Call to end ‘insidious’ double-tax regime for pensioners

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More than 1,300 people have signed a petition, lodged on the government website two weeks ago, to protest about double-taxation of pension income.

The petition, initiated by Alan Holmes, points out that Islanders pay tax and Social Security on their gross income during their working lives.

As a proportion of the Social Security payment goes to people’s pension pots, it was wrong, he said, that pension payments were then included in income-tax assessments.

And in a letter to the JEP, Mr Holmes said: ‘This insidious double taxation comes about by the simple fact that, during a person’s working life here in Jersey, they are taxed on their gross income. In other words, their income tax includes Social Security payments paid by them and their employer (or, in many cases, completely by them alone) and these Social Security payments include an element which goes towards their Jersey old-age pension.

‘When, upon retirement, you start receiving your Jersey pension, you will not be taxed providing your yearly income total is below the allowed threshold but, if your pension and income from other sources go above the allowed threshold, the whole of your old-age pension is then included for taxation purposes. It is taxed for a second time.’

When asked about the matter, a government spokesperson highlighted the response to a similar petition, issued in May 2019.

The response pointed out that 50% of pensioners did not pay any income tax, and that exempting old-age pensions would not benefit those with the lowest incomes, because they did not pay income tax under the existing system.

The 2019 response continued: ‘The tax treatment of Social Security contributions/old age pensions is not unique to Jersey; in particular the position in Jersey broadly mirrors that applied in the UK. It is routine practice to subject pensions to income tax. Contributions to private/occupational pension schemes are routinely relieved from tax, but Social Security contributions provide wider social insurance benefits and the rates of contribution take account of the overall needs of the government to provide adequate levels of support.’

It was stated that the Treasury Minister could not support ‘measures which would reduce the funds available to deliver public services to the people of Jersey’.

The statement added: ‘If a tax deduction was available for these contributions, it would materially reduce States income and this reduction in tax revenues would have to be recouped through other measures in order to maintain public services.’

Context to the situation, using 2019 figures, was also provided by the government, who stated that:

  • If the only source of income for a single Jersey-resident pensioner, born before 1952, was the States old-age pension of just under £11,400, they would not pay income tax due, as the income threshold was £15,900.
  • Married pensioners would receive around £18,900 in payments, but would not pay income tax until their income exceeded £26,100.

As the 2021 petition has gathered more than 1,000 signatures, an updated ministerial response is due. This is expected to cover similar ground to the response two years ago.

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