MSE News: Budget 2012 - £3.3 billion tax blow for pensioners

SandraScarlett

amiehall wrote: »

I have to say I'm a bit sad that no-one has even tried to answer my question. Until this week I'd never heard of the ARA and am really wondering what the original rationale behind it was?

Well, I'll do my best. Sir Winston Churchill introduced this extra allowance in the 1920s, because he felt that older people should keep more of their money untaxed, I believe, as a reward for a lifetime of hard work.

Over the years, if the Personal Tax Allowance has increased, then the ARA has increased by the same percentage. By not doing that next year, the differential will be eroded.

It doesn't affect me, as I receive far less, about £7K, in private and state pensions, but it does affect many people. I feel very sad at the number of posts, both on here and on other boards, that have been nasty towards older people, and ill-informed.

We know we're getting 5.2% increase - but at its maximum, that's only a fiver a week! We're not talking mega bucks here, but to hear some people talk, you'd think we were getting a fiver a day extra! Many youngsters, my own family included, feel poverty stricken if they don't have the latest gadget, such as an i-phone. How many weeks increase of pension do they cost?

And the reason we're getting it, is because the cost of living for pensioners has risen far more than 5.2%, because a pensioner spends a far higher percentage on heat, for example, as they're home all day.

I hope that answers your question, and if I'm wrong at all, I'm sure someone will correct me.:)

xx

thorsoak

amiehall wrote: »

I'm a bit confused. I wasn't particularly aware that pensioners had a higher allowance until I heard it announced that it would be brought in line with normal allowance over the next few years. I struggle to understand what the rational behind a difference in allowance would have been in the first place? I've lived on £12k a year while studying part-time. It shocks me to learn that if I were 65 and on a pension of £12k a year, I'd have an extra £600 in my pocket (with my NI contributions on top) from a different tax allowance. I genuinely can't understand the rationale. What was the original thinking?

While obviously I study with an aim to better my situation in the future and I see a pension income is fixed, there's no way I will be granted a pay rise seeing as my employer knows I'm studying and will likely leave once I've finished. My student loan has not increased one penny for inflation and I still face the same expenses right now today to support myself as someone in their 60's as far as I can see.

Believe me, Amie, there are not that many pensioners that I know that have a pension income of £12,000 ....mine is around the £7,000 mark (state pension + private pension) - and I have to pay the same bills as anyone else living on their own does.

I'm back at work, to bring my income up to the £12,000 mark - and yes, I do get a tax allowance of £10,500 (or something around that figure, before someone comes along to correct me) BUT my state pension of £5,600 is deducted from that allowance - therefore my tax-free allowance is (£10,500-£5,600) = £4,900. So, on my private pension of approx £1,800 pa plus p/t wage of approx £5,000, I am taxed on £1,900 pa.

OK it's not a lot of tax - but remember that I although received a tax allowance at the time on my private pension contributions, I had to pay tax at the standard rate on my salary when I worked full-time plus paying the NI contribution of whatever that was.

And as Sandra has explained, the Age Related Allowance has been in place for a long-enough time.

We were told that although the national insurance contributions that we made were paying for the pensions of those in receipt at that time, because of increasing prosperity, etc etc, blah, blah, blah, that our pensions were safe. Hah!

We were lead to believe that we were doing the responsible thing, by buying our homes, by saving for our pensions, that our working life (remember we had to pay in for 42 years to qualify for full pension, not the 30-odd years now).

So that is why some of us are not happy bunnies now.

gadgetmind

SandraScarlett wrote: »

Many youngsters, my own family included, feel poverty stricken if they don't have the latest gadget, such as an i-phone.

That's splendid news! Or at least it is for those of us with a fair whack of our retirement funds in companies that get royalties from every such gadget that sells.

molley

thorsoak wrote: »

Believe me, Amie, there are not that many pensioners that I know that have a pension income of £12,000 ....mine is around the £7,000 mark (state pension + private pension) - and I have to pay the same bills as anyone else living on their own does.

I'm back at work, to bring my income up to the £12,000 mark - and yes, I do get a tax allowance of £10,500 (or something around that figure, before someone comes along to correct me) BUT my state pension of £5,600 is deducted from that allowance - therefore my tax-free allowance is (£10,500-£5,600) = £4,900. So, on my private pension of approx £1,800 pa plus p/t wage of approx £5,000, I am taxed on £1,900 pa.

OK it's not a lot of tax - but remember that I although received a tax allowance at the time on my private pension contributions, I had to pay tax at the standard rate on my salary when I worked full-time plus paying the NI contribution of whatever that was.

And as Sandra has explained, the Age Related Allowance has been in place for a long-enough time.

We were told that although the national insurance contributions that we made were paying for the pensions of those in receipt at that time, because of increasing prosperity, etc etc, blah, blah, blah, that our pensions were safe. Hah!

We were lead to believe that we were doing the responsible thing, by buying our homes, by saving for our pensions, that our working life (remember we had to pay in for 42 years to qualify for full pension, not the 30-odd years now).

So that is why some of us are not happy bunnies now.

Yes you do have a Tax Allowance of £10,500 but the reason your allowance is reduced by the amount of your State Pension ( thereby producing your Tax Coding Number ) is because there is no mechanism to take Tax off a State Pension so it gets taken off your earnings .....I have a Works Pension and a State Pension and the same thing is done with my Tax taken off the Works Pension ..

thorsoak

molley wrote: »

Yes you do have a Tax Allowance of £10,500 but the reason your allowance is reduced by the amount of your State Pension ( thereby producing your Tax Coding Number ) is because there is no mechanism to take Tax off a State Pension so it gets taken off your earnings .....I have a Works Pension and a State Pension and the same thing is done with my Tax taken off the Works Pension ..

Yes - I do realise that - I was trying to explain to Amie that we are actually "taxed" on our state pension. We just don't get away with it tax free!

molley

thorsoak wrote: »

Yes - I do realise that - I was trying to explain to Amie that we are actually "taxed" on our state pension. We just don't get away with it tax free!

Mores the pity Eh ?? :-)

typistretired

SandraScarlett wrote: »

Well, I'll do my best. Sir Winston Churchill introduced this extra allowance in the 1920s, because he felt that older people should keep more of their money untaxed, I believe, as a reward for a lifetime of hard work.

Over the years, if the Personal Tax Allowance has increased, then the ARA has increased by the same percentage. By not doing that next year, the differential will be eroded.

It doesn't affect me, as I receive far less, about £7K, in private and state pensions, but it does affect many people. I feel very sad at the number of posts, both on here and on other boards, that have been nasty towards older people, and ill-informed.

We know we're getting 5.2% increase - but at its maximum, that's only a fiver a week! We're not talking mega bucks here, but to hear some people talk, you'd think we were getting a fiver a day extra! Many youngsters, my own family included, feel poverty stricken if they don't have the latest gadget, such as an i-phone. How many weeks increase of pension do they cost?

And the reason we're getting it, is because the cost of living for pensioners has risen far more than 5.2%, because a pensioner spends a far higher percentage on heat, for example, as they're home all day.

I hope that answers your question, and if I'm wrong at all, I'm sure someone will correct me.:)

xx

Well done SandraScarlett I have been doing some research on the House of Commons Library and was about to post but you covered everything in your post.

Osborne says his budget is for workers. It may backfire on him by workers not retiring and no new jobs becoming available for the younger generation.

FATBALLZ

Andy_Davies wrote: »

There is really nothing to match the sense of entitlement that the baby boomers have is there....

"I worked all my life and paid my stamp therefore I'm entitled to x, y and z now..."

The fact is no-one contributes enough in NI to ever fund what they they get as their pension.

The baby boomers lived through the greatest period of economic growth we had and most of it ended up in their pockets - through rising equities (who made the money on endowments), rising house prices etc. They also receive the greatest benefits from the massive amount of money that has been poured into the NHS.

The generations that are coming after are unlikely to do as well as the baby-boomers - pension provision has been decimated, massive growth in house prices means they are unaffordable (at worst), or will require huge mortgages at best, pension age is forever being pushed back etc.

If you've made it to retirement now, you're one of the lucky ones, you've been able to quit work earlier than the following generations and will most likely enjoy a long and healthy retirement paid for by others.

So I wouldn't complain too much...

Well said, absolutely galling that any boomer has the cheek to come on here and make out that they've been hard done by. A little part of my faith in human intelligence dies each time I hear 'I paid NI for x years therefore I have paid for my state pension/free bus pass/winter fuel allowance/etc etc' (er yeah, 20+ years of living off the state? have you !!!!!!!!).

As a further thought that occured to me recently, the wartime generations paid off the war debt for the boomers and now the boomers are coming to the end of their working life they've seen fit to leave the rest of us with a national debt of soon to be over 100% GDP - thanks guys.

Undoubtedly they will go down in history as the most greedy and ignorant generation ever to exist.

patchwork_cat

What have todays' pensioners done that will help us get out of the economic mess we are in? Pensioner's are complaining about not receiving an increase in tax free allowance that will cost them potential pennies. Public sector workers have not had a pay rise for 2 and 3 years, not even a with inflation one. That means they are down more than 10% in real terms of income. Not insignificant. Take the potential pain, the rest of us won't even be able to retire for a good 2 or 3 years later than you in any case, that is ofcourse assuming that you didn't take early retirement in your mid fifties.

Consumerist

patchwork_cat wrote: »

What have todays' pensioners done that will help us get out of the economic mess we are in? Pensioner's are complaining about not receiving an increase in tax free allowance that will cost them potential pennies. Public sector workers have not had a pay rise for 2 and 3 years, not even a with inflation one. That means they are down more than 10% in real terms of income. Not insignificant. Take the potential pain, the rest of us won't even be able to retire for a good 2 or 3 years later than you in any case, that is ofcourse assuming that you didn't take early retirement in your mid fifties.

Today's pensioners have probably contributed less to the mountain of personal debt than younger generations.

You seem to be forgetting that the loss of the age-related element of state pension will also affect you and me when our time comes. We will have to plan for a lower state pension than we would have been paid. Are you in favour of that?