§ Mr. Skeetasked the Chancellor of the Exchequer whether he has any plan to deal with the difficulties which arise from the present arrangements for taxing national insurance pensions; and if he will make a statement.
§ Mr. Peter ReesAt present national insurance retirement pensions and widows' benefits, although taxable, are paid without deduction of tax. In the majority of cases, this causes no problem as the pensioner is not liable to tax. But where, on account of the addition of an earnings-related component, or the existence of another source of income such as an occupational pension, the pensioner's income is such as to bring him above the tax thresholds, arrangements have to be made to collect the tax direct from the pensioner or through relatively heavy PAYE deductions from the other source of income. These arrangements are troublesome both to pensioners and to the Inland Revenue.
My right hon. Friend the Secretary of State for Social Services and I have therefore decided to introduce with effect from April 1982 a system under which, in appropriate cases, tax may be deducted through PAYE from national insurance pensions. This will not, of course, affect the amount of tax for which a pensioner is liable, but should substantially reduce the difficulties to which my hon. Friend refers. The deduction will be made by the DHSS, as payer of the pensions, who will account for the tax directly to the Inland Revenue.
However payment is made, the pensioner will be given details of the tax deducted; in the majority of cases this will be printed in the order book. There will be consultation with representative organisations and the necessary explanatory literature will be produced prior to implementation.
Although additional staff will be required in DHSS, this will be far outweighed by the savings in staff in the Inland Revenue. The net staff saving once the scheme is established will be 893W about 800, representing a net administrative saving of £5.2 million per annum.