TREASURY Minister Elaine Millar has rejected calls made in a petition signed by thousands of Islanders to make pensions exempt from tax, labelling them “unaffordable”.
Deputy Millar said that the tax exemption would cost at least £21 million per year – and would not benefit pensioner households on the lowest incomes.
Paul Troalic’s petition “Make states old-age pensions exempt from tax” was first published on 30 May and quickly gained the required 1,000 signatures required for a ministerial response.
Mr Troalic argues that taxing state pensions amounted to “double taxation” because pensioners had already paid tax throughout their life. His petition attracted 5,272 signatures, as well as wider public support.
But Deputy Millar argued that the Island’s tax thresholds (£20,000 for single Islanders) mean that pensioners do not pay income tax if the old-age pension is their only source of income – and, as a result, around 50% of pensioners do not pay income tax.
She said exempting the old-age pension was “unaffordable”, with an estimated cost of at least £21 million per year based on a 2022 assessment.
“None of this £21 million tax giveaway would go towards pensioner households with the lowest incomes,” she said.
The report adds: “The only way this reduction in revenue could be funded is through the Social Security Fund, meaning future pensioners could be deprived to fund current pensioners.
“As the fund was depleted, action would need to be taken to increase contributions. The alternative would be to reduce public services in other areas, possibly prejudicing other Islanders who need those services.”
The report adds that the measure would result in “inter-generational unfairness” because “current and future taxpayers and pensioners would be in a worse financial position than the current generation of pensioners”.
“The resulting loss in taxation would result in other groups, such as younger families, having to pay more in tax or social security contributions,” the report says.
It went on to explain that the proposal would form an “untargeted tax cut” for tax-paying pensioners, including the wealthiest in that group, but would “do nothing to help those on the lowest incomes, who are already outside the income tax net”.
The report also adds that this position of taxing Islanders “broadly mirrors” that in the other Crown Dependencies and the UK.
In a previous response about the same issue, ministers explained that the way States pensions were funded was different from the way private pensions are paid for.
Unlike private-pension schemes, States pensions are funded by a mix of Islanders’ social security contributions, employers’ contributions, and the States Grant – which tops up contributions from Islanders who make less that £65,400.
