Pensioners Make Case For NIS Tax Breaks

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Pensioners Make Case For NIS Tax Breaks

Daily Nation, June 02, 2003

The Barbados Association of Retired Persons Inc. (BARP) wants Government to exempt from tax all pensions paid by the National Insurance Scheme. BARP’s proposals, first submitted to Government in 1999, were submitted to the political parties on April 3. Following are the proposals:

Proposal One: All National Insurance pensions should be exempted from income tax.

RATIONALE

The National Insurance and Social Security Act was enacted in 1966 and by virtue of an amendment to the Income Tax Act in that year, National Insurance contributions were deductible allowances for income tax purposes.

When National Insurance pensions first became payable (about three years after the commencement of the National Insurance scheme), an amendment to the Income Tax Act was passed in 1971 exempting from income tax the pensions payable under the NIS legislation.

This situation where both the National Insurance contributions and pensions enjoyed tax exemption continued until 1992 when both exemptions were withdrawn.

As a consequence, no tax relief was allowed in respect of the contributions paid and National Insurance pensions were subject to tax.

It is considered that the situation where a person who has funded his/her pension out of taxed income also pays tax on the pension when it becomes payable is, in effect, double taxation and unfair.

Since the burden of taxation is better carried during a person’s working life than after retirement, BARP strongly urges that, in order to correct the present situation as explained above, tax exemption should be granted to National Insurance pensions while the disallowance of a deduction for contributions to the scheme is continued.

2. Proposal 2: Re: Government pensions of less than $500 per month

i. There should be an immediate cost-of-living addition to pensions for all Government pensioners in receipt of gross payments of less than $500 a month. Periodic increases should be maintained for this group to ensure that they do not fall below the poverty line;

ii. There should be an immediate adjustment – say at $30 a month – to the gross payments of all Government pensioners who are 80 years and over, the suggested adjustment takes into account the recent increases to some of this group.

RATIONALE

i. It is believed that for 50 per cent of the nearly 8 000 Government pensioners the only source of income is their pension which is less than $500 a month each. When compared to the national poverty level (which was $171 a week over four years ago) this is untenable, bearing in mind that none of these pensioners is eligible for non-contributory pension, and in many cases they are also not eligible for contributory pensions under the National Insurance and Social Security Scheme.

ii. Further, over 1 500 Government pensioners are over the age of 80 years and therefore would have retired for more than 20 years when pensionable salaries were a far cry from current rates. This group generally would not have been eligible for any type of National Insurance pension.

iii. Some early adjustment is therefore necessary to the pensions of these two most vulnerable groups at (i) and (ii) above on the current pension roll. A system of periodic special adjustments should also be maintained for these groups.

3. Proposal 3 Re: Widows and Children Pension Scheme

The Widows and Children Pension Scheme for public officers should be reviewed. Under a revised scheme contributors should be given the choice to remain or opt out of the Scheme

RATIONALE

There is no good ground to compel male public officers to subscribe two per cent of their basic salary to this scheme when provision for dependents’ pensions is made under the National Insurance scheme. Such officers should be given the opportunity to opt out of the scheme. Moreover, the Widows and Children Pension Scheme is discriminatory in the context of the gender composition of the population.

4. Proposal 4: Re: Income Tax

All pensions up to $3 000 per month should be exempted from income tax.

RATIONALE

This proposal was contained in the 1994 Manifesto of the Barbados Labour Party, but has not, to date, been fully implemented by Government. BARP fully supports this recommendation.

5. Proposal 5: Income Tax Allowance for Spouse with no income.

The income tax allowance for a spouse with no income should be increased from $3 000.

RATIONALE

The allowance was increased from $2 000 to $3 000 since income year 1986 when it represented 40 per cent of the total personal allowance. The spouse Allowance was excluded from tax returns for 1993 and 1994 but reintroduced in 1995 at the previous level of $3 000.

The spouse allowance now represents 16.6 per cent of the total personal Allowance for tax payers under 60 and 9.09 per cent for taxpayers over 60. This allowance is therefore inadequate because it has been at the same level for over 16 years and the cost of living has increased substantially over those years.