Modest increases for pensioners due from April 2007

Published on 14 December 2006

In his pre-Budget report the Chancellor announced increases in the rates of retirement pension, state pension credit, and age-related tax allowances broadly in line with inflation.

Apart from the guarantee element of pension credit, which is raised in line with earnings, all other increases are in line with price inflation so any overall improvement in the condition of the poorest pensioners is modest at best.

There is no help for pensioners, as there has been in the past, to help with council tax increases.

From April 2007, Pension Credit will ensure that the pensioners who are single are entitled to a weekly income of £119.05 while couples get £181.70. This is an increase of £260 and £387.80 respectively, each year.

But the basic state pension will only increase from £84.25 a week to £87.30, an increase over the year of £158.60.

The Chancellor is raising age-related tax allowances broadly in line with the increase in prices. This means that pensioners who have only the basic state retirement pension, plus means tested benefits, stay outside the tax net and have another £111.40 a year spare.

The Chancellor points out that around half of pensioners pay no tax on their income, yet in July 1999, the Financial Secretary to the Treasury said that ‘around two-thirds of older taxpayers are outside the tax system’.

Has the number of pensioners within the tax system gone up from one-third to one-half in only seven years?

If so, that means a substantially greater number of pensioners who face the hassle of self-assessment forms or who risk problems with their PAYE coding notices (some 50% of which are still wrong when first issued), and probably overpay tax on bank and building society interest.

Personal tax allowances are set to rise from 6 April 2007 as follows:

Personal Allowance (age under 65) - £5,225 (+£190)
Personal Allowance (age 65-74) - £7,550 (+£270)
Personal Allowance (age 75 & over) - £7,690 (+£270)
Blind Person’s Allowance - £1,730 (+ £70)

The declining number of older pensioners entitled to the Married Couple’s Allowance will receive additional reductions in their tax bills equal at best to 44p a week.

(14-12-2006)

Contact: Robin Williamson (Tel: 0844 579 6700 Fax 0844 579 6701)

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