Finance Bill

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Mr. Osborne: It is a funny principle if it applies only when one reaches one's 75th birthday. It is a funny principle if it applies only if one does not take out the option of an alternatively secured income. It was interesting to hear the Financial Secretary mount the standard Government defence of the measure, not least because we have discovered that the open annuities provided in Gibraltar will not be allowed in the future. Perhaps the industry was not aware of that, so we have achieved something in this sitting. It is a point of principle for us that people should be able to pass on lump sums whether they have reached their 75th birthday or not, and for that reason I must press the amendment to a Division.

Question put, That the amendment be made:—

The Committee divided: Ayes 6, Noes 11.

Division No. 6]

AYES
Atkinson, Mr. Peter Bacon, Mr. Richard Flight, Mr. Howard
Jack, Mr. Michael Laws, Mr. David Osborne, Mr. George

NOES
Burgon, Colin Cohen, Harry Ellman, Mrs. Louise Fitzpatrick, Jim Heyes, Mr. David Kelly, Ruth
Marris, Rob Primarolo, Dawn Purnell, James Quinn, Lawrie Todd, Mr. Mark

Question accordingly negatived.

Amendments made: No. 362, in

    schedule 29, page 430, line 42, leave out 'and'.

No. 363, in

    schedule 29, page 431, line 1, at end insert

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    'and

    (f) it is not an excluded lump sum (see sub-paragraph (3A)).'.

No. 364, in

    schedule 29, page 431, line 7, at end insert—

    '(3A) A lump sum is an excluded lump sum if—

    (a) the pension in connection with which the member becomes entitled to it is a scheme pension the rate of which is to reduce (or which is to cease to be payable) in accordance with paragraph 2(4)(c) of Schedule 28 when the member becomes entitled to state retirement pension, and

    (b) the sole or main purpose of making provision for the pension to be such a pension was to increase the member's entitlement to a lump sum on which there is no liability to income tax.'.

No. 312, in

    schedule 29, page 432, line 45, leave out

    'amount which is the individual's lifetime allowance in relation to the member'

    and insert 'member's lifetime allowance'.

No. 313, in

    schedule 29, page 434, line 22, leave out

    'amount which is the individual's lifetime allowance in relation to the member'

    and insert 'member's lifetime allowance'.

No. 314, in

    schedule 29, page 435, line 31, leave out

    'amount that is the individual's lifetime allowance in relation to the member'

    and insert 'member's lifetime allowance'.

No. 365, in

    schedule 29, page 436, line 19, leave out sub-paragraph (2) and insert—

    '(2) Where all or part of the member's lifetime allowance is available immediately before a lump sum is paid, sub-paragraph (2A) applies to the lump sum if—

    (a) its amount exceeds the member's available lifetime allowance, and

    (b) but for that fact, it would satisfy all the requirements of paragraph 1(1), 4(1), 7(1) or 10(1).

    (2A) For the purposes of this Schedule, the whole of the lump sum (and not only so much of it as does not exceed the member's available lifetime allowance) is to be treated as paid when all or part of the member's lifetime allowance is available.

    (2B) But sub-paragraph (2A) does not apply—

    (a) in the case of a lump sum that would satisfy all the requirements of paragraph 1(1), to so much of it as would be prevented from being a pension commencement lump sum by paragraph 1(2), and

    (b) in the case of a lump sum that would satisfy all the requirements of paragraph 10(1), to so much of it as would be prevented from being a winding-up lump sum by paragraph 10(2).'.

No. 366, in

    schedule 29, page 436, line 25, leave out from 'description' to end of line 27.—[Ruth Kelly.]

10.15 am

Ruth Kelly: I beg to move amendment No. 315, in

    schedule 29, page 437, line 24, after 'paid' insert

    'in respect of the pension'.

The Chairman: With this it will be convenient to discuss Government amendment No. 316.

Column Number: 525

Ruth Kelly: The amendments give additional clarity to the definitions of two of the death benefit lump sums that may be paid by registered pension schemes: the pension protection lump sum and the annuity protection lump sum. The amount of such lump sums that may be paid out is restricted by any lump sums of the same nature that have previously been paid. The amendments simply add a few words to make it clear that that restriction takes into account only lump sums paid in respect of the same pension or annuity to which the deceased individual was entitled, and not to any other pension or annuity. The amendments provide clarity and certainty for schemes, and I commend them to the Committee.

Amendment agreed to.

Amendment made: No. 316, in

    schedule 29, page 438, line 23, after 'paid' insert

    'in respect of the pension or annuity'.—[Ruth Kelly.]

    Schedule 29, as amended, agreed to.

    Clause 159 ordered to stand part of the Bill.

    Clause 160

    Scheme administration member payments

Mr. Osborne: I beg to move amendment No. 269, in

    clause 160, page 142, line 24, after 'salaries', insert ', benefits'.

The Chairman: With this it will be convenient to discuss the following amendments: No. 277, in

    clause 169, page 146, line 29, at end insert 'except in prescribed circumstances'.

No. 276, in

    clause 169, page 146, line 30, after 'salaries', insert ', benefits'.{**W4**}

Mr. Osborne: These are brief amendments. The clause is intended to ensure that a member of the scheme who is also its administrator can be paid, and that such payment would not count as an unauthorised payment. Amendment No. 269 would merely make it clear that payment can include benefits as well as a wage, salary or fee. Amendment No. 276 would apply the same flexibility to clause 169, which defines scheme administration payments. Amendment No. 277 would give additional flexibility by allowing payment of certain types of loan that often form part of an employment package, such as a season ticket or relocation expenses. Again, the amendments were suggested by the industry.

A more general observation—I suppose that I am straying somewhat into a stand part debate, but I am sure that with some flexibility you will allow it, Mr. McWilliam—is that scheme administration payments could emerge as a loophole. I would be interested to know how the Inland Revenue would deal with that. If someone had exceeded the £1.5 million lifetime allowance, they could pay themselves a salary as a scheme administrator and take out the excess. The Government tried to deal with that by defining a payment as something that a person at arm's length would expect to be paid. However, the salaries of scheme administrators vary considerably, and someone who had been able to accumulate £1.5 million would probably be able to argue that they should be well paid for their advice and expertise.

Column Number: 526

I make that point because I have already heard that advice is being given to individuals who exceed the £1.5 million that they can pay themselves as a scheme administrator. I can see the Inland Revenue trying to deal with the problem several Finance Bills into the future. That is why I flag it up now.

Rob Marris: The hon. Gentleman raises an interesting point, but I am slightly confused by it. The amendments, especially Nos. 269 and 276, would prima facie make the situation worse by including all those benefits. His position seems slightly contradictory. Perhaps he could explain it.

Mr. Osborne: The hon. Gentleman is comparing apples and pears. The main way in which this loophole might emerge is if people have exceeded their £1.5 million allowance and then pay themselves—in monetary terms—funds to reduce their pot to below £1.5 million. What I am saying is that in the normal course of events with small schemes there should be some flexibility so that payments do not necessarily have to be wages or salaries. We will shortly discuss the payment of benefits in kind. That is a relatively new feature of this regime. It should be extended, through my amendment, to clause 160.

Ruth Kelly: Amendment No. 269—and the related amendment No. 276 to clause 169—would allow pension schemes to pay benefits in kind to members involved in pension scheme administration. We do not accept that those amendments are appropriate.

The clause addresses the fact that registered pension schemes may have occasion to make payments to individuals who are members of the scheme in circumstances where the payment has no connection with the individual's scheme membership. For example, payments might be made to individuals who are employed on administration work for the pension scheme, or to individuals from whom the scheme is purchasing an asset. The hon. Member for Tatton drew attention such examples. The clause enables such payments to be authorised payments, provided they are at a commercial rate.

The clause allows schemes to undertake certain normal business transactions without adverse tax consequences. Clause 169 provides similar provisions so that registered schemes can make payments to sponsoring employers without their being taxed as unauthorised payments. We recognise that schemes may need to reimburse the employer for costs borne for the administration or management of the pension scheme. For example, the employer's staff may carry out some administrative duties for the scheme, and the scheme would then need to reimburse the employer for the use of employees' time. The purpose of both clauses is to enable a registered pension scheme to carry out normal commercial business with either the sponsoring employer or a member without those transactions being taxed as unauthorised payments.

Amendment No. 269 would allow pension schemes to pay benefits in kind to members involved in pension scheme administration. It is not necessary. A pension scheme can pay benefits without their being taxed as unauthorised payments under clause 162, subsection (2) of which provides that where an asset of a pension

Column Number: 527

scheme is used by a member it is not treated as an unauthorised payment if it is a benefit received by reason of an employment—for example, where an employee is provided with a company car. The amendment's effect is therefore already achieved in the Bill.

The clause does not limit the types of reward that an employee can obtain; it merely sets out the more usual ones. If an employee is rewarded for services by some other type of payment—for example, by the provision of luncheon vouchers—such payments will be authorised payments as long as they are commercial in nature.

Amendment No. 276 would effect the equivalent change in clause 169(3). Again, it is not necessary. Use of scheme assets by the sponsoring employer would not be a payment, and would therefore not be taxed as an unauthorised payment on the employer. If the benefits are in the form of a transfer of assets, the clause will allow them as authorised payments as long as they are a commercial reward for administrative services. As with clause 160, the definitions in clause 169 are illustrative and do not exclude other commercially valid payments. Therefore, the effect of the amendment is already achieved in the Bill.

Amendment No. 277 would provide a power to make regulations with regard to clause 169(3). Those regulations would limit the scope of scheme administrator payments. However, the amendment is deficient in the sense that it does not say who would prescribe the regulations.

Clause 169 deals with payments made to the sponsoring employer in the course of administering or managing the scheme—they are called scheme administration employer payments. The clause already allows regulations to be made that further categorise payments as being scheme administration employer payments, or that exclude certain payments from being scheme administration employer payments. We have no current plans to produce regulations under this power; we are simply providing the flexibility to make changes if, in future, different types of payment arise that need to be categorised.

Amendment No. 277 merely replicates the existing power to make regulations already provided for in the clause. All three amendments are unnecessary. I urge the hon. Gentleman not to press them.

 
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