Millions of pensioners dragged into paying tax as relief policy quietly removed | Personal Finance | Finance newsbhunt


Millions of pensioners have been dragged into paying income tax since the Conservatives came to power in 2010.

HMRC has quietly filled its pockets at the expense of older Britons by phasing out a tax relief for pensioners introduced by Winston Churchill, which previously meant pensioners started paying tax at a higher income level than workers.

The tax increase was introduced in 2012 by George Osborne with a pensioner earning £25,000 a year now paying £400 more in income tax compared to 2010, according to the Institute for Fiscal Studies (IFS).

Removing the relief policy allowed the Exchequer to quietly fills it coffers without hitting the headlines in announcing a major tax hike.

A working age Briton who earns the same amount pays some £1,200 less in tax each year. The IFS estimates 8.5 million people aged 65 and over pay tax on their income, up from 4.9 million in 2010.

The 3.6million pensioners dragged into paying tax will also not benefit from the two percent cut in National Insurance announced in the autumn statement this week as they do not pay the tax.

State pensioners will get a payment boost from next year, with the triple lock policy to be retained, delivering an 8.5 percent increase in payments.

This will increase the full basic state pension from £156.20 a week to £169.50 a week while the full new state pension will go up from £203.85 a week to £221.20 a week.

This means a person on the full new state pension will see their payments increase to £11,502.40 a year, which is just under £1,000 below the threshold for starting to pay income tax, at £12,571.

Figures from the Pension and Lifetime Savings Association suggest a single retired person needs at least £12,800 a year to cover their costs. A couple need at least £19,900 just to get by.

Dean Butler, managing director for Retail Direct at Standard Life said: “There will be no fiddling with the triple lock formula this year as the Chancellor confirmed his intention to offer those in receipt of the state pension the full 8.5 percent due as a result of increases to average earnings.

“There had been some speculation that we may see a reduced offer of 7.8 percent to reflect the fact that some of the earnings growth was due to a one off payment to public sector workers.

“The last couple of years have seen exceptionally large increases applied to the triple lock as a result of inflation and wage growth and questions surrounding the growing cost remain.

“A proposed review of the state pension was pushed out earlier this year reflecting the highly sensitive nature of the policy this side of an election.”

A person can claim their state pension when they turn 66, although this is increasing gradually to 67 and then to 68 over the coming years.

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