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40% tax still flaws pension credits

The Government has confirmed that it will effectively levy a 40 per cent tax on pensioners&#39 modest savings in its pre-Budget statement on pension credits.

The move comes despite fierce criticism by the pension industry of the top-up payments which will be introduced in 2003, costing the Government £2bn in the first year.

The Treasury gives an example of a pensioner under the current regime, with a basic state pension of £77 a week and an occupational pension of £14 a week. He or she would have their income topped up by £9 to the level of the minimum income guarantee to £100 a week, seeing no gain from their occupational pension.

Under the new pension credit arrangements, they would receive £17.40 a week, taking their income to £108.40 a week, effectively allowing them to keep 60p in the pound of additional savings.

The Department for Work and Pensions is set to provide further details on the new credits later this week.

Clerical Medical pensions strategy manager Nigel Stammers says: “It looks as if the Treasury has changed the interaction between the Mig and the credit but it is still a 40 per cent tax which is not a clear enough incentive to save.”

Scottish Life head of communications Alasdair Buchanan says: “There are still the same serious flaws with the credit as there were at consultation. The poorest people pay the same tax as millionaires on their savings.”

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