Free TV licences for all over-75s will end next year, sparking a backlash from veterans’ groups and older persons’ charities. But a little known loophole can force the Government to split the bill.
For those in their mid-70s the BBC revealed this week that the TV licence will become means-tested, with only those on lower incomes in receipt of Pension Credit eligible.
Around three million pensioners currently able to watch television for free will have to begin paying £154.50 a year for the privilege from 1 June 2020, including one million war veterans.
The corporation said maintaining the universal scheme would cost £745m a year and necessitate the closure of BBC Two, BBC Four, the BBC News channel, Radio 5 Live and BBC Scotland, plus local radio stations and other services. The new scheme will cost £250m per year.
The Prime Minister is apparently “very disappointed” by the decision, despite the Government handing the cost-burden and responsibility for maintaining or cutting free TV licences to the BBC back in 2015.
There is, however, a way for older TV fans hit by the change to hand the bill back to the Treasury, at least in part.
Under the new rules an average 75-year-old will pay for a TV licence for 12 years, based on Public Health England life expectancy projections.
Assuming a 2pc-a-year increase on the current £154.50 fee, that means a a 75-year-old who today watches television for free would pay an extra £2,086 for the same privilege.
Those now retiring at 65 could plan for this, however, and get the Government to subsidise the extra cost, by saving in a pension with the benefit of tax relief until age 75.
A non-earner or basic-rate payer aged 65 would need only need to put an extra £14 a month into their pension, which, once tax relief at source is added at 20pc, over 10 years at an average investment growth rate of 5pc would get them to £2,086 by their 75th birthday.
Many non-earners are not aware they can save into a pension and get a tax relief boost to their savings, according to research by LEBC, a financial advice firm.
Kay Ingram of the adviser said given increasing life expectancy and costs more retirees need to take advantage of this little-known tax break to provide for their later years.
She said: “Baby boomers coming up to retirement can expect the loss of a free TV licence to be one of many older age benefits facing the axe. They can claw back some of the taxpayer subsidy by continuing to save in pension plans post-retirement.”
Everyone up to age 75 qualifies for a tax break of up to £720 or more a year on pension savings, with higher-rate payers getting double this boost to their savings. Even non-tax payers can benefit with relief paid automatically at the basic rate up to annual contributions of £3,600.
If the saver dies before age 75, any unspent pension money can be left to a beneficiary free of income tax and outside their estate for inheritance tax.
On death after age 75 it is taxable as and when withdrawals are made at the beneficiary’s income tax rate – meaning a top-rate taxpayer could benefit from higher-rate relief on their contributions but leave the fund to a nil or basic-rate taxpayer.
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