Government under fire for "granny tax" that could leave millions worse off

The government has come under fire after revealing plans to change additional personal income tax allowances afforded to pensioners.

In his 2012 budget announcement yesterday George Osbourne said that the tax allowance for pensioners would be fixed at 2012-2013 levels and not increased in line with inflation as expected, anyone retiring after April 2013 that time will no be eligible for extra relief.

Osbourne said that the new measures would simplify a "complicated" system and freezing the allowance at current levels would not leave pensioners worse off in cash terms.

Nevertheless, the move has attracted criticism from the pension sector, and has been widely labeled a "granny tax" that could leave over 4.4million in the 65+ age group an average of £83 a year worse off. After April 2013 this figure could rise to more than £200 worse off per year when the additional allowance is scrapped altogether.

Michelle Mitchell, Charity Director of Age UK said:

"Older taxpayers will be disappointed that the Government has decided to scrap the age-related tax allowance. This will affect those with modest pensions and savings for their retirement.

"Someone with an income as low as £10,500 who reaches 65 from April 2013 could be £259 a year worse than under the current system with very little time to adjust their financial retirement plans."

Dr Ros Altmann, Director-General of Saga said:

"This Budget contains an enormous stealth tax for older people. Over the next five years, pensioners with an income of between £10,500 and £24,000 will be paying an extra £3 billion in tax while richer pensioners are left unaffected.

"There is nothing in this Budget for savers, there is nothing to improve the annuity market, nothing to appease the damage of quantitative easing and nothing to support ISA changes and shelter older people's money in cash. This Budget is terrible news for pensioners."

"It is good to hear that we will be able to harness the power of pension funds to improve UK Infrastructure but in short, this Budget is another shocking example of the Government's attack on poorer and older people. It is dramatically unfair."

The measure is being introduced alongside an increase in the personal tax allowance for earners which saw an unexpected rise to £9205 which will benefit many of those on low to middle incomes.