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Government Ministers back LITRG initiative

Published on 14 July 2004

After years of pressing for change on behalf of low income pensioners with retirement annuities LITRG has received assurances in Parliament from two Government Ministers that they accept that more should be done.

Retirement annuities paid from contracts entered into in 1988 and before have tax deducted from them at 22% before the pensioner gets the cash.

But the very many pensioners receiving such annuities are not due to pay tax at this high a rate, so taking it from their income before they get it causes them hardship. The pensioners can of course reclaim the tax they do not owe, but many either are unaware that they have this right, or are too daunted by the paperwork to try.

The Inland Revenue operate what they call the R89 procedure so that pensioners who have no tax liability can have their annuity paid tax free, but this is dependent upon the pensioner being aware that this is so.

This procedure does not help those pensioners whose incomes take them over the tax free threshold.

So Fred who is 74 and has a total income of £6831, one pound above the personal allowance limit, will have a tax liability of ten pence for the current year. But if included in his income he has a retirement annuity of £3000 he will have had £660 tax deducted from him before he gets it.

LITRG has campaigned for many years for the right amount of tax to be deducted from the annuity using the PAYE system.

In the Finance Bill debates this month we can report two helpful quotes from Government Ministers.

The Inland Revenue are setting up a joint working group, including representatives from both RAC [that is, retirement annuity contract] providers and those who represent the pensioners interests such as the Low Incomes Tax Reform Group, to carry out an assessment of the scale of the problem and to explore options for resolving this issue by April 2007. The group will also look at practical solutions in the short term to help those pensioners who may be suffering a cash flow disadvantage under the current system.Paymaster-General, Dawn Primarolo

…..we must ensure that pensioners in receipt of RACs do not suffer as a result of the current arrangements, and I stand by the Government's previous commitments to protect their positions as far as possible, to which he drew attention. We need to ensure that the change is carried out effectively and efficiently. The task will not be achieved without difficulty, because bringing those pensioners under PAYE will take up the time and resources of not only the Inland Revenue, but the industry…….. We intend to resolve the matter as quickly as possible.Financial Secretary to the Treasury, Ruth Kelly.


LITRG intends to put maximum effort into this exercise with the hope that we can, at last, remove one of those long-standing anomalies, which penalises some of the poorest pensioners.

For the full debate in Parliament see the link below.


Contact Name: John Andrews (Tel: 0844 579 6700, Fax: 0844 579 6701)

Relevant Link: Text of parliamentary debate

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