What exactly is happening with age-related allowances?
Mar 2012 21

At the Budget, George Osborne announced that, as well as increasing the personal allowance, he would freeze and over time work to remove the age-related allowances as a way of simplifying the tax code. Since then those changes have become known as the “granny tax” and it appears they may be the most controversial measure announced today.

But many of the figures that are being thrown around are a little nebulous and don’t really make clear how different people are going to be affected.  I’ve tried to get the facts straight, though we will keep trying to exactly nail this down further and any corrections would be appreciated. Two groups are affected quite differently, those who are 65 already or turn 65 in 2012-13, and those who turn 65 in 2013-14 or later:

Those who are 65 already, or turning 65 in 2012-13

Those born on or before 5 April 1948 will still get a special age-related personal allowance. It will be frozen at £10,500 for those born between 6 April 1938 and 5 April 1948. And £10,660 for those born before 6 April 1938.  Those people are worse off than they might have expected to be, in that the allowance won’t rise with inflation. That is unfortunate given the pressure on savers already but they aren’t actually having their allowance cut from the existing rate.

Those turning 65 in 2013-14 or later

Those born on 6 April 1948 or later won’t get an age-related personal allowance. In 2013-14, they will get the same personal allowance as everybody else – £9,205 – instead of £10,500 if they had been born earlier. That implies they will get £1,295 less in personal allowance than they would under the current rules, which means they are about £259 worse off at the basic rate of tax.

They will only receive the same treatment as those who have already reached 65 when the personal allowance, which the Government are expected to keep increasing, catches up with the frozen age-related allowances.

The Chancellor of the Exchequer made a powerful case in his Budget speech, which I’ve copied below, that removing the age-related allowances would produce a simpler tax system. But, particularly for that group now not getting an age-related allowance who expected to get it, that simplicity is being achieved at the expense of a substantial rise in taxes for many struggling elderly people, from what they would have expected to pay.

That won’t affect the many pensioners who don’t earn enough to exceed the Personal Allowance anyway. But for some it will be quite tough. It might have been fairer to either keep increasing the age-related allowances in line with inflation, and let the working age Personal Allowance catch up because it is increasing above inflation. Or just freeze the age-related allowance and let the increase in the working age Personal Allowance erode the difference without cutting it off for new entrants.

“We should also simplify the age related allowances – which the Office of Tax Simplification have recently highlighted as a particularly complicated feature of the tax system.

The NAO points out that many pensioners don’t understand them.

These allowances require around 150,000 pensioners to fill in self-assessment forms, and as we have real increases in the personal allowances, their value is already being eroded away.

So over time we will simplify the tax system for pensioners by doing away with the complexity of the additional age-related allowances for anyone reaching the age of 65 on or after 6th April 2013 and I will freeze the cash value of the allowance for existing pensioners until it aligns with the personal allowance.

This will protect the existing level of allowance pensioners have, while introducing a single personal allowance for all.

It is a major simplification.

It saves money.

And no pensioner will lose in cash terms.”

Under this Government, pensioners next month will receive the largest ever cash increase in the Basic State Pension of £5.30 a week.

Matthew was the Chief Executive of the TaxPayers' Alliance, author of Let Them Eat Carbon and editor of How to Cut Public Spending (and still win an election)

  • Orac54aq

    Well, yes. But when you compare the effect of this with the effect of Gordon Brown’s theft in 1997, it pales into insignificance.

  • Kevin Oldroyd

    Can you please clarify what is actually being frozen in terms of over 65′s allowances. Is it the difference between the basic allowance ie £10500 and £8015 ie £2485 so that the over 65′s always receive £2485 over and above the basic allowance or is it that the current level of £10500 is being frozen for all time no matter what the increase in the basic allowance.

    • http://twitter.com/mjhsinclair Matthew Sinclair


      The over 65′s allowance is being frozen at £10,500, for existing claimants, indefinitely until the Personal Allowance for people of working age catches up.  It will then be abolished as a separate allowance and people over and under 65 will get the same allowance.  That probably means – to make a rough guess – it will start increasing again around 2015-16 as that is when the working age Personal Allowance will exceeed about £10,500 on current trends.

      Does that answer your question?


    • BtlrKth

       Kevin, having read the note back at the top of the header, it looks like this: The date is the cut of point for those up to being born  5th April 1948 the £10,500 will then be frozen, till all working people catch up with budgets each year, as far as I can see from then on we will trend with all working people, so there will be no special band for pensioners.

      Especially if you have worked for over 50 years like I have and paid a considerable amount. The danger that I see here is what others are saying in the notes here, if you have a company pension ,it may be effected. We will not know yet until we get as usual more details in the coming weeks. Someone in this goverment needs to give more detail and spell it out.

      So pensioners fully understand were this is truly going.

      This may have more effect as it grows in the next few weeks,  when others,  that are born after the 5th April 1948 realise that they will not be in the system of the 38 to 43 year rule, which means you would be allowed adittional benefit on your pension for years accured after those years,so if you work women 38 years and men 43 years after that you would accure for each year an extra amount of money on your pension as it did for others.

       in the future we would all be on a flat rate and as I see it would not be geared to inflation.

      So 2015 May could be a interesting date to put in pensioners diaries. But then who know 3 years is a long time in politics and funny things do happen in this life. 

  • http://www.facebook.com/jackthewelshman Jack Jenkins

    Their personal allowance should be the same as everyone else, they aren’t the Ubermensch. I don’t really see the problem here.

  • D Glaholm

    we get free bus passes ( blue badge applicants have to pay up to £10) and winter fuel allowance. Stop complianing as it wont be long till the level of allowance is the same for all.

    • Ragde L

       Learn to spell

  • Omicron13

    The decision to alter pensioners’ age related allowances was announced in a patronising way by Osbourne, implying that it is complicated and ‘the poor dears don’t understand it anyway.’  Well I understand it. It is yet another reason why people should not try to provide for their old age because governments will steal it one way or another. Whether by changing the indexation rate to C.P.I. or  by this fiscal drag on future entitlements they will do it.
    Pensioners should be treated as a special case. 
    They are on a fixed income, with no opportunity to improve. They consume more expensive fuel etc, as they are at home, their inflation rate is probably much higher than other citizens and lastly they have contributed to the system for decades.  You can rightly judge a country by the way it treats it’s old people.  This lot have failed and the result is a situation similar to Brown’s much trumpeted abolition of the 10p tax rate.  The law of intended consequences rules!
    With a cabinet full of millionaires it appears that we the retired are paying for the reduction of the 50p tax band, the entire cabinet should all benefit hugely, though it appears that few of them will admit to paying the 50p rate (Osbourne categorically denied being liable to this rate.)  considering his wealth, perhaps he has a similar tax arrangement as Ken Livingstone?
    It has been asserted that the 50p rate did not yield meaningful revenue.  Who’s fault is that?   There is no shortage of top business talent who want to come to Britain simply for its record of stability, lack of corrupion and temperate, law abiding and free people and climate.
    These Tory politicians, just like their predecessors, are out of touch with the rest of humanity.  As they sit in their heavily subsidised House of Commons bar, filling out their lavish expense claims, it does not appear to occur to them that pensioners are one of the few sections of society who VOTE.
    They will find out because by it’s very nature this tax theft and fiscal drag will continue for years hence.

    • Eleanor

       This is an overreaction.  I almost cannot be bothered to comment.  This is the politics of ‘envy’.  Why should I, with no mortgage, get an increased personal allowance whereas my son, who is struggling to pay his mortgage does not.  Also, surely no pensioners are now on a fixed income.  I have never met one.

      • Ross Mackenzie

        This is one pensioner on a fixed income. For some stupid
        reason I joined the RAF on leaving school seeking an electronics and
        engineering career – useful to my country as well as myself. Harold Wilson shut
        that down with swinging cuts in the 70’s that saw thousands of military
        personnel made redundant as he closed lucrative defensive bases all over Europe,
        the Middle and Far East. With so many
        technicians now available on the market, skilled employment was hard to find.
        With no meaningful benefits to fund retraining, I joined a retail automotive
        company as an electrician and fought hard over several years to climb the
        ladder into management. At the time of being awarded my first job in Sales
        Management, Maggie had a spat with the unions and the “three day week” was
        born. Result? No manufacturing of cars, few component manufacturers surviving so
        the Sales Department was closed, the workshops thinned out and put on short
        time working. Me? Redundant again!

        Then started a cycle of working (while absorbing further expertise
        at night and with various manufacturers) through a few years of promotions up the
        management ladder until “Bang!” I was earning too much and shuffled off the
        premises. Redundant again!

        Cutting to the chase – much of my pension savings were
        stolen by Gordon Brown, then, after falling ill with heart problems and
        undergoing major surgery, what savings I had left were means-tested to ensure
        that my family and I had to be totally self-supporting. That cost us our pension
        nest-egg and our house. At 59 I was unemployable (even if I’d been fully
        healthy) such were the ‘kick ‘em out to grass’ ethics of prospective employers –
        I was too much of a risk to a management superior.

        Today we receive a basic State Pension and a taxed monthly
        pittance from what’s left of our “SAVE FOR YOUR RETIREMENT” fixed income nest egg!!!
        Yes, save your money – but only do it off-shore like our masters. Now you’ve
        met a poor pensioner and, rest assured, there are thousands more just like me.

    • Keithbotilier

       Yes and I cannot wait to vote again, One thing you do not do is hit the pensioners especially those that worked over  45 years plus, you are correct here in what you say we do vote and we will not vote Conservative.UKIP is looking good.

    • Eleanor

      Why all this fuss about the 50p tax rate for higher earners. This rate was introduced by Gordon Brown two months before a general election. I think he knew exactly what he was doing! It was a self defeating rise as higher earners start to be resentful and GB knew it would cause a dilemma for the Conservatives.

      Stop being so resentful!! No pensioner who gets a state pension is on a fixed income as there is a rise every year, and there are loads of benefits for pensioners who need help. Do you think the Labour party could do any better?


  • cbross

    “Under this Government, pensioners next month will receive the
    largest ever cash increase in the Basic State Pension of £5.30 a week”

    The Chancellor keeps repeating this total falsehood.  The rise is due, not to the generosity of the Coalition Government (as is clearly implied), but to the inflation rate in September 2011 – which rate actually eroded  my savings even more severely than has been the case since Bank interest rates dropped to their current levels!

    Thanks, George, for nothing!

  • http://profile.yahoo.com/TXCO75MEWSGCXYPAP7HB3KWEPE rod


  • Shane

       We pensioners, up,to now, have been getting a fair deal but, consider this, my company pension has not increased for three years or more and only by 1.3% prior to that. I was very aware of this possibility and invested some of my earnings, from which I take a moderate 4.5 %, now threatened by low interest rates.
       Also consider a pensionable widow, she will most likely get 2/3rds of her late husbands pension, unless some private provision has been made. I am assuming that she would have stopped working shortly after her marriage (true for older people who wished to dedicate themselves to their children). Without an inflation increase in her pension, over time, she will be seriously disadvantaged.

  • John Howard Norfolk

    I am surpised the Chancellor finds it necessary to kill off the age related allowance as we still have the anomaly of the age related married couple allowance!

  • John Howard Norfolk

    This part of the Chancellor’s Budget Speech rings true:
    “We should also simplify the age related allowances – which the
    Office of Tax Simplification have recently highlighted as a particularly
    complicated feature of the tax system. The NAO points out that many pensioners don’t understand them.”
    I defy anybody to explain the Tax Code “K” used by HMRC on pensioners’ coding letters!

  • Foolsgold Gordo

    This government is still plundering the pension funds as set up by gordo.  Not only have they failed to put this right, they have made the over sixty fives even poorer!

  • Chesterman

    Let’s not forget the thousands of over 65′s who have never received any additional age allowance anyway…because they are considered too well off.
    This injustice has existed for years so why all the fuss now?

  • William grist

    has nobody but me seen the real “cynical” reason for the freezing/removal of the age related allowance….in a very few years the retirement age is due to increase….those affected at least had the comfort of knowing that, national insurance contributions stop at age 65, also that the tax allowance would rise,  resulting (if their pay level stayed the same) in a nice little uplift in take home pay…(can’t have that can we)  also extending the age for NI contributions would mean that employer contributions would continue  (can you imagine the screams from tory donors if that happened)

  • Pstoneman

    For 2011/12 Over 65s Personal Allowance increased less than under 65s. Granny Tax has already started then but no one mentions it. Why?

  • Etoliver1

    MPs to have i-pads
    MPs have half price bars and restaurants
    MPs have had a 4% expenses rise
    MPs have put their safeguarded pensions up. It must be about 100% since 1997.
    MPs when they make a mistake in office, change rolls so they dont have to take the can and the new person just says it did not happen on their shift.

    Hedge funds should be outlawed. Where there are winners there are loosers.
    And who are the loosers most likely to be…. your struggling little tax payers who are trying to scrape a better life style for their future

    WE ARE ALL IN IT TOGETHER. is what we are repeatedly told by the powers that be.


    • Samson

      Yes I totally agree with your comment, they certainly live in a different world to what we do, for example, they can charter a 250-seat Virgin Atlantic Airbus A340-300 for just 57
      wealthy people for a five day trip to Brazil via new York and return, costing £718,708, or £12,609 per passenger courtesy of taxpayers’, but ourselves as pensioner, find it difficult to find the money to top up our cars with double taxed diesel, before anyone say it, yes we do need a car in rural SUFFOLK.

  • Emma

    Are serps affected?

  • Ally_lorenzorick

    Well as a forceably early retired tax person….all I can say is..yes its not far but at last the pensuoners they talking about,,got their pensions at 60//65..me being born in 57 wont get my state pension until i am 66.67,,,,and some of them dont have a mortgage etc..I still have a motgage I cant claim any benefits,,,,I am a carer for hubby and mum,,,,yes I have a civil service pension,,but its half what my salary was…forgotten minority,,,,,,

  • Samson

    Sorry to say, the Government I have put my trust in for over forty five
    years just haven’t got a clue, firstly I must emphasise, I write this letter,
    meaning no animosity intended, just an old man speaking from his heart,
    unfortunately the rich people, which is what our Government are, has NO idea what its like as an ordinary person, they just haven’t got a clue, honestly,
    they cannot see wood for the trees, this country is in dire straits, we need
    every £ we can get, being “Rich” they have never come up with being
    short of money in their own lives, being in Government, without putting their hands in their own pockets, can give away our money by the billion, which those billions are needed here, which we haven’t got it to give away, so they borrow it at a huge cost, crippling this once great country even more costs.

    We have almost 3 million out of work, many for no fault of their own, the fault lies at the feet of our Government, instead of looking after the needs of this country, they just give it away, and what did we read in the news a few days ago, the money we have handed out abroad, didn’t get to those that needed it, it was taken before it could get to the needy, so what’s the point in give, if they don’t get it, and our own are suffering, and to prove they haven’t a thought about the people that pays their salaries, did they help them at the last budget, no, they just helped themselves, by firstly reduced the rich taxation by 5%, and increased the tax allowance, at the time when we are borrowing to try to make ends meet, does that make sense, in that same budget, they reduced the tax allowance for those coming up to eighty, the people who worked and paid taxes through their lives, in those days worked long hour on low pay, in those days I would work 60 plus hours a week, with a take home pay of about £6, after taxation.

    As I said, they cannot see wood for trees, the country is in trouble, in more ways than one, and how do they solve the problems for the people of this once great country, with no work for almost 3 million, leave our borders open to migration, for even more to join our benefits claimants, for even more taxation needed, 100,000 illegal migrants were allowed to stay here due to their human rights, if they were illegal, they should have no human rights to stay here, doing something illegal is against the law in this country, If I broke into someone’s mansion, because I thought I liked it, would I be allowed my Human Rights to remain there, no I would face the courts, after being removed, what is the difference?, on top of that, they are given thousands of £, in housing and benefits, where those same pensioner who have worked all their lives paying taxes, get very little to live on, sick Britain without a doubt.

    Next comes to our National Health, what did we read in the news media a few weeks ago, All foreigners must be treated by GPs for FREE after an order slipped through by the Government, because of their “HUMAN RIGHTS”, but, at the same time, our Government is apparently put a price of £75,000 for our own pension who need care, so what are they saying, the people who have worked all their lives,, now they will have to pay for their own NATIONAL HEALTH, what has happened to the Human Rights of OUR OWN people, apparently we have none, free healthcare for all migrants, any foreigner who comes here, and for the benefit takers, but for those who worked long hour, to help themselves, paid their taxes INCLUDING National health, somehow fought in wars, have to pay if
    care is needed, really shows, that no thought has gone into this subject, as said, they cannot see wood for trees,

    And finally, back to the peoples human rights, which it seems we haven’t got,when it comes to the binge drinkers, what does this so called Government I voted for “DO”, yes, they paint us with the same brush, they don’t seem to a logical brain, all they can see is the binge drinkers, Ah! simple to solve, increase the cost of all alcoholic drinks to all, instead of thinking with alogical brain, the health problems they have are self inflicted, right, help needed from the police or NHS, they will pay for, £100 treatment on the street, the need of an ambulance, £150, treatment in hospital, £200, a bed in hospital £250, within a few weeks, binge drinking would almost stop, money taken directly for their work place, if on benefits, they are getting to much in benefits, reduce them, but no doubt the Government would say, THEY HAVE THEIR HUMAN RIGHTS, but apparently we don’t.

    • william grist

      every time cameron or osborne states that the rich are now paying more tax than before, i feel angry,,,this is obviously a complete lie,,,,how can having a lower tax rate possibly mean they pay more tax,,,,that huhne person has done us all a good service, by demonstrating the arrogance of ALL politicians in so far as they believe we will swallow their LIES