Rob Marris: Mr. McWilliam, will you allow this debate to drift into stand part, rather than just being on the amendments, because we are talking about the numbers?
The Chairman: The amendment is quite specific, whereas clause stand part is wider. I suggest that the hon. Gentleman wait till clause stand part if he wants to go wider.
Ruth Kelly: I was intending to deal with some of the general arguments as well.
The Chairman: The Financial Secretary can do so in clause stand part.
Ruth Kelly: Let me deal then with the amendments under consideration. The amendments seek to replace the 20 to 1 valuation factor that we have adopted on the basis of recommendations from the Institute of Actuaries and the Association of Consulting Actuaries, among others. An actuary was seconded to the simplification team from the private sector to work on the issue. The amendments seek to replace that simple approach with a much more complex one, where individual calculations are based on tables produced at intervals by the Government Actuary. A range of GAD tables would be needed for each age group. To be fair, it would probably be necessary to update those tables regularly. One might also argue that one had to factor in the period over which the benefit had accrued, and indeed perhaps to provide differentials between men and women. It is quite easy to see how those tables could become extremely complex over time. In fact, the use of tables could completely undermine one of the main purposes of pension simplification, which is to be as simple and understandable as possible. So, on that very narrow point, I suggest that hon. Gentleman withdraw his amendment.
The Chairman: Order. In view of the ruling that I just gave to the hon. Gentleman, if he has any general points he can make them on clause stand part.
Mr. Osborne: It seems strange that the Financial Secretary says that my amendment would completely undermine the simplicity of the pension arrangements. If that is the case, why were tables originally the Government's idea? Let me read you the sentence, Mr. McWilliam, from the 2002 consultation document. The section on the lifetime limit says that
Column Number: 642
That was what the Government were planning to do. It then says that they listened to the Association of Consulting Actuaries, and I am glad that they did on this occasion, although they did not do so on some other amendments that we have advanced in this Committee, some of which the association proposed.
As I said when I introduced this amendment, I am not saying that the Government are wrong.
The Chairman: Order. May I assist the hon. Gentleman? The amendment itself is quite narrow, but he is asking a question that should be put on clause stand part.
Mr. Osborne: Thank you, Mr. McWilliam. I was merely wondering why the Financial Secretary and the Government had moved away from the scheme in my amendment, which was something that they had originally proposed. However, I have made the point, and I am looking forward to the lengthy clause stand part debate that we are about to have. 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: We have had a debate on the amendment on simplicity, and I now turn to subsection (2), leaving aside for a minute the grossly inelegant wording starting with a conjunction, which was certainly not allowed when I did English language O-level many years ago.
Chris Bryant (Rhondda) (Lab): Dickens did it all the time.
Rob Marris: Dickens may have done, but he did not have an English O-level.
In that subsection the Government are departing from 20 to 1, but what concerns me, as a non-practising solicitor, is that there appears to be no adjudication process built into the provision as to what happens if the Inland Revenue and the scheme administrator are unable to agree on a departure from 20 to a number greater than 20. It does not appear that the individual prospective pensioner, about whom the valuation would be made, has any say in the matter. I would like some clarification from the Minister on that.
Ruth Kelly: First, I will deal with some of the other points made in the debate on the amendment which are more relevant to the stand part debate. Let me return to the hon. Member for Tatton's contention that we should somehow depart from the 20 to 1 valuation factor. He points to the quote from Edward Troup, a fine man who has recently been hired by the Treasury rather than the Inland Revenue, I believe, to add his considerable expertise to our deliberations. It is true that we have integrated private sector secondees into the pension simplification team over the last few years when looking at this sort of question, and they are convinced, as are we, that 20 to 1 is the right valuation factor to use. We do not want to introduce extra complications for the pension providers by departing from that simple factor. I do not want to re-run the debate that we have had in previous sittings, but the move away from our original proposals to the
Column Number: 64320 to 1 factor has been widely welcomed throughout the pensions industry, although I know that the hon. Gentleman's colleague has a different view as, I am sure, do some other hon. Members. However, in general, the proposals have been widely welcomed.
Mr. Osborne: The Financial Secretary skirted over the point about Edward Troup, who is a fine man. He was a special adviser to the last Conservative Chancellor and I am delighted that he is now advising the Government. He said:
That is in a public document that he submitted to the Treasury Committee. Does the Financial Secretary agree with her Treasury official?
Ruth Kelly: Mr. Troup was certainly not a Treasury official, and if he expressed those views, I am sure that he has been persuaded by his colleagues in the Treasury since he joined them. Mine is the right valuation factor.
We have highly experienced representatives of the pension industry on the simplification team and they are firmly of the view that 20 to 1 is the right valuation factor to use. It is the most simple and accurate method available and they recommended it.
Mr. Flight: May I follow up the point raised by the hon. Member for Wolverhampton, South-West? Subsection (2) says to me that it would empower the Revenue and the administrator to say that people retiring at 55 in a defined benefit scheme should have a 25 to 1 factor applied. What does it mean if not just that?
Ruth Kelly: I shall come to that in a moment after addressing the point made by my hon. Friend the Member for Wolverhampton, South-West.
Should we apply a lower factor to, for example, older people such as the hon. Member for Arundel and South Downs, who, if I dare say so, has a keen personal interest in these issues?
The Chairman: Order. Does not the Minister think that I have?
Ruth Kelly: I have already explained to the Committee how it is possible for individuals to switch between DB and DC schemes to suit their personal circumstances, but we are not prepared to over-complicate the system to assist the tax planning of a very small minority of people who have pensions at or around the level of the lifetime allowance. A lower factor of, for example, 15 to 1 for people to take their pensions late would encourage them to use registered pension schemes not to provide a pension but merely as a tax-free savings vehicle for as long as possible. That is all very well for those who do not need to crystallise their funds at the usual age, but it would complicate the system for the vast majority of people.
The hon. Member for Tatton made the case that 20 to 1 favours people who take their pensions at 50 compared with 75. We are merely replicating the
Column Number: 644system that was introduced by his party in 1989 under which individuals were able to draw up to £70,000 whether at the age of 50 or 75. We are merely replicating the previous regime.
Rob Marris: Is my hon. Friend aware that in personal injury law, which I have practised for many years, a series of actuarial tables known as the Ogden tables set out the multipliers to be used for loss of earnings? If a 35-year-old man, for example, earning a certain amount net each year were sufficiently seriously injured never to be able to work again, the tables show what the multiplier should be. They cover people in such circumstances, who are, I strongly suspect, far fewer than the number of people who retire each year.
Ruth Kelly: My hon. Friend makes an interesting point, but he will agree that we should design the system to benefit as many people as possible rather than complicate it just to assist tax planning for a few individuals.
To return to the previous point made by my hon. Friend and the hon. Member for Arundel and South Downs, a higher factor would apply only when both the scheme and the Revenue agreed to it. If there were no such agreement and the scheme rules did not fall within the parameters assumed by the factor of 20, when increases in pensions in excess of inflation of 5 per cent. occurred, scheme members would be subject to the benefit crystallisation event rule. There would be no advantage for schemes or individuals in not negotiating a higher valuation factor were that to be appropriate. I think I have covered the points raised, and I therefore urge the Committee to agree to the clause.
Question put and agreed to.
Clause 263 ordered to stand part of the Bill.
Clause 264 ordered to stand part of the Bill.
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