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UK Budget 2012 – Good for pensions in the long run

UK Budget 2012 – Good for pensions in the long run

The howl of outrage that has greeted the budget from the pensioners needs to be heard with an amount of scepticism. There is no real argument for treating pensioners more generously, in terms of tax allowances, than those in the productive sector of the economy. The allowances also cause a huge amount of extra work for the Inland Revenue, processing unnecessary forms, which all costs money. And, as usual, those who are poorest are either below the tax net altogether or are least likely to manage to claim their extra allowances, so the benefits primarily flow to the better off pensioners.

Yet, to listen to commentators representing the elderly, you would think the government had decided to put everyone over 65 on the breadline as the primary means of getting the deficit under control.

Let’s look at what Osborne actually did. Firstly, he committed the government to a basic pension of £140 per week with the aim of giving those saving for a pension a clear view of what they will get in the future. This level is set above the means test level and will underpin the auto-enrolment process, allowing people to save even small amounts with the confidence that they will benefit from the process.

Secondly, Osborne has given a substantial lift to the current basic weekly pension amount of £5.30, the largest cash amount ever given. And finally, he has frozen the extra tax-free allowances related to age, which will eventually disappear.

Aside from being ageist, these tax-free allowances are making the whole system far more complicated than it needs to be. The allowances also fail the fundamental test of any taxation system – fairness.

Credit should also be given to the Chancellor for resisting the pressure to go for the easy option of hitting the higher rate tax allowance for pensions. He is to be admired for holding to his course and steering for a simpler, fairer system that can be understood by all.

The government are making big strides towards simplifying the whole pension system and increasing the numbers saving for retirement. It’s not possible to make an omelette without breaking eggs and the gentle phasing out of the age-related tax free allowances is a small price to pay for the UK to have a robust, straightforward pension system, where means-testing, with all its distorting effects, becomes a thing of the past.

We’re all in this together and there is a big budget deficit that needs to be addressed. Pensioners should forego the moaning and see the bigger picture.

Tom Murray

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