The generation game

Older and wiser – and taken for granted. I think that fairly sums up our generation.

Taken for granted by everyone from our children upwards to the government and definitely including the financial services industry.

Having had to pay mortgage interest of up to 15 per cent for our home loans back in the 1970s, we now subsidise the younger generations’ rock-bottom mortgage rates.

There is barely any interest on our savings and annuity rates have been slashed because of the impact of quantitative easing on bond rates.

Why can’t we bring back the original tax-free granny bond now and restrict it to the over-65s?

Other age groups are feeling the pain, too, but they will have time to recover from the “lost decade” of disposable income forecast by the Institute of Fiscal Studies last November. For many of us, this will be too late. We’ll be dead.

So I am not ashamed to make a special plea for action in the Budget on 21 March for the pensioner generation – while there is still time for us to benefit.

There is nothing new in the idea. Launched in 1981, National Savings Index-Linked Retirement Certificates – or “granny bonds” – were originally only for those over 60. Linked to the retail price index and originally with a whopping 5 per cent bonus at maturity, they became available to all in 1984.

National Savings was effectively forced to close the latest issue of Index- Linked Certificates last September because it was too popular. So why can’t we bring back the original tax-free granny bond now and restrict it to the over-65s?

Tax breaks would give the older and wiser something to shout about

Meanwhile, the rate of inflation fell last month from 4.8 per cent to 3.9 per cent, but it is still outstripping savings rates. Some 20 or so building societies do have agerelated “silver saver” accounts but the top rates of 2-2.5 per cent – taxable, of course – are usually available on large sums only.

Either that or the headline rate includes a bonus. On to tax and, instead of blethering on about the impact of the 50 per cent tax band on the very wealthy, we should be more concerned about the 50 per cent effective rate of tax regularly paid by many older people.

Here’s what happens. For those aged 65-74, the tax-free personal allowance goes up from the basic £7,475 to £9,940 and for those of 75+ to £10,090. But there’s a sting in the tail. Once their taxable income exceeds £24,000 (in the current tax year) they lose that agerelated allowance at the rate of £1 per £2 of income over that ceiling. A de facto 50 per cent rate.

Once a pensioner’s income reaches £28,930, the extra allowance has been obliterated and therefore he or she only gets the basic personal allowance of £7,475.

The figure of £24,000 roughly relates to annual median earnings, but average annual earnings are now over £28,000 a year. As such, it would be a welcome move if the cut-off point for age allowance was, at the very least, raised to that figure. Better still, why not be tidy about it and make it £35,000, where the 40 per cent tax bracket begins?

Come on, Chancellor. Give us a (tax) break.

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One Response to “The generation game”

  1. innumerate #

    Is not the marginal rate 30%?

    4 March 2012 at 16:43