PN 6: Helping Pensioners, Children and Young People

The Government is today confirming a radical simplification of the pension tax regime, announcing more help for pensioners, and announcing a number of measures support children and young people.

Details

Simplifying the taxation of pensions

Following the National Audit Office review the Government will proceed with the simplification of the pensions tax regimes. It will remove the existing complex rules and regulations, replacing them with a single lifetime allowance for the level of tax relieved saving. The lifetime allowance limits the amount of tax privileged pension saving; those who can afford to save more will be free to do so, but without the benefit of further tax relief. Legislation will proceed in Finance Bill 2004.

The Government is therefore proceeding with the proposals set out in the December 2003 document, replacing the eight current regimes with a single lifetime allowance on the amount of tax-privileged pension saving. In response to concerns expressed in the consultation, the Government will legislate in Finance Bill 2004 to implement the simplified regime in April 2006, allowing employers and providers sufficient time to implement fully the benefits of simplification; set the lifetime allowance on introduction to reflect an April 2006 implementation date; to provide certainty, pre-announce the lifetime allowance for all years up to 2010 such that it increases steadily to £1.8 million in 2010; and review the lifetime allowance level and indexation every 5 years, with the first review in 2010.

The reforms will bring simplification and increased flexibility that will ensure a transparent, consistent and flexible system that is readily understood, making it easier for people to concentrate on deciding when and how much to save for retirement.

Help for pensioners

The Government understands that older people on fixed incomes face pressures such as higher council tax bills and thus a reduction in their standard of living. Council tax consumes a greater proportion of the incomes of older pensioners. Therefore the Budget announces a £100 payment to pensioner households with someone aged 70 or over to help with their Council tax bills.

All eligible applications for the Pension Credit received before October 2004 will be backdated to the start of the Pension Credit in October 2003 or the date of the entitlement if that is later. For applications received after October 2004, the maximum period of backdating allowed will be extended from three months to 12 months. The Pension Service is promoting a range of measures to encourage claims and increase take up including a pilot of benefits entitlement checks for vulnerable groups such as the over 80s and the elders in our ethnic communities.

Deferral of state pension

The Government is introducing the option of taking a deferred state pension as a taxable lump sum instead of higher weekly pension payments. Those choosing to defer their state pension by at least one year from April 2005 will be able to take the lump sum. Interest will be payable on the deferred pension for those choosing the lump sum at Bank of England base rate plus 2 per cent.

Review of financial support for 16-19 year olds

The Chancellor announced a cross-departmental review of financial support for 16-19 year olds in Budget 2003. The review’s report, Supporting young people to achieve: towards a new deal for skills, is published today alongside the Budget. The report sets out the Government’s vision that all young people should reach age 19 equipped for higher education or skilled employment. The report also outlines a series of measures to improve choice, deliver decent levels of minimum income and deliver an individualised professional service to young people, including:

• removing the distinction, in Child Benefit, Child Tax Credit and Income Support, between full-time education and unwaged training;
• working to achieve a fair minimum level of wages for employed trainees at £70-80 a week; and
• extending Child Benefit, Child Tax Credit and Income Support to 19 year olds until they finish their course.

National Minimum Wage for 16-17 year olds

The Government has accepted the Low Pay Commission’s recommendation that 16 and 17 year old employees should be covered by a new National Minimum Wage rate of £3 per hour from October 2004.

New support for childcare

Budget 2004 announces a settlement for Sure Start, childcare and early years, giving additional funding of £669m by 2007-08 compared to 2004-05. This will establish Children’s Centres in all of the 20% most disadvantaged wards in England by 2007-08, making Sure Start type services available to the 56% of poor children who live in these disadvantaged areas. This will mean 1700 Children’s Centres by March 2008, providing services and linked childcare places, another significant step forward towards the goal of a Children’s Centre for every community. The settlement will support 100,000 new childcare places, including in extended schools, and a pilot to extend a free part-time early education place to 6,000 two-year olds in disadvantaged areas.

Building on the Pre-Budget Report announcement of a new tax exemption for employer supported childcare from April 2005, the Government will be consulting on a new light-touch voluntary accreditation scheme to extend the range of good quality childcare eligible for financial support.

Notes for Editors

Pensions tax simplification

The Government welcomes the NAO report commissioned at the 2003 Pre-Budget report. The NAO concluded that £1.4 million is broadly equivalent to the maximum pension allowable under the current occupational pensions regime, which includes the earnings cap.

The estimate of 5,000 people is at the lower end of a range of reasonable estimates. Sensitivity testing and other evidence is consistent with an estimate of around 10,000. Other estimates of the numbers affected – up to 600,000 have been quoted – include large numbers of people already capped by the existing earnings cap, and so are not directly comparable. There is no evidence to discredit the original estimate of around 1,000 people a year who will be affected in each of the next ten years.

The Budget sets out that the lifetime allowance will be £1.5 million in 2006; £1.6m in 2007; £1.65m in 2007; 1.75m in 2009; and 1.8m in 2010.

16-19 review of financial support

Alongside the Working Group on 14-19 Reform, led by Mike Tomlinson, looking at radical reform of the qualification framework, Supporting young people to achieve: towards a new deal for skills sets out a consultation on the Government’s long-term vision of a single, coherent system of financial support for 16-19s to ensure that young people are equipped for higher education or skilled employment.

Childcare

The Secretary of State for Education and Skills will make an announcement shortly on the childcare settlement. The settlement reflects the findings of the Childcare Review announced by the Chancellor in Budget 2003.

The light touch voluntary accreditation scheme will extend the range of good quality childcare eligible for financial support, through either the childcare element of the Working Tax Credit or the new provisions on employer supported childcare which were announced in the 2003 Pre-Budget Report for implementation from April 2005.