Are you a granny? Better leave the country.
Well, inflation’s down. The Consumer Prices Index (CPI) figure for September has just been announced as 2.2%, which is a gratifyingly low figure, and much lower than the figure at this time last year, which was an eye-watering 5.2%. And inflation being down is a *good* thing right?
Normally, yes. The Government tries to keep inflation low because that means prices don’t go up as much. However, September’s CPI figure is special and important. September’s figure is the one used to quantify the increase in certain payments, benefits and allowances from the following April. So the fact that 2.2% is the lowest inflation figure since November 2009 is not actually going to make certain groups of people smile.
A CPI of 2.2% would mean that the State Pension would go up by only £2.36; however, the pension has to go up by a minimum of 2.5%, which means pensioners will actually get an extra £2.70 a week. Not much to write home about. Still you could argue that the crumblies got a whopping 5.2% increase (£5.30) last year, so it’s all swings and roundabouts. Index-linked state benefit recipients will also be in the same situation.
However, what makes it worse for pensioners is that this smaller increase will take effect at the same time as the ‘Granny Tax’, in April 2013. The Granny Tax is essentially not a tax, but a freezing or removal of age-related allowances that will mean pensioners will end up paying more money over to HMRC; this is essentially very much like a tax. Until April 2013, all pensioners get increased allowances if they are over 65, and again if they are over 75, although these are clawed back once income exceeds a certain amount. The 2013/14 figures are £10,500 (instead of £9,205) for over 65s and £10,660 for over 75s. The allowance is completely clawed back to the standard amount with earnings of around £29,000. So it is not wealthy pensioners who don’t need the extra allowance being targeted here, just those who don’t actually have huge amounts of income anyway. Anyone who turns 65 on or after 6 April 2013 will not get any age related allowance at all.
This is also, coincidentally, the same date upon which the 1% of very wealthy taxpayers who earn over £150,000 will get a 5% reduction in income tax rate. Fancy that.
So, if you are a pensioner, or know one, or are thinking of becoming one in the future, what can you do? Quite simply absolutely nothing. However, you may like to consider moving to Malta, recently named the top country to retire to by Yahoo- if you buy a property over a certain value in Malta or Gozo, you might be able to pay less tax as Malta will only charge 15% tax on (non-state) pensions remitted to Malta, instead of the 20% or 40% if you are that lucky you would pay in the UK. Do note though that there is a de minimis level so those with very small pensions may not benefit. Again. Still, at least it’s sunny there.