Abolition of 10p rate on savings to benefit pensioners

The Chancellor scrapped the 10pc starting rate of tax on savings income from next April and almost doubled the new, tax-free threshold to £5,000 as part of measures designed to allow savers to keep more of their money and give them more freedom in retirement.

While George Osborne described the move as benefiting “low-income savers”, Resolution said this was not the same as “low-income households”, which were unlikely to benefit at all from the move as they do not pay income tax and are unlikely to have substantial savings.

The foundation said 72pc of the gain would go to families in the top half of the population by income, because these households were more likely to consist of one high earner and another person who did not work but relied on savings income. The biggest winners would be £700 better off, it said, although the average household would benefit by less than £50 a year.

“The group which benefits most from this change will be people over the state pension age with a reasonable savings pot and either no salary or a low one,” said Alex Hurrell, a senior analyst at the think tank. “It’s people who are in the middle and higher end of income distribution who are most likely to gain.”

Economists also said that, while removing the complex levy was welcome, many savers might not benefit from the scheme because they were not aware it existed.

Carl Emmerson, an economist at the Institute for Fiscal Studies, said: “The big challenge for this policy is incomplete take-up. You don’t automatically benefit. You have to tell your bank that you are a 0pc income tax payer.”

Savers will receive another boost this week as inflation is expected to ease to 1.7pc in February, from 1.9pc in January.

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