rate from 22% to 20% from April 2008.

The previously promised nationwide local buses free travel for the over-60s does not start until April 2008. But areas where retired people are particularly hard hit, such as water rates, fuel bills and council tax, were ignored. The winter fuel payment remains at a tax-free £200 where one person in the household is 60 or over (£300 where someone is 80 or more). And there is still no indication on the date when the basic state pension becomes linked to earnings rather than inflation which tends to be lower.

Gordon Lishman at Age Concern says: "This is a stop-gap budget for pensioners, ignoring the needs of some of the poorest older people, largely the 2.1 million who aren't claiming pension credit. But it's really positive that the chancellor plans to lift 600,000 pensioners out of income tax. "

Help the Aged dubbed the speech "a do nothing budget for poor pensioners". The charity's Mervyn Kohler says: "There were few green shoots for pensioners. There was little about high fuel costs, soaring council tax bills and dwindling local services which older people rely on. Pensioner poverty persists after a decade of Gordon Brown's tenure in Number 11 Downing Street."