Petition Stop the double taxation of the Jersey pension
The Jersey pension is included in the assessment for yearly income taxation even though a person during their working life paid tax on their GROSS income including their Social Security payments an element of which goes towards their pension.
Income tax during working life is based on GROSS earnings including Social Security payments and tax is paid on the GROSS amount.
Why therefore is it taxed again if a pensioner is above the tax threshold?
This response was given on 3 June 2021
Personal tax allowances exceed the maximum amount someone will receive for a Social Security pension. Making old age pensions tax exempt would not benefit the 50% of pensioners that do not pay tax.
It is notable that the tax allowances in Jersey ensure that, even though the States old age pension is taxable, pensioners on low incomes who receive only the States old age pension do not pay any income tax.
In fact, approximately 50% of pensioners do not pay any income tax.
Making the States old age pension exempt from tax would therefore not benefit those pensioners with the lowest incomes.
The tax treatment of social security contributions and the old age pension 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 need to provide adequate levels of support.
For that reason, the Minister for Treasury and Resources cannot at this time support measures which would reduce the funds available to deliver public services to the people of Jersey.
Tax treatment of contributions
Social security contributions fund a social-insurance scheme which provides a range of benefits, including the States old age pension. 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 taxation measures in order to maintain public services.
For employed people, social-security contributions are paid both by the employee and the employer. The employer’s contribution – some 6.5% up to the Standard Earnings Limit (SEL) and a further 2.5% between the SEL and the Upper Earnings Limit (UEL) - is not subject to income tax and is a deductible expense of doing business.
Tax treatment of States old age pension
The vast majority of private and state-provided pensions are taxable but a significant proportion (estimated to be 50%) of Jersey pensioners pay no income tax. This is because Jersey enjoys relatively high tax exemption thresholds before which income is taxed.
In particular if a Jersey-resident pensioner’s only source of income is the States old age pension, he or she will not pay income tax: a single pensioner in receipt of a full States old age pension would receive around £11,750 in 2021 but would not pay income tax until their income exceeded £16,000. A married pensioner in receipt of a full States pension would receive around £19,500 but would not pay income tax until their income exceeded £26,100 (note this threshold assumes the married pensioner was born before 1952).
Making the old age pension exempt from tax would materially reduce States income without providing any benefit whatsoever to the poorest pensioners. The reduction in tax revenues would have to be recouped through other measures in order to maintain public services.
Minister for Treasury and Resources
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