Standing Committee H
Tuesday 6 June 2000
[Mr. Frank Cook in the Chair]
(except clauses 1, 12, 30, 31, 59, 102 and 113)
[Continuation from column 492]
Mr. Flight: I beg to move amendment No. 179, in page 289, line 30, at end insert-
`(2A) Where a pension sharing order or equivalent has been implemented the return of eligible contributions will be made to the member or if dead, the member's estate'.
The Chairman: With this it will be convenient to discuss amendment No. 186, in page 306, line 24, at end insert-
`(3A) Where a pension sharing order or equivalent has been implemented the return of eligible contributions will be made to the member or if dead, the member's estate'.
Mr. Flight: Paragraphs 8 and 28 of schedule 12 make it a requirement for a refund of contributions to be made if the member who paid them was not eligible so to do. The amendment, which relates to both paragraphs, is designed to make clear the position when a pension-sharing order or equivalent has been implemented, even if the relevant member is deceased. It is debatable whether all the moneys should be returned to the person who paid them or whether some apportionment should be made with the ex-spouse. In that sense, the amendment is a probing amendment, but it seems necessary for the position to be tied up and specified in the Bill in order to avoid the potential for massive dispute over the issue.
On consideration, it is almost impossible to have any other arrangement than that the money should be returned to the member who has paid it in error as it is not, and, therefore, should not have been, part of his pension scheme. The other financial arrangements that exist between the estranged parties can deal with the money involved. That point has not been tackled in the Bill; hence the amendments.
Miss Melanie Johnson: I believe that I can help the hon. Gentleman. I concluded that it was probably a probing amendment, although I was not sure.
Section 632A of the Taxes Act 1988 specifies the conditions under which people are eligible to contribute to a stakeholder or personal pension. Included in the section is a provision to ensure that any contributions paid when the member was not eligible to contribute are returned to the person who paid them. That will follow even if part of the pension rights has been transferred to an ex-spouse following a pension-sharing order. The refund will be paid from the remaining part of the scheme member's pension rights, and will be given to the scheme member, not his or her ex-spouse. I believe that that is the point on which the hon. Gentleman wants reassurance.
Mr. Flight: I thank the Economic Secretary. The position is now clear. I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Mr. Flight: I beg to move amendment No. 180, in page 289, leave out lines 46 to 48.
This amendment, too, is a probing amendment. It has been axiomatic in the Revenue for a long time that non-UK resident employees of a company cannot be members of a UK pension scheme. That was not a problem when businesses were not global, but it has become a material problem. We touched on that issue in relation to employee incentive schemes. If members of a UK-based group are employed elsewhere in the world, and therefore paid elsewhere, there cannot be any question of a refund of UK tax. Therefore, what is the tax problem associated with such people being members of the UK pension scheme during their sojourn abroad? Current arrangements permit a degree of temporary membership, which, on occasions, can be extended. I do not understand the basis of the Revenue's opposition, as, with proper organisation, no tax would be lost. Under the stakeholder arrangements, that outdated rule continues. I ask the Government to explain that, and to reconsider the matter.
Miss Melanie Johnson: I am grateful to the hon. Gentleman for setting out his understanding of the amendment, although it is still not absolutely clear. I shall tell him my understanding of the amendment on a literal reading. Its effect is to restrict slightly the eligibility criteria for the payment of personal stakeholder pension contributions. People would not therefore be able to take out a pension in the first year in which they became resident and ordinarily resident in the UK, unless they had net relevant earnings or had been resident and ordinarily resident in the UK in one of the previous five years. That has little practical effect, which is why I suggest that the Committee rejects the amendment.
I was not sure whether the hon. Gentleman had in mind the intention to extend eligibility to non-UK residents.
Mr. Flight indicated assent.
Miss Johnson: The hon. Gentleman nods. Clearly, that would have far-reaching consequences. Alternatively, I wondered whether the hon. Gentleman's intention was to allow individuals to continue to pay into pensions when they go abroad. However, on the basis of my literal interpretation of the amendment, it does not have significant practical benefits.
Mr. Flight: The amendment simply deletes the condition that in the relevant year the member is resident and ordinarily resident. It therefore raises the issue that, in a particular year, a member can be not resident and not ordinarily resident. I repeat that the context is simple. Certain Revenue indulgences enable people who are sent overseas for six or nine months to remain a member of their pension scheme. There is an increasing trend, especially in the European context, for people to work for the same group in different places, and, if they belong to the UK scheme while they are in the UK, but other provisions apply if they go to France or Hong Kong, that is a nightmare. I repeat my point that, with proper organisation, there is no fiscal loss in relation to permitting individuals to be members of a UK scheme.
Mr. Jack: I should be grateful if my hon. Friend would give me the benefit of his considerable expertise in these matters. If someone is employed by a UK company and has a non-contributory scheme, can that membership be maintained if the person is posted abroad?
Mr. Flight: That is the situation to which I alluded. There is a Revenue indulgence whereby it can be maintained, usually for a year or two but no longer. A five-year posting, for example, would be a problem.
Miss Johnson: I think that I understand the hon. Gentleman's point, which is that he wants individuals to be able to continue to pay into pension schemes when they go abroad. I reassure him that changes that have already been introduced improve the position for those who go abroad and are non-resident in this country. In fact, people can continue to make stakeholder pension contributions and receive basic tax relief for up to five years after the year in which they cease to be a UK resident and ordinarily resident in this country, after which time the provision will expire. I hope that I have met the concerns expressed by the hon. Gentleman.
Mr. Flight: I thank the Economic Secretary. Will she clarify that the new arrangements in the schedule mean that the Revenue tops up the tax relief and that the payment is made net of tax? Will that provision be extended to non-residents? At the back of my mind is the argument that perhaps that should not be the case, but that non-residents should remain members of the scheme. However, I took the hon. Lady to be saying that they will be subject to the tax benefit, too, for five years.
Miss Johnson: Yes, the tax benefit would apply for the period that the non-residents can continue to make contributions.
Mr. Flight: I tabled the proposal for probing purposes, and I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Mr. Flight: I beg to move amendment No. 181, page 290, line 17, leave out paragraph 9.
The changes proposed by the amendment would do a great deal more than merely switch the tax relief from the time of payment of the rate of insurance premium to the later time when the insurance payment is used to cover pension contributions. The provision discriminates against those who contribute larger amounts to their private pension provision by ensuring that, if there were a long period of ill health, disability or unemployment such that the recent history of net relevant earnings was low, the retirement benefits that can be provided from then on would be limited to those that can be bought for £3,600 per annum. A proper case has not been made for removing the tax relief from the premiums for waiver of contributions.
Miss Melanie Johnson: The current position is that up to 25 per cent. of pension contributions can be used to insure future contributions against sickness and incapacity. That reduces the amount of contributions going into the pension fund. Our proposals will directly boost the money entering people's pension funds rather than subsidising insurance contributions that reduce payments into the pension fund. In future, payments arising from a claim under the insurance policy will be subject to a tax benefit when they are paid into the pension fund. Like all other contributions, tax at the basic rate will be added to them. That means that a lower sum can be assured and that the change in the treatment of waiver insurance will not increase what is being paid. In fact, some companies have suggested that that might reduce the level of premiums.
Providers can now extend the insurance to cover other situations, such as unemployment and not only ill health. Overall, the arrangements that we are introducing will improve the existing provisions. We cannot therefore support the amendment, which would reintroduce the existing arrangements. I urge the Committee to reject it.
Mr. Flight: The Economic Secretary will be aware that both the pension fund industry and the insurance industry are not happy with the arrangements. Separate pension and life insurance policies are frequently taken out by taxpayers and the life insurance policy may be paid on a monthly basis or in an annual contribution at the start of the tax year. Although it may be the taxpayer's intention to make sufficient personal pension contributions during the year to ensure that life insurance premiums do not account for less than 10 per cent. of the total, there are occasions when that can prove not to be the case. The insurance arrangements in paragraph 16 do not improve the situation. The problems that might arise on death would be prevented if the qualified life insurance premiums remained as the percentage of the available capacity of a tax year rather than of contributions actually made.