Stakeholder Pensions (Hansard, 22 February 2000)

§ Mr. Darling

Our proposals for the stakeholder pension tax regime were well received when we announced these in September 1999. We are grateful for all of the constructive responses, which we have considered carefully.

I am placing in the Library a copy of a document: "Stakeholder Pensions: Details of The Tax Regime And Draft Finance Bill Clauses". This outlines a number of key decisions on the tax regime and draft Finance Bill clauses to implement these.

Stakeholder pensions are intended to fill the gap for many people who can afford to save for their retirement but do not currently have a suitable means of doing so. From April 2001 there will be a new single tax regime for stakeholder and personal pensions. Retirement savers currently excluded from taking out personal pensions will then be able to do so, enabling: people taking career breaks, for example mature students and carers, to take out a stakeholder pension and benefit from the tax relief it attracts; self employed people on low earnings to receive more tax relief on their pension contributions; costs to be kept down so that pension savers can be offered low cost, good value stakeholder products.

The main aspects of the tax regime for stakeholder pensions confirmed today are: stakeholder pensions will be part of a radically reformed and much simplified tax regime for all defined contributions pensions; contributions up to £3,600 each tax year can be made irrespective of earnings. Higher level contributions can be made under the existing personal pension age and earnings related limits and can continue for up to five years after earnings have ceased or reduced; all contributions from individuals will be paid net of basis rate tax with the pension provider reclaiming that tax from the Inland Revenue; employers' money purchase schemes may opt onto this new tax regime; new and simpler rules will replace the existing personal pension "carry forward/carry back" rules; 10 per cent. of the pension contribution can be used for life assurance; tax relief for waiver of pension contributions insurance will be simplified and broadened to circumstances other than ill-health, such as unemployment; shares from an approved employee share scheme can, within the contribution limits, be put into the pension and attract tax relief; 892W contributors must be resident in UK unless serving or the spouse or someone serving, abroad and undertaking "Crown duties"; simplification will be introduced into the administrative arrangements for DC pensions—for example, electronic and telephone applications will be permitted and various information requirements relaxed; the rules regarding benefits are being altered to allow phased vesting from within a single arrangement. This technical change will ease administration for new and existing PP providers.

We have decided that stakeholder contributions should not be made if an individual is also contributing to a defined occupational scheme—ie so called "full concurrency" will not be allowed. We are however inviting employers representatives and bodies representing the pensions industry to bring forward any ideas they have which will, through some limited form of concurrency, help moderate earners to increase their pension provision.