The chancellor is set to raise £3.3bn from the measure over five years as part of Treasury measures to simplify the “complicated” system of age-related allowances. Osborne will freeze the allowances for around half of Britain’s older people. The personal tax allowances of current pensions will be frozen at £10,500 for those aged between 65 and 74 and £10,660 for the over 75s. Allowances for new pensioners will disappear from next year.
Osborne justified the move by citing the National Audit Office’s view that many pensioners “don’t understand” the system of age-related allowances.
“These allowances require around 150,000 pensioners to fill in self-assessment forms, and as we have real increases in the personal allowances, their value is already being eroded.”
Yesterday’s measures mean 4.41m people will be worse off by an average of £83 a year, according to HMRC. Existing pensioners will be £63 a year worse off, while new pensions will suffer to the tune of £197 annually, although the chancellor said nobody will be worse off in “cash terms”.
Ros Altmann, director-general of Saga, said: “The reality is that this is really just a revenue-raising exercise.”
Osborne will also end certain tax and national insurance advantages for workers whose family members benefit from their pension entitlements.
The age at which people draw their pensions will rise further after Osborne set up an “automatic review” to keep pace with increased longevity. He will also introduce a single tier pension for future pensioners estimated at around £140 a week.