§ Mr. FlightI beg to move amendment No. 25, in page 489, line 20, leave out '25 x ARP' and insert
'the aggregate of—
- the amount of any lump sum paid to the individual, increased from the date of payment to 5th April 2006 by the lesser of 5% per annum and the increase in the retail prices index over that period; and
- 20 x ARP'.
§ Mr. Deputy SpeakerWith this it will be convenient to discuss the following:
Amendment No. 26, in page 496, line 22, leave out '25 x ARP' and insert 'the aggregate of—
Government amendments Nos. 138 to 148.
- the amount of any lump sum paid to the individual, increased from the date of payment to 5th April 2006 by the lesser of 5% per annum and the increase in the retail prices index over that period; and
- 20 x ARP'.
§ Mr. FlightIn Committee, the Minister argued that a rough justice approach was needed and justifiable in taking a 25:1 ratio for pre-commencement pension valuations.
The effect of that is virtually to force everybody to take the maximum lump sums, in order not to suffer a tax penalty. Someone who has prudently not taken a cash lump sum under one pension arrangement, when 933 waiting to know what another pension arrangement may deliver on retirement, will suffer a major pension tax penalty for being cautious.
The Government's thinking was that it would be too complicated to address the issue en any other basis. I put it to the Financial Secretary that it is not complicated at all. Our proposed alternative, set out in amendments Nos. 25 and 26, is both fair and simple. In essence, they replace the 25:1 ratio with a standard 20:1 computation, but add whatever is the value of any cash lump sum that has been taken, increased by the lesser of 5 per cent. per annum and the actual increase in the retail prices index over the period. That is not a difficult calculation. It means that the Government do not send potentially wrong tax messages to people, effectively insisting that they take their maximum lump sums, and nor does it discriminate unfairly against those who have not done so. We can see no logical reason why the Government should not follow that much fairer and more rational way of approaching this issue.
§ Ruth KellyI understand the purpose behind the hon. Gentleman's amendment. He seeks to introduce an accurate approach to valuing pensions that came into payment before 6 April 2006, but I would argue that it is both complex and completely unrealistic. Requiring members to obtain or retain the values and dates of all lump sum payments, over a period that may be five, 10 or even more years before April 2006, would be costly and time-consuming.
I hope that the hon. Gentleman does not mind, but we took the liberty of asking the Association of British Insurers and the National Association of Pension Funds for their comments on his amendments. Perhaps that shows the seriousness with which we treated them. The NAPF explained to the Inland Revenue that it was content with the 25:1 factor and that extending the valuation process in the way envisaged would be difficult for scheme administrators.
I could quote various insurance companies and their reactions to the hon. Gentleman's amendments, but I shall quote just one very large insurance company:
We do not believe this is a practical option. We have no need for records of amounts paid out, other than to meet accounting requirements, which only affect records for the past six years. We would have to depend on the members' records, or their memories, to operate this for a cash sum, which was paid out more than six years ago. Overall, the present proposal of using a fixed factor of 25 is consistent with simplification and also consistent with the use of 20 for crystallising other pensions. The proposed change adds complexity without adding value, and is unworkable for cash sums paid more than six years ago.Some of the other comments are even stronger, and the general view in the pensions industry is that the suggestion is completely unworkable, although I recognise that the hon. Gentleman has put it forward in good faith as representing an accurate way of valuing pensions.Government amendments Nos. 138 to 148 were promised in Standing Committee, during the debate on Opposition amendment No. 396. They allow rights to transitionally protected low retirement ages to be preserved in the case of a bulk transfer of rights under a 934 scheme in which a member has a low normal retirement age that is transitionally protected. I commend the Government amendments to the House.
§ Mr. FlightIndeed, we welcome the Government amendments. I was grateful that the Minister acknowledged that our proposals for calculation are the correct proposals.
The NAPF made one or two other important suggestions, which the Government have chosen not to accept. The Government should use their own conclusions, and not follow the trade bodies of the pension providers. The Minister commented that she had spoken to those trade bodies and individual pension providers. The issue is what is in the interests of the public at large, not the interests of the industry. I entirely disagree with the comments that she quoted. Taxpayers need to know the sums they have paid or received in all sorts of circumstances. It is ludicrous to pretend that people would not know what tax-free lump sum they have taken. In terms of personal capital, it is one of the biggest events of their lifetime.
There may be people who have more than one, two or three pension funds, but the majority have a limited number of pension funds, so knowing what tax-free lump sums they have taken is not difficult. The Minister is saying, effectively, that the industry cannot be bothered and the existing system is an easy rough and ready. I submit that it is rough justice, which is unfair to the prudent individual and unnecessary.
This is not a matter that we intend to press to a vote, but I ask the Government to continue to think about it in the next year. They are responding, wrongly, to the interests of the industry, rather than to the interests of citizens. I beg to ask leave to withdraw the amendment.
§ Amendment, by leave, withdrawn.
§ 6 pm
§ Amendments made: No. 138, in page 497, line 4, leave out from beginning to end of line 8 and insert—
- the pension scheme is a protected pension scheme, and
- the retirement condition is met in relation to the member and the pension scheme.
§ (1A) A pension scheme is a protected pension scheme if condition A or condition B is met.
§ (1B) Condition A is met if—
- the pension scheme was within any of paragraphs (a) to (e) of paragraph 1(1), and
- the entitlement condition is met in relation to the member and the pension scheme if—
§ (1C) The entitlement condition is met in relation to the member and the pension scheme if—
§ No. 139, in page 497, line 16, leave out from beginning to 'and' in line 18 and insert—
§ '(3) Condition B is met if the member is a member of the pension scheme as a result of a block transfer to it from a pension scheme ("the original pension scheme") in relation to which condition A is met.
§ (3A) A transfer is a block transfer if—
- it involves the transfer in a single transaction of all the sums and assets held for the purposes of, or representing accrued rights under, the arrangements under the pension scheme from which the transfer is made which relate to the member and at least one other member of that pension scheme, and
- before the transfer the member was not a member of the pension scheme to which the transfer is made.
§ (3B) The retirement condition is met in relation to the member and the pension scheme if—
- the member becomes entitled to all the pensions payable to the member under arrangements under the pension scheme (to which the member did not have an actual entitlement on or before 5th April 2006) on the same date,'.
§ No. 140, in page 497, line 22, leave out 'pension scheme' and insert
'protected pension scheme on 5th April 2006 (or, where condition B is met, under the original pension scheme on that date).'.
§ No. 141, in page 497, line 27, leave out from beginning to end of line 34 and insert—
- the pension scheme is a protected pension scheme, and
- the retirement condition is met in relation to the member and the pension scheme.
§ (1A) A pension scheme is a protected pension scheme if condition A or condition B is met.
§ (1B) Condition A is met if—
- the pension scheme was within paragraph (f) or (g) of paragraph 1(1), and
- the entitlement condition is met in relation to the member and the pension scheme.
§ (1C) The entitlement condition is met in relation to the member and the pension scheme if—'.
§
No. 142, in page 497, line 40, leave out sub-paragraph (3) and insert—
'(3) Condition B is met if the member is a member of the pension scheme as a result of a block transfer to it from a pension scheme ("the original pension scheme") in relation to which condition A is met.
§ (3A) "Block transfer" has the same meaning as in paragraph 22(3A).
§ (3B) The retirement condition is met in relation to the member and the pension scheme if the member becomes entitled to all the pensions payable to the member under arrangements under the pension scheme (to which the member did not have an actual entitlement on or before 5th April 2006) on the same date.'.
§ No. 143, in page 497, line 43, leave out 'pension scheme' and insert
'protected pension scheme on 5th April 2006 (or, where condition B is met, under the original pension scheme on that date).'.
§ No. 144, in page 502, line 20, leave out from beginning to end of line 26 and insert—
- '(1) If the pension condition is met in relation to an individual and a registered pension scheme which is a protected pension scheme, the provisions of Schedule 29 relating to pension commencement lump sums apply in relation to the individual and the pension scheme with the modifications specified in paragraph 35 (but subject to sub-paragraph (2)).
- (2) Those provisions do not apply with those modifications if the lump sum condition and registration condition in paragraph 24 are met.
- (3) The pension condition is that the individual becomes entitled to all the pensions payable to the individual under arrangements under the pension scheme (to which the individual did not have an actual entitlement on or before 5th April 2006) on the same date.
§ (3A) A registered pension scheme is a protected pension scheme if condition A or condition B is met.
§ (3B) Condition A is met if—
- the pension scheme was within any of paragraphs (a) to (e) of paragraph 1(1), and
- on 5th April 2006 the lump sum percentage of the individual's uncrystallised rights under the pension scheme exceeded 25%.'.
§ No. 145, in page 502, line 28, leave out `relevant pension scheme' and insert
'pension scheme on 5th April 2006'.
§ No. 146, in page 502, line 36, at end insert—
'(4A) Condition B is met if the individual is a member of the pension scheme as a result of a block transfer to it from a pension scheme ("the original pension scheme") in relation to which condition A is met.
(4B) "Block transfer' has the same meaning as in paragraph 22(3A), but treating the references there to the member as references to the individual.
(4C) Where a pension scheme is a protected pension scheme because condition B is met, Schedule 29 as modified by paragraph 35 applies as if the protected pension scheme were the same pension scheme as the original pension scheme.'.
§ No. 147, in page 51)4, line 42, leave out paragraph 34.
§ No. 148, in page 506, line 3, leave out paragraph 36.
§ No. 149, in page 510, line 43, at end insert—
'Individuals with pre-commencement entitlement to corresponding relief
§ 52A (1) This paragraph applies where the Board of Inland Revenue allow contributions made by an individual under a pension scheme as deductions under Chapter 2 of Part 5 of ITEPA 2003 for the tax year 2005–06 in accordance with section 355 of that Act (deductions for corresponding payments by non-domiciled employees with foreign employers).
§ (2) Where the individual makes contributions under the pension scheme for any subsequent tax year, the Board of Inland Revenue may allow the contributions as deductions under Chapter 2 of Part 5 of that Act if, as well as the Board of Inland Revenue being satisfied that the conditions in section 355 of that Act are met, the scheme manager complies with any prescribed benefit crystallisation information requirements imposed on the scheme manager.
§ (3) Schedule (Non-UK schemes: application of certain charges) applies in relation to the pension scheme and the individual as if allowing the contributions as deductions under Chapter 2 of Part 5 of ITEPA 2003 by virtue of sub-paragraph (2) were the giving of relief by virtue of Schedule (Overseas pension schemes: migrant member relief).
§ (4) "Prescribed benefit crystallisation information requirements" means requirements imposed by or under regulations made by the Board of Inland Revenue to provide to the Inland Revenue any information relating to events that are benefit crystallisation events in relation to the individual.
§ (5) The references in sub-paragraphs (2) and (3) to the pension scheme include a pension scheme to which there has been a block transfer from the pension scheme on or after 6th April 2006.
§ (6) "Block transfer" has the same meaning as in paragraph 22(3A), but treating the references there to the member as references to the individual:.—[Dawn Primarolo]