States Pensions (FOI)

​Request

Is the state pension an income or is the state pension a Benefit

Response

The relevant information is contained in the laws of Jersey and in various pieces of guidance issued by the Government of Jersey which are all available on the www.Gov.Je website.

Article 12(e) of the Social Security (Jersey) law 1974 specifies that the States’ Old Age Pension is a benefit (arising from the payment of an appropriate level of social-security contributions):

Social Security (Jersey) law 1974

Further information is available in guidance at:

How your pension works

The pension is taxable as income on a Jersey resident individual under the provisions of the Income Tax (Jersey) Law 1961 – Article 62 (Case III)(d)(i) shown below:-

62 Mode of charge under Schedule D; the Cases[259]

Case III. – tax in respect of profits of an uncertain value and of –

(d) subject to any exemption in Part 19 –

(i) any payment of a pension (other than a payment which is taxed under Case II, in accordance with sub-paragraph (c) of that Case) whether paid voluntarily or otherwise and whether capable of being discontinued or not

It is worth noting that a full States pension falls below the exemption thresholds for paying income tax. People who receive other income in addition to a States pension will pay income tax if their total income exceeds the exemption thresholds.

A petition was recently made to the States Assembly about the taxability of the States pension which is reproduced below.

“50% of pensioners do not pay any income tax. Making old age pension exempt would not benefit those pensioners with the lowest incomes, because they do not pay income tax under the existing system.

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, because they do not pay income tax under the existing system. The tax treatment of social security contributions/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 needs of the Government 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.

The tax treatment of social security contributions/old age pension (where individuals are not permitted to deduct the employee related contributions/the States old age pension is taxable income) is not unique to Jersey. In particular the position in Jersey broadly mirrors that applied in the UK.

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 measures in order to maintain public services.

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 just under £11,400 in 2019 but would not pay income tax until their income exceeded £15,900; a married pensioner in receipt of a full States pension would receive around £18,900 but would not pay income tax until their income exceeded £26,100 (note these thresholds assume the pensioner was born before 1952).

Therefore 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.