§ Mr. Austin MitchellTo ask the Chancellor of the Exchequer what would be the effect on the tax threshold of a one-earner married couple with an income equal to that of the average earnings of an adult male manual worker; and how many additional adults and children would fall into the poverty and employment traps if child benefit were terminated.
§ 2. Mr. Norman LamontThe level of child benefit has no effect on the thresholds at which married couples become liable to income tax; these are determined solely by eligibility for personal tax allowances and reliefs. The
1. Private Pensions Table Maximum tax-relievable contributions as percentage of earnings Employer Employee Maximum lump sum benefit Occupational Pension Schemes No limit 1 152 Lesser of 1.5 times final earnings or £150,0003 Personal Pension Schemes 17.54 17.54 Lesser of 25 Percent. of value of individual's benefits or £150,000 Retirement Annuity5 Contracts None 17.56 Three times the annual annuity after communication7 Notes:
1 Employer contributions should not exceed the amount required to provide the benefits promised under the scheme rules, taking into account any employee contributions.
2 The self-employed cannot be members of an occupational pension scheme.
3 Lump sums normally accrue at 3/80ths of final earnings for each year of service, up to a maximum of 40 years, giving a maximum of 120/80ths. But maximum benefits may be given for 20 years' service to normal retirement age. Finance (No. 2) Act 1987 introduced a proportionate link between maximum pensions and lump sums for people joining pension schemes on or after 17 March 1987. The £150,000 ceiling does not apply to members who joined before that date.
4 The limit of 17.5 per cent. applies up to the age of 50. The limit applies to aggregate contributions by employers and employees. For higher ages the contribution limits are:
- 51–55 20 per cent.
- 56–60 22.5 per cent.
- 60–74 27.5 per cent.
The same limits apply to contributions by self-employed people.
5 Retirement annuity contracts were superseded by personal pensions on I July 1988, although contracts in existence on that date may continue.
6 Contribution rates are identical to those for personal pension schemes.
7 In relation to contracts issued on or after 17 March 1987 an upper limit of £150,000 applies to the lump sum.
State pensions
(a) State retirement pension: The state retirement pension consists of a basic pension, and, in some cases, an additional pension (the state earnings-related pension scheme—SERPS) and a graduated pension. All are funded from national insurance contributions. There is no tax relief for employees' contributions. Employers' contributions may be deducted from profits as a business expense.
(b) Contracted-out personal pension schemes: When an employee uses a personal pension scheme to contract out of SERPS the tax treatment of his and his employer's national insurance contributions is the same as under SERPS. But the employee's share of the contributions—known as "minimum contributions"—paid to the personal pension scheme by the Department of Social Security (DSS) is grossed up at the basic rate of income tax.
(c) Contracted-out occupational pension schemes: Contributions by employers and employees paid towards a "Guaranteed minimum pension (GMP)" or "protected rights" qualify for tax reliefs in the manner described in the table above. The GMP or protected rights represent under DSS legislation a minimum level of pension which be paid to
420Weffect of the abolition of child benefit on the numbers in the poverty and unemployment trap is a matter for my right hon. Friend the Secretary of State for Social Security.