U.K. efforts to fix the budget could lead to a nasty poverty trap for some pensioners.
The problem is that pensioners could be required to pay substantially more taxes than they previously expected, with the same level of retirement income.
The Queen’s Speech set out government plans to raise the state retirement age to 66 and restore the link between the basic state pension and earnings inflation but was silent about older people’s personal allowances.
Allowances are slices of income everyone can receive before needing to pay tax. Pensioners have enjoyed higher allowances than younger people for many years but now accountants and older people fear the government intends to remove that distinction.
Unless this issue is addressed in the emergency budget on June 22, more people will be affected by the age allowance clawback, which already means pensioners lose £1 of allowance for every £2 of income above a threshold that is set lower than the national average wage.
“It is possible that this anomaly will be addressed but, so far, this important issue seems to have been ignored. If, as I expect, VAT goes up this will also come as an added blow to many pensioners.”
For less wealthy pensioners on the fringe, this could push them into challenging financial circumstances. It’s one thing for the young to be hit with financial changes, they can adapt and find new sources of income, but for the old there’s far less flexibility.
Business Insider Emails & Alerts
Site highlights each day to your inbox.