More than three million people over 65 will get an increase in their pension next year that is well below inflation. Some could see their total weekly income rise by less than 2%.
The people affected are the three and a quarter million who get pension credit. Some will see their weekly income rise by as little as £3.34 if they are single or £5.02 for a couple.
For those with incomes high enough to take them above the level to get pension credit the news is better. The whole of their state pension will rise by 5.2% – and for once the same rise is applied to the basic pension and to any extras such as SERPS or graduated pension. That means the full basic state pension of £102.15 a week will rise to £107.45. The extra £5.30 is the biggest cash rise ever seen and the rise in SERPS and graduated pension is also higher than has been seen for many years. However, all are going up in line with the Consumer Prices Index not the Retail Prices Index – if the old index had been used the basic pension would have risen by another 40p a week to £107.85.
Those increases for the better off are in sharp contrast to the plans for the lowest income three million on pension credit. They fall into two groups. Those who get only the guarantee credit – which includes those under the age of 65 and the over-65s on the lowest incomes – will get a rise of £5.35 a week (or £8.20 for a couple). That should take their total income up from £137.35 to £142.70 (£209.70 to £217.90 for a couple). That is a percentage rise of 3.9% in their total income including pension credit. This increase is well above the rise in wages – just over 2% – to which pension credit is normally linked.
The remaing two million over-65s on savings credit who have slightly higher incomes will get a weekly increase as low as £3.34 (or £5.02 for a couple) and the percentage rise for some could be less than 2%.
For example, someone who has a full basic state pension of £102.15 and a fixed annuity from a personal pension of £30 a week will see their state pension rise by £5.30, but their pension credit will actually fall by £1.96 from £22.60 a week to £20.64, leaving them with an increase in their weekly money of just £3.34, which works out at a percentage rise of 2.2%.
Someone with a state pension of £102.15 and SERPS of £30 will do rather better. Their basic pension will rise by £5.30 and their SERPS by £1.56, which will give them a state pension of £139.01. Their pension credit will be cut from £22.60 to £20.02, leaving them with a rise of £4.28 – which is 2.8% more than they get now.
Reasons for restrictions
The Government says that restricting the rise for the 2.1 million people on savings credit will pay for the above-earnings rise for the 1.1 million poorest who get just guarantee credit.
But there is another reason. These lower increases are a deliberate policy by the Government ‘to limit the spread of means-testing-up the income distribution for pensioners’. The changes mean the upper income limit for getting pension credit has been frozen at around £189 a week (single) and £277 a week for a couple, and the maximum pension credit that can be paid has been cut by nearly £2 for a single person and by more than £3 for a couple.
Credits and benefits
Other benefits for those who are under women’s state pension age, disabled, carers, single parents or unemployed, will generally increase by 5.2%. But child benefit is frozen until 2014. Many elements of tax credits are also frozen. That will particularly affect people in low-income jobs without children who will see no rise in their credits from April. The extra tax credit for those over 50 who have been out of work for six months or more will also come to an end in April. People over 50 who get this credit may see all their tax credit disappear. The maximum loss will be £39 a week.
State pension age
Just weeks after Parliament agreed to raise the state pension age to 66 by October 2020, the Government has announced a further rise to 67. The latest change will begin in April 2026 and affects men and women born April 6, 1960 to April 5, 1969. Those born April 6, 1960 to April 6, 1961 will reach state pension age between 66 and 67. And those born April 6, 1961 to April 5, 1969 will reach pension age on their 67th birthday. Further rises in state pension age are expected for those born later than that.
Women’s state pension age in 2012/13 will start at 61 and rise to 61½ by the end of the tax year –the age at which men and women can claim pension credit and, in England, free bus travel. The age will rise to 65 for men and women by late 2020. In Scotland, Wales and Northern Ireland free bus travel begins at 60 and NHS prescriptions are currently free to all. In England prescriptions are free from age 60.
From April 6, 2012, you will be allowed to keep more of your own income before tax has to be paid. No tax at all is due on an income of £8,105 or less. People aged 65 to 74 (born April 6, 1938 to April 5, 1948) can earn £10,500 a year before tax is due and those aged 75 or more (born April 5, 1938 or earlier), £10,660. The blind person’s allowance rises to £2,100.
People who reach 65 in the tax year 2012/2013 are entitled to the higher age allowance but it will not normally be given by HMRC until another year has passed. The tax due in 2012/13 will then be corrected. It is a daft system and a strong protest to your local tax office may get you the higher allowance from the start. People with higher incomes may not get these age allowances. They are reduced if total income is £25,400 or more (up from £24,000 in 2011/12). If income exceeds £30,190, the 65-74 allowance will be the same as for younger people and the extra allowance for over 75s disappears when income reaches £30,510. Income in the band between £25,400 and these upper limits is effectively taxed at 30%.
The married couple’s allowance (given if one spouse or civil partner was born before April 6, 1935) will rise in value from £280 off one tax bill to £296. That is reduced if one partner’s income exceeds £30,510 and disappears if it exceeds £40,000.
If your income is higher still, you may have to pay tax at the 40% rate. That rate is charged on income above £42,475, exactly the same level as 2011/12. If your income exceeds £100,000 then your personal allowance is reduced and disappears completely in 2012/13 at an income of £116,210. Income between £100,000 and that limit is effectively taxed at 60%. Income over £150,000 is taxed at 50%.
This article originally appeared in the February 2012 issue of Saga Magazine.
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