Unfair treatment for retirement annuitants to end
One of LITRG's most persistent campaigns is about to come to fruition. Low-income pensioners who receive retirement annuities have for years had too much tax deducted from their retirement annuities. But from April 2007, this will change. Only the tax that they actually owe will be taken off their pension before they receive it. This follows a seven-year campaign by LITRG to get justice for those who were left behind when pensions were last modernised in 1988.
From April 2007, all retirement annuities will be taxed under PAYE. This means that if you receive a retirement annuity, you should have the right amount of tax deducted at source from your payments.
Under the present system, tax is automatically deducted from retirement annuities at the basic rate of 22%, unless you have completed a form R89 confirming that you are not liable to pay any income tax.
This works well enough for those who pay tax at the basic rate, and for those who pay no tax at all - if they know about the R89 procedure and are comfortable using it. But people who pay tax at less than 22% - eg at the starting rate of 10% - have to complete a repayment form to reclaim the tax that has been over-deducted from their pension.
The results can be both harsh for the taxpayer, and expensive for the public purse.
Fred who is 74 and has a total income of £7,100, which is £10 above the personal allowance limit, will have a tax liability of £2.20 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.
Between them the Insurance company and the Treasury get an interest free loan from Fred because he now has to wait months for the Revenue authorities to repay the £657.80 which he is owed. This happens to Fred every year.
Not only is that damaging to Fred, but the Revenue authorities may have four repayment claims from Fred during the year - a lot of the paperwork and the administration costs for a liability of little over £2.
The injustice to people like Fred is heightened by the fact that if Fred had been younger, and taken out a personal pension rather than a retirement annuity contract, he would have been paid under PAYE and had the right amount of tax taken off from the start.
For many years, LITRG has been campaigning for retirement annuities to be brought within the same fairer system.
Action to take now
Over the next year or so, the Revenue will be contacting certain pensioners ensuring that if they have not already done so, they reclaim any tax over-deducted from their payments for the past six years.
[If you find yourself in this situation, you don't have to wait to get one of these letters. If you think you may be eligible for a refund of tax, have a look here to see how to lodge a repayment claim. There is also a section of the Revenue's website which contains useful information for you.] Text now obsolete.
Contact Name: Robin Williamson (Tel: 0844 579 6700; Fax: 0844 579 6701)