Budget makes £3 billion cut to pensioner tax breaks

The personal tax allowance for pensioners is to be frozen, and scrapped completely for those aged 65 years and over on or after 6 April 2013, in a Budget where the 50p tax rate and increase in personal tax threshold took centre stage.

Making the announcement in the Budget, Chancellor George Osborne's gradual removal of age related income tax breaks will cost UK pensioners around £3 billion, leaving those retiring next year an average of £279 a year worse off, according to The Guardian.

Pensioners under 65 years of age will currently benefit from higher personal allowances of £8,105 (2012/13), increasing to £10,500 for those aged 65-74, and £10,660 for those over 75. These limits usually rise each year in line with inflation.

However, the changes to what is being labelled as the 'granny tax' will freeze personal tax allowances for existing pensioners on middle range incomes, while future pensions will not be eligible.

According to the Chancellor, the move will save the Treasury £360 million next year and £670 million the following year.

Echoing Ed Miliband, who described the move as a 'tax rise for pensioners', Joanne Segars, chief executive of the National Association of Pension Funds (NAPF), said: "It is pensioners who are the biggest losers in today's Budget."

"Over the course of this parliament pensioners stand to lose over £2bn in age-related tax allowance. This will come as a blow to millions of pensioners who have paid in to the tax system throughout their working lives."

The Trade Union Congress' general secretary Brendan Barber, also condemned the move, saying: "Pretending that pensioners will be grateful because it will simplify their tax is a vain hope."

"Instead they will see that they are being asked to pay more while the super-rich have kept all the pensions tax relief - a heavy burden for ordinary taxpayers."

Defending the decision, chief secretary to the Treasury Danny Alexander, said: "I think it is a fairer system to have the same income tax personal allowance for everybody in this country.

"Within the context of everything that we are doing for older people, I think it is a fair change."