The integration of the benefits and taxation system is a key feature of any plan for retired clients...
The integration of the benefits and taxation system is a key feature of any plan for retired clients, particularly the less well-off, for whom benefit payments and tax breaks have a big impact on disposable income.
In his Budget speech the Chancellor declared that pensioners in April 2001 would be £20 a week better off than they were in 1997.
If this was an investment claim about a financial product for poorer pensioners, Gordon Brown would be hauled before the regulators for concocting small print so obscure it could be considered deceptive.
This is the Government that demanded mass-market products such as Individual Savings Accounts (Isas) and stakeholder pensions should be subject to rigorous scrutiny to ensure easy access and fair terms. Yet, unless the average pensioner happens to have a computer spreadsheet that can assimilate and extrapolate a host of different benefit rules, tax breaks and clawbacks over a two-year rolling period, the whole tax and benefits system will remain shrouded in mystery. The upshot is that benefits and overpaid taxes are not claimed. Cynics can draw their own conclusions.
In the real world, most pensioners at best struggle to keep up with the system. Some can't or won't even try. Ian Summerscales, managing director of the Keswick financial planner Cairn Independent, says: "The trouble with the current system of benefits is that it depends on pensioners knowing their rights and actually wanting to claim.
"The Government has to understand that this is the wrong approach for a generation which regards claiming benefits in the same light as admitting failure and asking for charity. It is a terrible shame to hurt pensioners' pride in this way.
"If the Government truly wants to get benefits to those in need why doesn't it make the benefits universal and claim back from the well-off through the tax system?"
Some chance. In the meantime, if you are trying to assess where your retired clients stand with regards to benefits and tax, the following summary may help.
Apart from the usual uprating of the individual pensioners tax allowance (up to £5,790 and £6,050 for the over 75s) and the inheritance tax threshold (up to £234,000), the main Budget handouts were the rise in the winter fuel allowance, up by £50 this year to £150, and, from November 2000, free TV licences worth £104 for the over-75s.
The bad news - and far more significant - is that the basic state pension has only gone up in line with retail prices: a miserly 75p per week rise from £66.75 to £67.50. Rhian Beynon, spokesperson for the charity Age Concern, says: "This is completely inadequate. In many parts of the country the rise in council tax alone is more than RPI."
The 10% tax break on income is now extended to savings and can be backdated to April 1999. Since the Government will not reassess over-payments, pensioners (and others) must remember to claim using Form R40 in their 1999-2000 tax return.
The Chancellor's decision to extend the 10% income tax rate to income generated by savings is welcome. The introduction of the 10p rate in last year's Budget overlooked savings income, to the disadvantage of pensioners. This measure simply puts right the oversight on the Government's part.
Changes to income support were broadly welcomed but critics denounced the complexity of the system. The consumer helplines of Age Concern were jammed after the Budget as confused pensioners sought clarification on which benefit changes would come into force this April. Not many, was the answer. They were not the only ones who were confused.
Income support - now referred to by the Government as a minimum income guarantee - is paid on top of the state pension to bring the weekly income up to a certain threshold, currently £75 for a single person and £116.60 for a married couple. Nothing much is happening this year other than the usual uprating; the new figures for income support from 10 April, 2000 are £78.45 and £121.95, for a single person and married couple respectively.
From April 2001 the Chancellor said he was considering a more substantial increase to this means tested benefit, raising the benefit to £82 and £127 for single and married claimants respectively. For the over-80s the total benefit would be worth £90 and, for couples, £137. Presumably, since these figures will be linked to earnings inflation, they will not be confirmed until next year.
Also from April 2001 the amount individuals can have in savings before losing eligibility to income support will go up from £3,000 to £6,000, with a tapering benefit for those with savings of up to £12,000.
Pensioners whose income support benefits are borderline might wonder if going through the claims process is worth the bother. But it is important to remember that a qualifying claim to income support affects eligibility to other payments such as housing and council tax benefit. Moreover, the enhanced home energy efficiency scheme grant, worth up to £2,000 following the Budget, is only payable to income support claimants. The installation of the heating improvements will take place sometime over the next seven years but if the pensioner does not claim income support eligibility to the grant is forfeited.
Unfortunately, by the Government's own figures, some 870,000 people do not claim income support. Beynon says: "These are the pensioners who need the benefit most yet they do not claim either because they do not want the stigma of going to the benefit office or because they do not fully understand the procedure. In the worst cases, some are too ill to actually make the claim."
This figure is likely to rise when the new thresholds come into force next year and add another half million eligible pensioners to the number of potential claimants. Advice on income is availab
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