Work and Pensions written question – answered on 24th February 2005.

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Photo of Steve Webb Steve Webb Shadow Secretary of State for Work and Pensions

To ask the Secretary of State for Work and Pensions if he will make a statement on the treatment of lump sum payments for those who have deferred drawing their retirement pension under the terms of the Pensions Act 2005 in (a) measurement of capital when assessing entitlement to means-tested benefits and (b) liability for income tax in the year in which the lump sum is drawn.

Photo of Malcolm Wicks Malcolm Wicks Minister for pensions, Department for Work and Pensions

For the first time ever we are giving people the chance to defer their State Pension and build up a lump sum. Where a person chooses to take a lump sum, the intention is for the full amount to be disregarded in the calculation of their capital in pension credit, housing benefit and council tax benefit during their lifetime.

Taxation is a matter for the Chancellor, but it is proposed to tax the lump sum at the marginal rate (currently 10 per cent., 22 per cent., 40 per cent. or if not liable to tax—no deduction) applicable to the person's other income, either in the tax year in which the person starts drawing his State Pension or, if the person so chooses, the tax year following. Payment of a lump sum will not count as income for the age-related personal allowance.

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