HC Deb 27 May 1970 vol 801 cc1888-93
Mr. Taverne

I beg to move Amendment No. 25, in page 50, leave out lines 25 to 33 and insert: `two-thirds of his final remuneration '. Perhaps I might explain that the Amendment is necessary to take out the reference to the National Superannuation and Social Insurance Bill, which has now been dropped.

Mr. Dean

I thought that the Financial Secretary was being a little modest for the moment not to " come clean " to the Committee and explain that the effect of the Amendment is to drop the National Superannuation and Social Insurance Bill. That is something which we on this side warmly welcome.

Mr. Taverne

This is not a permanent dropping. It is because of temporary exigencies and the requirements of an election.

Amendment agreed to.

Further Amendment made: No. 26 in page 50, line 39, leave out sub-paragraph (3).—[Mr. Taverne.]

The following Amendment stood upon the Notice Paper: No. 18, in page 51, line 1, leave out paragraph 3.

Mrs. Lena Jeger

In view of the generous and welcome assurances which have been given by the Minister, I do not propose to move my Amendment. No. 18.

Question proposed, That this Schedule, as amended, be the Fifth Schedule to the Bill.

Mr. Macdonald

I think that it was a little mean of my hon. Friend the Member for Holborn and St. Pancras, South (Mrs. Lena Jeger) not to move her Amendment, although I understand the reasons, because I had hoped to speak to it.

I was minded to intervene earlier in the general debate initiated by the right hon. Member for Enfield, West (Mr. lain Macleod), but I thought I had better not because the point that I want to make does not have any necessary connection with the F.S.S.U. Although my hon. and learned Friend referred to commuting and the limit to the lump sum that could be paid, I decided not to intervene when we were considering particularly the F.S.S.U.

This Schedule, and, in particular, paragraph 3, setting a limit on the employee's lump sum benefits, is a subject of some anxiety to those in occupational schemes. If my hon. and learned Friend could find time to write to me afterwards to explain the necessity for paragraph 3 in this form, I should be grateful.

Members of the National Union of Bank Employees have pointed out to me that this paragraph will impose a serious restriction on the amount of lump sum benefits that they can enjoy. An example was quoted to me of a man retiring on a terminal salary of £2,100, which I suggest is neither striking nor extraordinary. Under the provisions prevailing in most banks now he would be entitled to claim a lump sum upon retirement of £3,500, whereas it is calculated, under the provisions of paragraph 3, that the maximum lump sum that he would be able to get is £3,150. This is quite an appreciable reduction.

A new limit is being set reducing the lump sum payment that people in this position may receive. I should he glad to know the reason for imposing a restriction where no restriction now exists. I understand the argument that there must be a limit—I do not dissent from that—but I should like to know why existing limits have to be reduced apparently so that they may receive a much less attractive lump sum payment on retirement than they can now.

7.45 p.m.

Mr. A. G. F. Hall-Davis (Morecambe and Lonsdale)

I should like to take the opportunity of asking the Financial Secretary to say something on a somewhat technical but important point about which I wrote to the Chancellor when I anticipated that we would have greater opportunities to debate these parts of the Finance Bill. I made clear to the Chancellor that I was in some ways an interested party to the case that I was putting, but that so were many others and that it had wider implications for them than for myself.

The first indications given by the Inland Revenue in a particular instance which I brought to the Chancellor's notice were to the effect that where an employer decided to consolidate a number of pension schemes operated within a single group of companies, that consolidation would be regarded as the establishment of a new scheme and the right to preserve the death in service benefit in excess of double salary could not be carried forward in respect of the individuals concerned. I believe that this is contrary to the spirit of the Inland Revenue publication of February and that it is a substantial obstruction to a more orderly and sensible administration of pension schemes.

I can spell the matter out in a few sentences. The situation arises where there is a merger of a number of companies under a single company and it is in everybody's interests, in the interests of equity and administration, that the existing schemes operating in the individual segments of the new enlarged group should be brought into a single consolidated scheme. In those cases it is reasonable that the discretion should be exercised so that the consolidated scheme, which is a scheme in which people are still in the employment of the same employer as previously, should not have the effect of depriving them of the continuation of the same level, or the same formula, of provision of lump sum death benefit as they would have been able to retain had a number of separate schemes been continued in operation by the same employer.

The indications brought to my notice were that this would not be the case. If this is not allowed, it will mean that employers will not wind up and consolidate individual schemes, because they would be doing so to the grave embarrassment of their employees—the very employees to which the Revenue's statement shows clearly it understood there was a case for giving consideration, namely, the more highly paid employees in the higher age groups.

Before leaving the Schedule, I hope that the Financial Secretary will tell us, first, that there is scope under the proposed legislation for discretion to be exercised in these cases. Secondly, it would be even more welcome if he could indicate that that discretion would be exercised in these cases. I am sure that what I am asking for is entirely within the spirit of the paper published in February. I am also sure that it is highly desirable in the interests of efficient and economic operation of pension schemes and in order that there shall not be an obstruction of the process of industrial merging and regrouping of industry, to which the Government are always drawing our attention as a favourable aspect of economic development under their own policies.

But in this case, for some reason which no doubt has a technical foundation, they seem to be extremely reluctant to allow what is in effect the continuation of a contract between the same employer and the same employee, the employer merely wanting to put a number of pension schemes operating alongside each other into a single pension scheme without depriving his employee of rights he would be able to retain if that change were not made.

Mr. Taverne

First, may I refer to the point made by my hon. Friend the Member for Chislehurst (Mr. Macdonald). It is true that some of the bank schemes have special commutation factors which turn the one-and-a-quarter lump-sum which is now allowed into nearly two years' lump-sum instead of one-and-a-half-years lump-sum which is now proposed. I have to say to my hon. Friend that, certainly in the future, it looks as though bank employee schemes will have to come into line with the schemes which are being proposed by the Inland Revenue, but again there is no question of retrospective effect. There is no question of taking away rights which have been earned, or which will have been earned at the operative date. Past rights will be allowed on the two-year basis, but for the future they will have to fit into the one-and-a-half-year pattern.

My hon. Friend asked what justification there is for the one-and-a-half-year limitation. Perhaps I should explain the matter more fully than I did the last time I mentioned this. The Royal Commission said in effect that there is no justification whatsoever for allowing any tax-free lump-sums at all. It said that there has been a build-up of a sum from contributions which have had tax relief, and a person cannot have tax relief on the lump-sum as well, because he has already had his tax relief. The Royal Commission said, however, that since the practice has been established of giving these lump-sums we cannot abolish it altogether, and therefore let us put a limitation on it. That was the argument advanced by the Royal Commission, and it was also very much the argument advanced by the Tucker Commission.

In principle, the case is irresistible that there should not be any tax-free lump sums at all, but in practice, as they have been allowed for a long time, it would be extremely harsh to say that we shall abolish them. It becomes very difficult to draw a line at any specific sum. That is why we have said that there should be a limit—there must be a limit—to which other taxpayers can subsidise tax-free benefits for some. If there must be a limit, let it be one-and-a-half-times final salary.

On the point made by the hon. Member for Morecambe and Lonsdale (Mr. Hall-Davis) it is true—and I say this quite frankly—that the Inland Revenue has had some difficulty in deciding the limits of the protection for death benefits enjoyed on 26th February, and the example which the hon. Gentleman has given, and about which he wrote to the Chancellor, is typical of the difficulties which arise. The Inland Revenue hoped to be able to meet the hon. Gentleman's request—this is a matter for the exercise of the discretion—but it has not quite seen a way through the complications as yet. It has not quite seen what conditions must be met, but the hon. Gentleman should get a reply very soon, and I hope that it will be possible to meet his case.

Question put and agreed to.

Schedule 5, as amended, agreed to.

Clauses 29 to 31 ordered to stand part of the Bill.

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