Taxation and PensionersTuesday, March 13th, 2012
On 14 June 2011, the OTS wrote to David Gauke, Exchequer Secretary to the Treasury, outlining proposals for further simplification reviews. In addition to the proposal to review small business taxation was the request to focus on the taxation of pensioners, simplifying the system for the estimated 5.6 million people of pensionable age who pay tax. On 11 July 2011, HM Treasury asked the OTS to look at this area, specifically to identify the parts of the tax system that caused the greatest difficulty, especially where pensions are received from multiple sources.
On 06 March 2012, the OTS published their interim review, containing areas that they have highlighted as ‘concerns’. Amongst others, the report identifies the following as issues for further review and consideration,
- Simplification of the age-related allowances, including the Married Couple’s allowance
- Blind Person’s Allowance – whilst not related solely to pensioners, the OTS recommends the abolition of this ‘under-used’ tax relief to be replaced by a direct grant
- Removal of the 10% Savings Rate – again, not specifically related to pensioners, however, a potential source of confusion for all
- Raising awareness of how the State Pension is taxed and looking at PAYE on pension in general
- Reviewing the tax advice and taxation of deferred State Pensions and the interaction of taxation and the DWP benefits system
- Overseas pensions paid to UK residents – looking at the 10% deduction rule and, in particular, its guidance on the cross-border issues between Northern Irelandand the Republic of Ireland
- PAYE and pensioners – a number of issues, including eliminating errors on HMRC’s National Payments System (NPS), simplifying the P2 for pensioners, providing payslips, new pension payments and any associated RTI developments and P800 calculations in general
- The complications that could arise from the association of National Insurance with the increasing State Retirement Age
- Pensioners retiring abroad
OTS Chairman, the Right Honourable Michael Jack, acknowledges that the ‘half time’ whistle blew in their research, which they are keen to resume so that they can provide solutions on making tax simpler for pensioners. Their interim report, therefore, contains ‘options’ for reform rather than their recommendations. As such, any announcements which may affect the way that we process pensioners’ payrolls will, probably, not be announced this year.
- HM Treasury – Review of Pensioners’ Taxation: Interim Report