Analysis: The Chancellor's stealth pensions move

Row of old women sitting downThat tricky Chancellor; just when we all thought pensions tax relief was going to be the big talking point of this year's Budget then he goes and changes his focus completely.

Instead of penalising those who are building up their pensions with a reduction in tax relief on contributions (a smart move you may say considering nobody is saving half as much as they should for their retirement), George Osborne is hitting those already in, or coming up to, retirement.Forgive yourself if you missed this sneaky move in his speech – it was garbled and deliberately confusing, I listened to it twice and was none the wiser on what was happening or why it was a good move (it turns out it's not).

So here's the rub: pensioners receive a higher rate of personal allowance (the part of your income that avoids tax) than working people.
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They're given this because they are disproportionately affected by inflation as they spend more of their income on food and energy (of which the costs of both have increased substantially over the past couple of years).

Now the coalition government has decided to scrap the age-related personal allowance and freeze pensioner allowance until it comes in line with the £10,000 personal allowance that everyone will receive in 2015.


'So what?' you may say, 'the oldies will benefit from a £10,000 personal allowance rate in a few years' but it's the people coming up to retirement with modest pension that will feel the pain.
Age UK has said that someone with a retirement income of £10,500 who reaches 65 in April next year could be £259 worse off a year, a substantial chunk of money when you're living on less than half of the average wage.

The government has tried to dress this move up as a simplification of pensions. Osborne made a laboured point about how 150,000 pensioners had to fill out self-assessment forms and the poor dears found it all rather confusing.

Well, the forms aren't half as confusing as Osborne's speech was.

The truth is this 'simplification' is saving the government £3.3 billion over the five years and that has to be paid for by someone – those coming up to retirement.

The only saving grace will be if the government pulls its finger out and introduces the £140-a-week universal state pension, now that really is a simplified pensions system that even Osborne won't be able to fudge.

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