Pensions Secretary James Purnell has confirmed anyone receiving a payment via the Financial Assistance Scheme (FAS) will not necessarily have to pay higher rate tax.
Speaking in the House of Commons today, he says all those receiving £40,000 or less a year will not move into a higher tax bracket as the Government will not view payments via the FAS as a single payment for the year in which the scheme pays them.
Instead, the Government will allocate the payments to the year, or years, in which the individual should have received the original pension payment.
The comments follow the decision to extend FAS to levels comparable to the Pension Protection Fund (PPF) last December and give early assistance to those members who had to stop work early due to ill health.
Purnell says: “It’s not fair that people who have saved hard into their personal pension and had the misfortune of losing it through no fault of their own should be taxed at a higher rate.
“Today’s announcement gives the confidence people need to know that they won’t automatically be brought into a higher tax band simply through getting their Financial Assistance Scheme payments as a lump sum.”
Legislation to come into force in May will mean those people receiving a payment to cover a past period to either 14 May 2004 or their scheme’s retirement age will pay no more tax than they would have done if they had received the payments over the relevant years.
The Government will initially deduct income tax through the PAYE system in the year the individual receives the payment. It can subsequently allocate payments to the years they relate to and adjust the tax depending on the individual’s personal circumstances in those years.
Purnell says officials from the Department for Work and Pensions (DWP) and HM Revenue and Customs will take the proposals forward.
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