Mr. Osborne: First, the hon. Gentleman says that it is difficult to identify his contributions from 30 years ago, but the Government will have to do that anyway under the new regime and uprate his lifetime allowance by the equivalent amount. They clearly believe that that can be done, which is why they have introduced the mechanism.
In reply to the hon. Gentleman's second point, the clause states that the
''ROIC is the amount of the contributions made under the arrangement by or in respect of the individual in any part of the active membership period during which the individual is a relevant overseas individual''.
That is the meaning in the Bill and in our amendment.
Rob Marris: What does ROIC stand for?.
Mr. Osborne: I imagine that it stands for relevant overseas individual contributions. It is a Government formula.
The hon. Gentleman touches on a point made by the National Association of Pension Funds which I raised at the beginning of this debate. Many of the formulae in the Bill are unfamiliar to the industry, which believes that they could have been expressed more clearly. I am tempted to try to catch your eye, Mr. McWilliam, during the debate on the next Government amendment, which is about adjusting one of the formulae, and we could have this debate then.
I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
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Clause 211, as amended, ordered to stand part of the Bill.
Non-residence: other arrangements
Amendment proposed: No. 438, in
The Chairman: I remind the Committee that with this we are discussing Government amendment No. 445.
Mr. Osborne: There are numerous Government amendments in the Bill, most of which are tidying-up amendments. These two amendments also fall into that category. However, looking at them yesterday evening, I could not see what the practical effect of changing the formulae would be. The amendments involve moving brackets. Those of us who did A-level maths know that moving brackets makes a big difference. However, it does not in this case.
Let us consider amendment No. 438. It would make a difference if a bracket had been inserted before PE so that the formula read, ''RVF x (PE + LSE)'', but the Government have not done that. They have just moved the bracket from after PE to after LSE, which makes no difference mathematically as far as I am aware—and I have checked with a few people who have done their maths. I would be grateful if the Government would explain.
Ruth Kelly: I am absolutely delighted that the hon. Gentleman has taken such an interest in the arithmetical formulae before us today. Before I explain what the amendments are about, let me explain what the clause is about. It provides for individuals who do not get relief for contributions paid into registered schemes, because they do not have any UK taxable earnings, to have their lifetime allowance enhanced. Clause 211 sets out the calculation for the lifetime allowance enhancement factor for money purchase schemes. Clause 212 provides the rules for calculating the lifetime allowance enhancement factor referred to in clause 210 for members of schemes that have defined benefit or hybrid arrangements. As with clause 211, clause 212 separates out the increases in benefits under the arrangement for which the individual has not received UK relief. It then divides that by the standard lifetime allowance and applies that factor to increase the individual's lifetime allowance.
Rob Marris: Will the Financial Secretary give way?
Ruth Kelly: I am sure that my hon. Friend has an interesting point to make.
Rob Marris: My understanding of mathematics might be faulty, because I do not have the benefit of maths A-level. However, I do have the dubious benefit of a maths O-level—taken before the hon. Member for Tatton was born—in which I think I got a grade 4. My memory of algebra is that the position of the bracket is important. It is certainly important in this formula. I will need some convincing by the hon. Gentleman that
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the position of the bracket in the formula is immaterial. It looks extremely important. If he gets a chance to speak later, perhaps he will explain a little more about where brackets go and where they do not. The position seems to make a material difference.
The Chairman: Order. As someone who did an electronics degree and, therefore, by definition, an ordinary degree in mathematics, I am sorry that I cannot indulge in this debate.
Ruth Kelly: I am coming on to discuss the minor technical amendment before us, which moves the position of the bracket in the formula. Some members of the public have a greater knowledge of arithmetic than the hon. Member for Tatton. It was a member of the public who pointed out to us that the bracket needed to be moved for the formula to make algebraic sense. We could have a debate on the arithmetic behind that, but I hope that the hon. Gentleman will accept the maths on trust. If he really wants to follow this point up, I will write to him explaining the difference that the change makes. I thank the person who pointed this matter out to our team and I ask the hon. Gentleman to withdraw his amendment.
The Chairman: The hon. Gentleman had better be careful when he describes the maths, because I understand it.
Mr. Osborne: I shall be very careful. I shall also be careful not to follow the Financial Secretary's advice and withdraw the amendment. If I did, the good work of that member of the public would be undone. In fact, it is not in my power to withdraw the amendment. However, there is a point to be made.
The Government introduce all these amendments. Most of the time, we are assured that they tidy up the Bill. In this case, I believe that it is probably meant just to make the clause look more elegant, as it does not actually affect the maths at all.
The Chairman: Order. I am not seeking to enter this debate, but I have to tell the hon. Gentleman that he is in danger of misleading the Committee if he persists with that argument.
Mr. Osborne: We can have this debate in the margins of the Committee. I shall not divide the Committee on the Government amendment.
James Purnell (Stalybridge and Hyde) (Lab): Or multiply it.
The Chairman: We have enough members of this Committee.
Amendment agreed to.
Amendments made: No. 439, in
No. 440, in
Column Number: 627
No. 441, in
No. 442, in
Clause 212, as amended, ordered to stand part of the Bill.
Clause 213 ordered to stand part of the Bill.
Overseas scheme transfers:
money purchase arrangements
Amendments made: No. 443, in
No. 444, in
Clause 214, as amended, ordered to stand part of the Bill.
Overseas scheme transfers:
Amendments made: No. 445, in
No. 446, in
clause 215, page 181, line 26, leave out from first 'the' to 'entitled' in line 28 and insert
'annual rate of the pension which would, on the valuation assumptions (see section (Valuation assumptions)), be payable to the individual under the recognised overseas scheme arrangement if the individual became'.
No. 447, in
No. 448, in
No. 449, in
Column Number: 628
Clause 215, as amended, ordered to stand part of the Bill.
Clause 216 ordered to stand part of the Bill.
Mr. Osborne: I beg to move amendment No. 425, in
clause 217, page 183, leave out line 2 and insert—
'(2) The annual allowance is as follows—
(a) for the tax year 2006–07, £215,000
(b) for the tax year 2007–08, £225,000
(c) for the tax year 2008–09, £235,000
(d) for the tax year 2009–10, £245,000
(e) for the tax year 2010–11, £255,000.'.
The clause sets the annual allowance—the amount by which the value of a pension pot is allowed to increase without incurring a tax charge—at £215,000 for the first year. Amendment No. 425, which is similar to my previous amendment on the lifetime allowance, merely seeks to include in the Bill the allowances for the years 2007–08 to 2010–11, which are set out in the explanatory notes but not in the Bill. Perhaps the Financial Secretary could remind us why that should be the case. She said earlier that they could just as easily have been in the Bill as in the explanatory notes. Surely it would be better to put the figures in the legislation with which people will deal.
Perhaps the Financial Secretary could say a little as well about the logic of the annual allowance. It is possible to think of a system with a lifetime allowance but no annual allowance, and one with an annual allowance but no lifetime allowance. Perhaps she could explain why the Government feel that they need both controls.
In the 2002 consultation document, the Government explained that the prime purpose was to limit the
''tax leakage which can occur when a determined opportunist tries to wash contributions through a pension fund quickly, planning to extract the proceeds improperly.''
Say we have a determined opportunist—let us call him Tony. Surely control must be exercised not on the amount going in but on the amount coming out. The Government say that the reason for an annual allowance is to stop people extracting proceeds improperly. If that is the case, the control should be on the extraction of the proceeds, not on what is going in. Will the Financial Secretary confirm that, as the annual allowance does not apply in the year in which the pension vests, this determined opportunist could pull off the same trick in that year? If Tony were over the age of 50, he could pull it off this year, that year, the next year or whenever the pension vests.
If the measure is supposed to be a key control for the Inland Revenue to prevent some sort of tax
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evasion or scam, it has some pretty big holes in it. A pension can vest not only on retirement, but when someone receives redundancy, a scheme winds up, there is ill health or whatever. There are a lot of gaps in that control and, if its purpose is as I have just stated, it is not particularly effective.
The provision will introduce another rule to the system and it could hit the lucky investor. The dotcom boom was not that long ago, and it is perfectly possible to imagine someone putting a £20,000 stake into some shares, seeing them go up 10-fold in a year and going close to or over the annual allowance. It will penalise investor decisions. One feature of the system is that it allows people to put in large sums when they are able to make them, but a good or lucky investor could as a result see their pension pot increase by more than £215,000 in a particular year.