Tuesday, 16 January 2018
Department of Finance
176. To ask the Minister for Finance his plans to rectify an anomaly in the State pension system whereby married persons who switch from a single payment with an adult dependant to individual pension claims do not receive a net increase in their income (details supplied); and if he will make a statement on the matter. [1754/18]
178. To ask the Minister for Finance if an anomaly in the State pension system whereby a married couple that switches from a single payment with an adult dependant to individual pension claims do not receive a net increase in income will be rectified (details supplied); and if he will make a statement on the matter. [2076/18]
I propose to take Questions Nos. 176 and 178 together.
I am advised by the Department of Employment Affairs and Social Protection that individual pensioners can apply for two State Pensions. The State Pension (Contributory) is based on social insurance contributions paid or credited over the course of a person’s working life. The State Pension (Non-Contributory) is a means tested payment. The State Pension (Contributory) has six payment bands ranging from €95.20 for those with an average of 10-14 contributions, up to €238.30 for this with an average of 48 or more contributions. The State Pension (Non-Contributory) payments start at €2.50 and rise incrementally up to a maximum of €227 per week (for those with weekly assessed means of less than €30). Individuals are paid whichever of the two potential pension payments is most beneficial to them (gross).
Pensioners can also apply for an increased payment in respect of a qualified adult (IQA) (i.e. an adult that is dependent on their income such as, for example, a dependant spouse). The IQA payment is means tested and can be paid directly to the Qualified Adult. The maximum amount payable to a Qualified Adult under the age of 66 is €158.80 (when related to State Pension (contributory) or €150 (when related to State Pension (non-contributory). When the Qualified Adult reaches pension age, he/she can apply for both available pensions in his/her own right, or continue to be classed as a qualified adult for the purposes of an IQA payment from the spouse’s pension. That over-66 IQA payment has a maximum rate of €213.50. Once more, the person is paid whatever payment is most beneficial to them (gross).
With regard to the taxation of these payments, the State Pension, including an increase to that pension in respect of a qualifying adult dependent, is chargeable to income tax.
Where an individual in a married couple is entitled to the State Pension and such pension is increased in respect of a qualifying adult dependant, Section 126(2B) of the Taxes Consolidation Act 1997 provides that it remains one pension for tax purposes and the individual claiming the pension is chargeable to tax on it. The individual is entitled to a PAYE tax credit of €1,650 to be set against his or her tax liabilities, in addition to the married personal tax credit of €3,300.
Alternatively, where a married couple are in receipt of two separate and distinct social welfare pensions, each spouse is chargeable to income tax in respect of their respective pension and each spouse is entitled to a PAYE tax credit of €1,650 in addition to the couple being entitled to the married personal tax credit of €3,300. The total value of tax credits available to a couple where both individuals has pension income in his/her own right therefore exceeds the total value of the credits available to a couple with only one source of pension income (such as a State Pension with IQA).
It is assumed that the individuals in question switched from a single payment with an adult dependant to individual pension claims in order to receive an increased gross pension payment. Having regard to the tax credits set out above, the circumstances set out in the question whereby a net decrease in income has occurred should not, in general, arise in practice. If the Deputy is aware of a couple that have identified what appears to be an anomaly in their tax affairs they should be advised to contact Revenue to have their tax affairs reviewed.
Many factors determine the tax position of any individual or couple including, for example, the receipt of additional incomes or an entitlement to additional tax credits due to particular circumstances. While any increase in income may lead to an increased tax liability, the structure of the income tax systems and the rates of charge are such that an increase in gross income should not, generally, lead to a decrease in net income.