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Amendment made: No. 131, in page 205, line 34, after 'income)' insert—
'(b) benefits chargeable to tax by virtue of Schedule (Non-UK schemes: application of certain charges) to FA 2004 (which applies certain charges under Part 4 of that Act in relation to non-UK schemes),'.—[Dawn Primarolo.]
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Clause 271
Amendment made: No. 132, in page 226, line 28, leave out 'and any benefits' and insert ', benefits and a date'.—[Dawn Primarolo.]
Clause 274
Amendments made: No. 133, in page 230, line 33, at end insert—
| 'overseas pension scheme | section 147(7)'. |
No. 134, in page 231, line 18, at end insert—
| 'qualifying recognised overseas pension scheme | section 166(2)'. |
No. 135, in page 231, line 19, leave out '147(7)' and insert '147(8)'.
No. 136, in page 231, line 32, at end insert—
| 'scheme manager | section 166(3)'. |
No. 137, in page 232, line 4, at end insert—
| 'short service refund lump sum charge | section 201(1) |
| special lump sum death benefits charge | section 202(1)'. |
—[Dawn Primarolo.]
Schedule 34
Mr. Flight: I beg to move amendment No. 25, in page 489, line 20, leave out '25 x ARP' and insert
'the aggregate of—
(a) 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
(b) 20 x ARP'.
Mr. Deputy Speaker: With 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—
(a) 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
(b) 20 x ARP'.
Government amendments Nos. 138 to 148.
Mr. Flight: In 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
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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 on 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 Kelly: I 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
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scheme in which a member has a low normal retirement age that is transitionally protected. I commend the Government amendments to the House.
Mr. Flight: Indeed, 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.
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