Mr. Flight: As I said earlier, the amendments were intended to stimulate debate on the subject rather than a vote.
I thank the Financial Secretary for her comments but the reality is not entirely as she has described. First, money purchase pension schemes do not have to have trustees any longer. Secondly, the role of the trustee as a policeman of potential investments for most money purchase pension pots is pretty much non-existent. Some personal pension schemes are packaged into lifestyle funds and are reasonably safe mixtures, but many money purchase pension schemes leave it entirely up to the beneficiaries to determine how they want to invest the money.
The Financial Secretary responded to my saying that I wanted to protect people from mis-selling by stating that that was the job of the FSA. That is true to some extent, but the FSA has not been particularly successful. The issue is not just mis-selling. The reality of investment is that individuals must realise that they are responsible for investment decisions. Many of the problems of the past few years have arisen from individuals thinking that, if something were regulated, they could never lose money. The truth is that many individuals may—out of lack of knowledge or in the hope that they will make lots of money—make unwise decisions for their money purchase pension pots. I see nothing to protect them.
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I say to the Financial Secretary, fine, sweep away the restrictions on tax approval, even though that is inconsistent with the ISA regime, but are the Government proposing any other effective limitations that may be analogous to those in the ISA regime? As far as I know, they are not and it will be a free-for-all.
As a liberal, I do not want to put the issue to a vote, because the arguments are finely balanced. However, all of us can be sure that, in the next few years, large numbers of personal pension pot investors will say, ''Why were we allowed to invest in these assets in which we have lost a lot of money? Why have we a regime that didn't protect us from either mis-selling or unwise decisions? We didn't know what we were doing.'' That is the price that one must pay for a liberal economic regime. It would be inappropriate for me personally to oppose that, but we need to focus on the reality of what that will mean, not the glib assumption that everything will be fine and dandy because the trustees will keep an eye on things. That will not be the reality of a money purchase pension investment.
The Chairman: Order. I have allowed the debate to go very wide of the amendment under discussion. I do not know whether the Minister wants to come back on the ISA point.
Ruth Kelly indicated dissent.
The Chairman: In that case, we will not discuss that. I think that that debate was fairly well out of order. On the role of trustees, hon. Members will be pleased to know that, as far as our own trustees are concerned, we have been taking the Pensions Management Institute examinations and the majority of us have passed.
Mr. Osborne: Who has failed?
The Chairman: No one, but not all of them have yet taken the examinations. We have three new trustees.
Mr. Flight: I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Question proposed, That the clause stand part of the Bill.
Rob Marris: I would like to ask my hon. Friend the Financial Secretary whether in subsection (1) after ''in respect of'', it should say ''undistributed'', because otherwise there is an argument that no income tax will be payable at all.
Ruth Kelly: I am obviously confident in the drafting abilities of counsel and our team. However, given that my hon. Friend has drawn attention to that point, I promise to respond to him in writing to ensure that the clause is correct.
Question put and agreed to.
Clause 175 ordered to stand part of the Bill.
Clause 176 ordered to stand part of the Bill.
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Relief for contributions
Question proposed, That the clause stand part of the Bill.
Mr. David Laws (Yeovil) (LD): I do not want to detain the Committee for too long on the clause but, with the related clauses through to clause 183, which deal with the issue of tax relief for members' contributions, it raises some fairly important policy issues for the Government, and it would be useful to get the Financial Secretary's comments on some of them.
The background to the Bill and the Government's broader policy on pensions is that they are obviously concerned about whether the existing pension regime is encouraging people to save enough for their retirement. When the Department for Work and Pensions issued its Green Paper in 2002, it said that it thought that as many as 3 million people were not making adequate provision for retirement, and that there might be 5 million to 10 million people on top of that who were making too little provision and who should either be saving more or working longer.
As the Institute for Fiscal Studies pointed out in its paper on the Government's tax proposals, the main tool that the Government use to alter the financial returns of saving in a pension is tax relief, and there are no proposals to alter the rates at which relief is given. This set of clauses, which starts with clause 177, codifies at the existing rates the tax relief that members receive. My question is whether that is the right approach, or whether the Government should be not codifying, but amending their existing proposals.
The Financial Secretary may point out that she is trying to make the tax reliefs that we are dealing with in the clause more transparent and comprehensible by explaining to people that, if they are basic rate taxpayers, for every £1 that is contributed, they will receive back a higher amount thanks to the tax relief. However, as the Institute for Fiscal Studies pointed out in its commentary on the Government's tax proposals, given that there is presumably no legislation preventing private pension providers from promoting tax relief in that way, that seems unlikely to have a significant effect—positive or negative.
When we started debating the series of clauses that deal with tax relief on pensions, the Opposition acknowledged that the Government have put in place, and improved on, a tax regime for pensions that is extremely generous by European and developed-country standards. The Financial Secretary seemed to take some satisfaction from having that confirmed by the Opposition. However, it is significant that, although we have one of the most generous systems of tax relief on pensions in Europe, we also have one of the meanest systems of provision in terms of the basic state pension.
Mr. Osborne: Will the hon. Gentleman remind the Committee of the Liberal Democrat policy on linking the state pension to earnings?
The Chairman: Order. I hope that the hon. Gentleman will not be tempted down that road. It
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has nothing to do with the clause.
Mr. Laws: You are quite right, Sir John. I have already offered to send the hon. Gentleman an early copy of our pensions policy. He may even have a ticket of his own to come to the Liberal Democrat conference in September and hear our debate.
In other areas, the Government are seeking to deal with the relative unattractiveness of many of our tax relief savings vehicles by improving tax relief for people on lower incomes so that it is not just those who receive tax relief at the 40 per cent. rate who end up being the major beneficiaries of tax-relieved saving in pensions. They have been considering savings gateways and other mechanisms of giving match relief for people on low incomes. That would unlevel to some extent the current playing field for tax relief on pensions, where there seems to be a broad theme of tax neutrality so that if someone gets relieved on their contributions going into a pension they then pay tax on coming out.
The Minister might therefore say that it would be expensive to give additional tax reliefs for people on lower incomes and to codify that in the Bill as opposed to the existing regulations. However, there is a problem with that argument, which is that the existing system of tax reliefs is already arguably quite generous in relation to the issue of tax neutrality. We have debated the tax-free lump sum on which tax is not paid on the way in or the way out, and I will not return to it. The Government have acknowledged that they are making the tax system more generous in that regard.
A lot of people who get tax relief on their pensions are higher rate payers when they are saving and in work, so they get relieved at the 40 per cent. rate of tax. Many of them will go on to earn under the upper rate threshold in retirement, and they will therefore pay only the basic rate of tax, which is currently 22 per cent. They are getting relief at 40 per cent., and they are paying tax at 22 per cent. Arguably, in terms of the system of tax relief and the extension of the tax-free lump sum, we have very generous tax relief for saving, and compared with the countries of Europe, we have very good provision in terms of people's own private provision for retirement.
That is wonderful for that sector of the population who are able to save because they have the disposable income to do so, and who get the benefit of most of the tax relief. However, it does not do much for people on lower incomes who may not only not have the money to put into these schemes but receive tax relief at a lower rate. The argument is about whether the Government should merely be codifying, through clauses 177 to 183, the existing system of tax reliefs. Should they not be seeking to go further? When we compare the tax regimes that face people on different incomes, we discover that those on lower incomes are reliant on a very mean basic state pension, that they then receive means-tested benefits and after that they get very modest tax reliefs. The question is whether the
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Government should be adjusting things in these areas to be more generous.