Tax penalties on retirement benefits after re-employment

22 January 2016

A complaint was made to the Pension Ombudsman relating to the failure of an employer to inform an employee of the tax penalties on his retirement benefits when taking subsequent re-employment.

The complaint came from a police officer, Mr Cherry against the Police and Crime Commissioner of South Wales and Capita.

The Ombudsman found that although the employer (the Commissioner), was not legally obliged to advise the individual officers and employees on their tax and pension liabilities, he did not consider that this was a matter of an employer giving advice. This was about the provision of relevant information to employees about the impact on his or her benefits following re-employment.

The Commissioner’s failure to provide information led to Mr Cherry incurring tax charges on his retirement benefits.

The Ombudsman found that it was reasonable to expect the Commissioner, as an employer with a duty of care, to have provided the relevant information to Mr Cherry about the implications of re-employment as contained in the Home office Circular 007/2006 about A-day and changes to Police Pensions Regulation 1987.

Whilst not accepting any legal liability, the Commissioner accepted that it would meet the additional tax liability in question for Mr Cherry but that the liability is that of Mr Cherry and it cannot pay the amount due directly to HMRC as to meet an individual’s personal tax liability would be classed as an ‘employee benefit’ and as such would be subject to further taxation liabilities.

The Ombudsman finally directed that within 28 days of receiving written proof from Mr Cherry of the amount of his tax liability, the Commissioner should pay Mr Cherry the amount due to HMRC in respect of the loss of protected pension age only.

Since the Commissioner is not involved in the tax self-assessment process, any penalties and interest imposed by HMRC for delays in the process, is not be payable by the Commissioner as it is not a direct consequence of his loss of protected pension age.

Follow this link to read the full Ombudsman’s Determination.