Millions of pensioners could be worse off as a result of George Osborne's decision to axe income tax breaks for people over the age of 65.
Under the chancellor's plans, allowances will be withdrawn for new pensioners from April next year while existing pensioners will have their allowances frozen at £10,500 for the over 60s and £10,660 for the over 75s until overall tax thresholds catch up with them.
According to the Budget red book, the measure will raise an additional £1.01bn for the Exchequer by 2015-16.
Although Osborne insisted there would be no cash loss to pensioners, Treasury sources said existing pensioners would be, on average, £63 a year worse off while new pensioners would lose out to the tune of £197 a year on average.
The Treasury acknowledged that 4.5 million pensioners would lose out as a result of the decision to phase out their additional age-related allowances.
Ros Altmann, director general of the Saga Group, said Osborne had launched an "assault on decent middle class pensioners".
"About five million over 65s are going to be suffering significant higher tax rates as a result of this measure, it is most unfair," she said.
“This Budget contains an enormous stealth tax for older people. Over the next five years, pensioners with an income of between £10,000 and £24,000 will be paying an extra £3bn in tax while richer pensioners are left unaffected.
She added: “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 chancellor defended the measure and announced that next month pensioners will receive the "largest ever cash increase" in the Basic State Pension of £5.30 a week.
"Over time we will simplify the tax system for pensioners by doing away with the complexity of the additional age-related allowances for anyone reaching the age of 65 on or after 6th April 2013," he said.
"I will freeze the cash value of the allowance for existing pensioners until it aligns with the personal allowance. This will protect the existing level of allowance pensioners have, while introducing a single personal allowance for all.
"It is a major simplification. It saves money. And no pensioner will lose in cash terms."
The chancellor also revealed that people may have to work longer. He told MPs: "I can confirm today that there will be an automatic review of the state pension age to ensure it keeps pace with increases in longevity."