For public sector workers returning to support the government’s response to Covid-19, the government suspended the tax rule that would otherwise apply significant tax charges to pension income received by recently retired individuals aged between 50 and 55.
As these proposed tax changes form part of the response to Covid-19, they will initially apply in respect of payments made in the period from 1 March to 1 June 2020. The measure will only apply to people returning to roles as a result of Covid-19.
The current rules provide that, where an individual with a protected pension age between 50 and 55 retires and takes benefits before they reach the age of 55, they lose that protected pension age if they are later re-employed by their former employer, unless specific exemption conditions are met.
Losing the protected pension age means that the pension income is taxable at up to 55%, under a process known as ‘abatement’. But the government has proposed to temporarily suspend the abatement rules.
The Covid-19 bill also removes a barrier which currently prevents so-called special class nurses aged 55-60 who have claimed their pension benefits from returning to work without having their pension suspended.
Under the so-called ‘16-hour rule’ members of the scheme will see their pension suspended if they return to work and commit to more than 16 hours per week within the first four weeks.
The suspension of this rule will allow staff to return to work immediately after retirement and continue their existing working commitments, or increase them, while still receiving their full pension benefits.
This will remove the financial disincentive of members having their pension benefits suspended if they return immediately to a working pattern in excess of 16 hours per week following retirement.
Article from ACCA In Practice