Work and Pensions Secretary James Purnell has today confirmed that anyone getting a payment via the Financial Assistance Scheme will not necessarily have to pay higher rate tax.
Those pensioners receiving £40,000 or less a year – which is the majority of the members – will not move into the higher tax bracket.
Payments via the FAS will not be viewed as a single payment for the year in which they are paid.
Instead they will be allocated to the year, or years, in which the original pension payment should have been received by the individual.
The announcement follows the decision to extend FAS to levels comparable to the Pension Protection Fund in December 2007 and give early assistance to those members who had to stop work early due to ill health.
The legislation will come into force in May and will mean those people receiving a payment to cover a past period to either May 14 2004 or their scheme’s retirement age will pay no more tax than they would have done if the payments had been made over the relevant years.
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.”
Pensions consultant Dr Ros Altmann says: “This is really good news, but of course it will be essential to get the detail right. The arrears should not be added to any earnings that the victims had during the past few years, because they were only working as a result of not having received their pensions.
“The important principle is that members want to know they won’t be penalised – tax-wise – for having had to work during the past few years when they should have been living on their pensions.”