§ Question proposed, That the clause stand part of the Bill.
§ Mr. BlairWith clause 18, we come to the issue of personal pension schemes. I am acutely aware that I have stumbled into an area in which there are many experts. I do riot count myself among them. I gather that we shall hear from the hon. Member for Kensington (Sir B. Rhys Williams) about some of the amendments that he has tabled. I simply want to ask the Minister—I thought that this might be an appropriate time to do so—to tell us something about the scheme outlined in this chapter.
As I understand it, the Social Security Act 1986 has given birth to the present provisions. This tax regime follows on from the changes in pensions that were made in the 1986 Act, under which there was the right to opt out of occupational pension schemes and to have a personal pension instead. I need not rehearse the arguments about that or about whether greater mobility would be enjoyed by people being able to opt out and, on the other side, about whether that would mean that the younger people in the pension scheme would end up financing the older ones, and the difficulties that might arise for the pension schemes in such circumstances.
1026 As I understand it, at the present time, the provisions will come into force in January of next year—somebody who is self-employed can buy what are called section 226 policies. The provisions in the Finance Bill substantially re-enact some of those section 226 rules and ensure that the pension schemes for the self-employed and for employees are brought together. I should like the Minister to outline briefly the main changes that would be made by this part of the Bill. As I understand it, these provisions essentially reflect the changes that took place in social security legislation in 1986, together with certain new matters that have been introduced into the Finance Bill, including many that simply translate into law some procedures that are already practised by the Inland Revenue.
The provisions also introduce the lump sum limit of £150,000 and certain restrictions on the amount of lump sum that can be paid on retirement. Obviously, that is extremely important to millions of people. I did not think it right to allow the first clause in this new chapter to go by without at least raising some of the more general matters.
§ Sir Brandon Rhys Williams (Kensington)I had intended to raise on clause 19 the points that I think I might equally appropriately raise under this clause, but since I did, in fact, table an amendment to line 29 of clause 18, which did not have the good fortune to be selected by the Chair, I hope that I shall not be speaking out of order if I deal in a general way with the expression "the Board" which appears at the beginning of this section.
The amendment which I tabled—I do not wish to dwell on it in a way that will vex the Chair—which did not make the selection—
§ The Temporary Chairman (Miss Janet Fookes)Order. The hon. Gentleman must not dwell on it at all. It was not selected.
§ Sir Brandon Rhys WilliamsI anticipated that rebuke, and I intend to comply totally with the Chair's ruling. I had intended to draw attention to the fact that "the Board" here is assumed to be the board of the Inland Revenue. However, there is the Occuptional Pensions Board, which also has status in connection with private personal schemes. I rather wonder whether here, in the Finance Bill, the Treasury is right to arrogate, as it is seeking to do, to the Inland Revenue what appears to be the primary status of controlling authority, when the Occupational Pensions Board exists and also, simultaneously with the consideration of the Finance Bill, the House has been presented with no fewer than 20 statutory instruments emanating from the DHSS, which also seek to regulate the way in which these schemes are run.
I accept that the Revenue must be the authority which grants the tax haven status to personal pension schemes, but I wonder whether all that follows in this long chapter of personal pension schemes is the property of the Inland Revenue to decide. I rather wonder whether it is in the best interests of these schemes that it should be the Inland Revenue that takes the primary status. I believe that it would be highly desirable if the Revenue were to drop the practice of regulating pension schemes minutely and were to leave it either to the Occupational Pensions Board or to the DHSS using the different methods that have grown 1027 up under those Departments to regulate these schemes. Therefore, I rather wonder whether one is entirely happy with the entire tenor of clause 18.
We should simplify the rules that operate in connection with personal pension schemes to the absolute bare minimum. That is not the Inland Revenue practice. Under its guidance, the rules affecting pension schemes have proliferated to a terribly burdensome extent over the past 50 years or more. I believe that extreme simplicity of legislation should be accepted by the House as a virtue in its own right of the greatest possible importance, particularly when dealing with small employers and private citizens, as we are when we are discussing personal schemes. It would be a great mistake if we started off by making the whole apparatus of control, which must be considered, so complex that almost everybody is likely to be frightened off unless they can afford professional advice.
On questions of procedure, the appointment and conduct of trustees, for example, and routine management of the trust, it would be far better to leave it to the OPB as it is expert in this area and is bent on the promotion of these schemes, rather than the restriction of opportunities for saving which these schemes are intended to offer. But that is not the Inland Revenue's way.
On the question of the various obligations of the parties—the employer and employee—I would would be happy for the DHSS to operate because it looks at these schemes on the basis of the maximum and minimum contributions which are appropriate. The Inland Revenue's way is to set limits on the benefits which emanate and that really is incompatible with the conception of the money purchase schemes which lies behind the Government's intention.
When one speaks to professionals in this area—I am sorry to say this, but I have to—one finds that they regard the Inland Revenue as a menace to the occupational pensions movement. They regard it as a burden and wish that the dual control system which has grown up could be ended. The Inland Revenue is now more concerned to prevent people from exploiting the advantages of tax haven status than to promote thrift and a habit of saving for retirement.
Where the two thirds limit is concerned, which is what the Inland Revenue seeks to apply to the annuities which emanate from these schemes, why should it be important what the pension is in relation to the final salary of the beneficiary? In the end the taxpayer recovers his share which has grown up in the fund, because the system on which all these schemes operate—the tax haven status which we are giving to these schemes—is the basis of save now, pay tax later. The beneficiary pays tax later on the annuity, so why do we seek to restrict these schemes?
I know that there is a reason, and that is because the lump sum option appears in these new proposals just as it does in the occupational pension schemes, which no doubt we shall deal with in due course when we reach schedule 3. The right way for the Inland Revenue to tackle that problem is to introduce new thinking on the tax-free status of the lump sum. I have tried to make a contribution on this before.
I would like my right hon. Friend the Minister to tell me whether he genuinely insists that it is the Inland Revenue that is the prime authority in view of the shadow 1028 that that will cast over the private pensions movement, and if this attitude of the Inland Revenue is not changed.
§ The Financial Secretary to the Treasury (Mr. Norman Lamont)The hon. Member for Sedgefield (Mr. Blair) invited me to outline the proposals on personal pensions in this part of the Bill. I am aware that it is difficult for me to respond to his request without, by implication, going a little beyond clause 18, although it introduces the provisions of Part II. The hon. Gentleman is right about how the new provisions follow the section 226 regime but with improvements in that there are new higher contribution limits for older people and employers' contributions may be made to personal pensions, which was not possible with retirement annuities.
The provisions implement the promises made by my right hon. Friend the Chancellor of the Exchequer in his Budget statement—first, that the new personal pensions would have the same tax treatment as is enjoyed by retirement annuities and, secondly, that much greater transferability of pension rights would be possible between different types of pension arrangement. Therefore, the legislation completes the major programme of pensions reform which was announced by the Secretary of State for Social Services.
The provisions were originally included in the Finance Bill introduced earlier this year. Several technical amendments have been made, but it is essentially the same as was proposed in April. The new regime for personal pensions was outlined in a consultative document published by the Inland Revenue last November. I have referred to the changes that have been made, which include a wider range of pension providers, to include building societies, banks, and unit trusts in addition to the present life offices and friendly societies; the ability for individuals to contract out of SERPS through a personal pension scheme; the provision for employers to contribute, if they wish, to their employees' personal pension schemes; and the same basic limit of 17.5 per cent. of income for younger people and a more generous scale of higher limits for those over 50, as now on contributions. I hope that in outlining the bones of this section, clauses 18 to 57, I have responded to the hon. Gentleman's request.
My hon. Friend the Member for Kensington (Sir B. Rhys Williams) has leapt straight into an area which is also referred to in a later amendment which he has tabled, so I have no doubt that he will pursue the theme and repeat some of the points that he made. He is concerned about the relationship between the Inland Revenue and the DHSS and the Occupational Pensions Board. We have discussed this on many occasions. He believes that there is a conflict between the objectives of the Revenue and the DHSS. Naturally, many Government Departments sometimes think that they are in conflict with the Inland Revenue or the Treasury and, indeed, sometimes they have different objectives.
The Inland Revenue is responsible under the powers conferred on it by the Finance Act 1970 for administering the tax regime for pensions. As my hon. Friend always acknowleges in his speeches on this subject, these tax reliefs are extremely generous. Indeed, he has suggested that they should be called pension trusts and he frequently uses the phrase "tax haven" when referring to pension 1029 funds. For the reasons he gave, the Inland Revenue is concerned about the cost of these generous limits, so the tax rules set levels of maximum benefit.
On the other hand, the DHSS rules are primarily concerned with the level of benefits which an occupational pension scheme must provide if it is to be contracted out of the additional component of the state scheme. That is to say that the Inland Revenue is responsible for the tax approval rules while the DHSS and the OPB have their own requirements for contracting out only which applies to employees in occupational pension schemes.
The DHSS, as I have said, is concerned with the level of benefits that an occupational scheme must provide if it is to be contracted out of the additional components of the state scheme. The requirements of the DHSS concern minimum levels of benefit. Between the minimum benefits required by the DHSS and the maximum benefits imposed by the Inland Revenue, there is considerable scope for occupational schemes to offer whatever level of benefit seems appropriate without Government interference, although there is a danger that Revenue rules would restrict DHSS minimum benefits, for example in relation to preserved benefits to which Revenue rules do not apply.
I know that my hon. Friend the Member for Kensington would prefer to see a maximum benefit requirement on all final salary pension schemes. However, that takes us way beyond clause 18. I am sure that my hon. Friend will rehearse his arguments and concern about some types of pension being limited by contributions and others limited by benefit, all of which he sees as examples of the lack of integration. He has heard my views on these matters before. I have tried to explain why that has happened and why I believe that to some extent it is still unavoidable. I know that I have not persuaded my hon. Friend about this, but I think that he understands the position and I know that he would like to see the whole area of pensions radically reformed. No doubt my hon. Friend will come to that point later.
I know that I will not deflect my hon. Friend the Member for Kensington, but I am bound to say that, after so many changes in pensions in recent years, there are some who feel that a period of calm and stability is desirable. However, my hon. Friend has been a great campaigner on all those issues for many years. He has a very lucid and coherent view of what the whole pensions regime should look like. Basically, he believes that we should start off on an entirely different basis.
1030 I should not really respond to all the points made by my hon. Friend the Member for Kensington. We will have specific debates on the lump sum later and my hon. Friend can develop his philosophy about that and its tax exemption. I have tried to respond to my hon. Friend about the different roles of the Revenue and the DHSS. I do not believe that there is a great conflict which my hon. Friend has described. However, I know that he wants to see the whole system established on an entirely different basis.
§ Sir Brandon Rhys WilliamsI would like to take the opportunity to thank my right hon. Friend the Financial Secretary to the Treasury for his remarks. He has penetrated to the core of what I was saying. In this country we have a public sector pension scheme which is extremely handsome. However, the private sector is really paltry by comparison in all too many cases. Therefore, we ought to be accentuating the positive which will be encouraging people to put in better and better schemes rather than to think mainly in terms of ways in which we can restrict the savings habit from becoming too exuberant.
I do not like to be critical of the board of the Inland Revenue, because the way in which it approaches its task is immensely dedicated, as it is a dry and often very detailed business. It takes the Revenue into areas that are sometimes barely comprehensible. There is an important job to be done in avoidance work with regard to fraud and outrageous abuse of well-intentioned concessions.
Moreover, I do not think that the board ought to be eliminated entirely from the scene; it would he an exaggeration if I gave that impression. Indeed, in a later amendment I hope to use the board's discretionary power to promote the idea of transferability at long last at the full value of the beneficiary's asset. I do not want it thought that I do not want the Inland Revenue board to have a place in the regulatory scene.
I took the opportunity to make my point because I feel that we need to put more emphasis on the positive aspects. The positive aspects are emphasised by the DHSS approach of placing minimum levels of contribution rather than maximum levels of benefit. I do not wish to pursue that matter or to stand in the way of the Committee and its further consideration of these clauses.
§ Question put and agreed to.
§ Clause 18 ordered to stand part of the Bill.
§ Clause 19 ordered to stand part of the Bill.