Govt temporarily changes pension tax rules for returning public sector key workers

The government has announced temporary tax changes designed to protect the pension income of key workers in the public sector returning to work to support Covid-19 efforts.

The tax rules in question would otherwise apply "significant charges" to the pension income received by recently retired individuals between 50 and 55 should they return to work.

Confirming the change in a written ministerial statement, Economic Secretary to the Treasury, John Glen, stated: "The measure is designed to ensure that we can continue to provide important public services at this time.

"This change, taken alongside complementary changes to rules for relevant public service pension schemes (subject to relevant HM Treasury agreement), will help ensure individuals’ pension income will remain protected if they return to work at this important time."

He added: “The government’s actions will provide relevant public sector staff associations with the assurance that their members with pensions in payment and pension benefits will be unaffected if they wish to play their part in our response to this virus."

However, Glen emphasised that the proposed tax changes specifically formed part of the government response to Covid-19, and as such would initially apply in respect of payments made from 1 March to 1 June 2020 only, with further limits on who the easements apply to.

“HMRC will set out operational guidance in due course," he clarified, "but this measure will only apply to people returning to roles as a result of Covid-19.

"I am working with colleagues to identify relevant workforces who should benefit from these changes.”

In March, the Coronavirus Bill: health and social care measures confirmed similar changes to the NHS pension scheme rules, again designed to protect the pension income for recently retired workers should they return to work to aid in the fight against Covid-19.

Royal London senior intermediary development and technical manager, Moira Warner, commented: “After already making temporary changes enabling retired doctors and nurses to return to duty and fight the spread of Covid-19 without risking their pension income it is welcome to see government propose similar changes across the wider public sector so service quality can be maintained.

“Public sector pensioners should note though, that the government does not appear to intend a wholesale relaxation of relevant rules, it will only apply to people returning to work as a result of Covid-19.

“Anyone whose pension was already suspended or reduced prior to the current crisis as a result of returning to work is unlikely to benefit from these changes.”

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