Ruth Kelly: I welcome the hon. Member for Tatton, and I am sorry that I forgot to welcome him on his first outing on the Bill. I look forward to working with him during this debate. He was right to say that we had a very constructive debate on the Child Trust Funds Bill.
I am pleased to hear the welcome that Opposition Members have given to our proposals and the recognition that we have listened to representations on the Bill. I am also pleased at the recognition of the hon. Member for Yeovil that this is a much more generous system for the vast majority of pensioners than the one that it replaces, particularly in respect of the tax-free lump sum. Many more people will be able to benefit from a 25 per cent. tax-free lump sum. I remember many debates in the House and many Treasury questions suggesting that we had a secret plan to remove the tax-free lump sum. I feel vindicated, to say the least, that we have provided a much more generous element for the vast majority of pensioners.
Mr. Laws: Can the Financial Secretary tell us broadly how much of the additional expenditure on these measures will be a consequence of the greater generosity of the tax-free lump sum and how much will relate to some of the other small changes in the Bill?
Ruth Kelly: We have not provided a breakdown of the costs. As the hon. Gentleman is well aware, the published figures speak for themselves. A fair proportion of the costs is related to the increase in the tax-free lump sum, but there are elements related to the opportunity to take flexible retirement for the first time as well. The measure will provide a huge relaxation of the rules for the vast majority of pensioners.
Geoff Pearson, head of Sainsbury's pension scheme, said that the Treasury's proposals are much more radical than anyone on his side of the industry could ever have hoped for. He said that sometimes the industry must congratulate politicians and civil servants and that now is that time. Given the response by the industry to the proposals, I was slightly disappointed to hear the suggestion that the measures are not a true simplification of the schemes. In no sense are we replacing the current eight or nine regimes with six new regimes; the simplified regime introduces one set of rules for tax-privileged pension savings.
Pension schemes that wish to benefit from the new regime must be registered. Non-registered schemes will be allowed to continue, but they will not benefit from the tax relief and tax-free investment afforded to registered pension schemes, hence the need for various definitions in the legislation. It is a radical simplification that will benefit millions of pensioners. I am delighted that the Opposition parties have welcomed the clause and I look forward to a constructive debate.
Question put and agreed to.
Clause 139 ordered to stand part of the Bill.
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The Chairman: Perhaps I may be permitted to say a couple of words from the Chair. In my capacity as chairman of two pension schemes, I, too, welcome the simplification.
Meaning of ''pension scheme''
Mr. Osborne: I beg to move amendment No. 198, in
clause 140, page 130, line 10, at end insert
', except a personal pension scheme or an arrangement comprising a number of personal pension schemes,'.
[R] Relevant registered interest declared.
The Chairman: With this it will be convenient to discuss amendment No. 199, in
Mr. Osborne: These are not huge amendments. The clause is the first of three that deal with definitions. In this case, it is the definition of a pension scheme and in the subsequent two clauses the definition of a member and of a pension arrangement. Clause 140(5) defines an occupational pension scheme.
One criticism of this legislation and of the Pensions Billif one takes them as a packageis that the Government have not settled on an agreed set of terms. If one compares the Department for Work and Pensions legislation with the Treasury legislation, one sees conflicting use of terms such as personal, occupational, defined benefit, defined contribution, money purchase and final salary. To people in the street, the abundance of terms, some of which mean very similar things, is very confusing. The complication is one thing that deters people from dipping their toe into the pension pool.
Subsection (5) could mean that a definition of an occupational pension scheme would cover a group personal pension scheme. My amendments are designed to make the distinction between an occupational pension and a personal pension clear and unambiguous. I take the definition of a personal pension scheme used in the Pensions Scheme Act 1993. An expert pensions lawyer who examined the measure and felt that there was scope for confusion suggested the amendment to me. I did not mention in my introduction that Opposition spokespersons are hugely dependent on the help of experts, and not just representative organisations, but specific individuals who give up their time not for party political reasons but because they want to make legislation better. The amendments are an attempt to make a clear and unambiguous distinction between occupational and personal pension schemes.
Ruth Kelly: I understand that the hon. Gentleman is in a unique position in the House in being able to draw on the synergies, or otherwise, between the Pensions Bill and the tax simplification proposals, as he is taking both through Committee. However, I suggest to him
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that the amendments introduce an unnecessary complication to the tax simplification definitions in the clause.
The purpose of bringing in a single, unified tax regime for pension schemes is, as far as possible, to get away from distinctions between occupational and personal pension schemes, yet the amendments would perpetuate that distinction. For the Department for Work and Pensions, the distinction between occupational and personal pension schemes is absolutely fundamental. It underlines their regulatory regime. For the Inland Revenue, however, the distinction between the two is largely academic, but the Revenue does need a definition of occupational pension schemes, principally so that those schemes can be checked against certain types of payment between schemes and sponsoring employers.
The term ''sponsoring employer'' can have meaning only in the context of a scheme established by or for the employees of that employer, hence the need for a definition. There is little point in borrowing a definition from the definition of personal pension scheme used by the DWP, simply to say that an occupational scheme under tax law is not a personal pension scheme under pensions law. Certain schemes that, for DWP purposes, are personal pension schemes may be in the tax definition of occupational pension schemes. That definition is not the same as that of the DWP, because it serves a different purpose.
Mr. Flight: The Financial Secretary will be aware that as large numbers of businesses have frozen or closed their final salary schemes, they have typically moved to group personal pension schemes. Those are employer-sponsored schemes, but they give everyone their own little pot within the scheme. Our presumption had been that, where the rules relating to occupational schemes bite tax-wise in this Bill, they are not intended to bite in relation to group personal pension schemes. Therefore, the distinction is important.
Ruth Kelly: There is a distinction. However, there are different purposes behind the definitions of each Department. A group personal pension may be established by a financial institution, and so, for DWP purposes, may be a personal pension scheme, but that scheme is for the benefit of employees of a sponsoring employer. Therefore, it falls in the tax definition of an occupational pension scheme. They are used for different purposes and have slightly different definitions.
Mr. Quentin Davies (Grantham and Stamford) (Con): What the Financial Secretary is saying is that, for what appear to be perfectly good reasons, different Departments use the same terms of art with different meanings. Surely that is extremely confusing to the public. Would it not be a good day's work if there could be agreement between her Department and the Department for Work and Pensions that a new set of terms be used so that when one term is used in the context of pensionsby whichever Department, in
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whichever contextit has the same meaning in all cases? Would that not be in the interests of open and fair government?
Ruth Kelly: I understand and am sympathetic to the point that the hon. Gentleman makes, but with the utmost respect, it is rather pedantic. The issue is not merely of terminology but of what is appropriate to the legislation, whether it serves its purpose well and whether it is clearly understood by those who use it. In this case, I argue that that is the result.
In any case, the reference in the amendment to an arrangement comprising a number of personal pension schemes does not fit with the definition of ''arrangement'' used in clause 142. There an arrangement is made under a pension scheme, so an arrangement cannot comprise a number of different schemes. The amendment is technically deficient. I would suggest that the Committee should not get too hung up on the terminology but accept that the underlying rationale for the definitions is appropriate. I therefore urge the Committee to reject the amendment, but perhaps the hon. Member for Tatton will consider withdrawing it.
Mr. Osborne: I do not agree with the Financial Secretary that the point is pedantic and technical, or that no one should care what the terms are, provided that people understand them. In the outside world, people who do not understand the ins and outs of Whitehall will see the Pensions Bill and the Finance Bill as part of the same package. They will land on the doorsteps of pension schemes at roughly the same time and they represent a step changeto use that awful phrasein how schemes are to manage their business and their tax affairs.
If there is confusion about the use of terminology in both pieces of legislation, it will be confusing in the marketplace. It will be confusing to people who struggle to understand pensions anywaya notoriously complex area. If the Government were seriously interested in simplification, as my hon. Friend the Member for Grantham and Stamford (Mr. Davies) pointed out, the Financial Secretary and the Minister for Pensions could have sat down and agreed a set of terms and applied them equally to both pieces of legislation. The difference does suggest somewhat that the Bills were drafted in complete isolation from each other.
The provisions lack the sense of joined-up government and are confusing. I suspect that what really happened was that the Inland Revenue drafted its part of the Finance Bill without telling the DWP what it was up to. The DWP was in constant negotiation with the Treasury about its Bill so it was probably a one-way process. The Department for Work and Pensions has become virtually a wholly owned subsidiary of the Treasury. Of all Departments, it has seen more and more of its powers taken away and made part of the Chancellor's empire, and for that reason one would have thought that the two Departments could have sorted out their terms.
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The point that I make is not pedanticit goes to the heart of broadening the understanding of pensions among the public and genuinely simplifying the complexity of pensions for people. I am disappointed that the Government have not come up with a consistent set of terms, but I take the Financial Secretary's word for it that my amendment is technically deficient, so I shall not press it to a Division. I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 140 ordered to stand part of the Bill.