From Huff Post today
Pensioners get fleeced again with ‘granny tax II’
By Michelle McGagh, Apr 13, 2012
It’s common practice for details of the annual Budget to be leaked to the media in the month before but we’ve already been given a firm steer about what’s going to happen next March. Just a month after the 2012 Budget the government has said what it will be targeting and it won’t be pretty.
After making a big song and dance about I increasing the basic state pension, which has risen to £107.45 from £102.15 per week – the biggest ever one-off increase to the state pension – the government is planning to reduce it by changing the way the income is taxed.
All pension income is taxable, including the state pension (although many people assume it is not). If your pension income exceeds the personal allowance, which at the moment varies depending on your age but will be £10,000 for everyone from 2014/15, then you pay income tax. If a person relies solely on the state pension they usually don’t pay any tax.
At the moment pensioners receive the state pension without any tax deducted because thousands of people don’t qualify to pay income tax, those that do have a tax bill have to pay it through their tax return. But the government plans to change this and pay out the state pension with tax already deducted, meaning people will receive just £85.96 per week.
This will affect thousands of pensioners. The Treasury has said it won’t affect the amount of money that people receive in the long-term but could create short-term ‘cash flow issues’.
The government’s argument is that for those who have to file tax returns to pay their tax it’s very confusing. But the question is: won’t it be just as confusing for the thousands of pensioners who have to claim the tax back because their income doesn’t exceed the personal allowance and they aren’t liable for tax?
The Treasury is investigating the options at the moment and will report back to the chancellor in time for next year’s Budget, but the potential change is already being seen as another tax, and been dubbed ‘granny tax II’, following last month’s original granny tax.
Hitting pensions again after the granny tax debacle wasn’t a good idea politically but it’s even worse for elderly people who are already being hit by rising costs, low interest rates on savings and a freeze on their personal allowance.
Increasing the state pension last month was the right thing to do to try and ease the burdens pensioners are facing, taking that back through a complex tax move is a big mistake.