Good Budget for pensioners
Alistair Darling’s second Budget appears to hold some good news for pensioners struggling during the UK’s worst economic period since the Second World War.
The chancellor pledged to raise the basic state pension by at least 2.5%, regardless of inflation, next April. This sounds generous since the Retail Prices Index is expected to become negative in September. However, it is a more modest amount than the 5% increase seen in April this year.
Nonetheless, Darling said the announcement was the government's way of showing it is "committed to tackling pensioner poverty, promoting greater independence and well-being in later life, encouraging and rewarding saving, and enabling people to meet their income aspirations in retirement".
He also had a raft of other measures up his sleeve to help the country’s growing elderly population cope during the recession.
From November this year, a pensioner’s first £10,000 of savings will not be taken into account when assessing entitlements to pension credit, pensioner-related housing and council tax benefit. This is an increase from the current £6,000 level.
According to Darling, this will boost the income of more than half a million pensioner households by £4 per week on average.
James Caldwell, director at Fairinvestment.co.uk, gave a thumbs-up to the measure and said it should further encourage pensioners to save.
A spot of preferential treatment on ISAs will also help older people along with their saving habits. The over-50s will see their annual ISA limit shoot up from £7,200 to £10,200 (with £5,100 maximum in a cash ISA) on 6 October, while younger members of the population have to wait until the beginning of the next tax year for that increase.
Grandparents of working age who care for their grandchildren have also been recognised in the Budget. Working grandparents and other adult family members, who look after grandchildren or other members of their family aged 12 or younger for 20 hours or more a week, will be able to gain national insurance credits toward the basic state pension from April 2011.
Finally, although most of our thoughts are focused on this week’s sunshine and summer’s imminent arrival, improvements to the winter fuel allowance were announced.
The allowance will be maintained at the higher level - £250 for over 60s and £400 for over 80s - for another year. This means households will receive an extra £50 or £100 respectively this year.
A scheme originally established in 1944 to provide protection against sickness and unemployment as well as helping fund the National Health Service (NHS) and state benefits. NI contributions are compulsory and based on a person’s earnings above a certain threshold. There are several classes of NI, but which one an individual pays depends on whether they are employed, self-employed, unemployed or an employer. Payment of Class 1 contributions by employees gives them entitlement to the basic state pension, the additional state pension, jobseeker’s allowance, employment and support allowance, maternity allowance and bereavement benefits. From April 2016, to qualify for the full state pension, individuals will need 35 years’ of NI contributions.
Invidivual Savings Accounts were introduced on 6 April 1999 to replace personal equity plans (PEPs) and tax-exempt special savings accounts (TESSAs) with one plan that covered both stockmarket and savings products, the returns from which are tax-exempt. The ISA is not in itself an investment product. Rather, it’s a tax-free “wrapper” in which you place investments and savings up to a specified annual allowance where the returns (capital growth, dividends, interest) are tax-exempt (you don’t have to declare ISAs and their contents on your tax return). However, any dividends are taxed within the investment, and that can’t be reclaimed.
An increase in the general level of prices that persists over a period of time. The inflation rate is a measure of the average change over a period, usually 12 months. If inflation is up 4%, this means the price of products and services is 4% higher than a year earlier, requiring we spend and extra 4% to buy the same things we bought 12 months ago and that any savings and investments must generate 4% (after any taxes) to keep pace with inflation. Since 2003, the Bank of England has used the consumer prices index (CPI) as its official measure of inflation (see also retail prices index).