Finance Bill

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Mr. Flight: I am glad that the Minister has confirmed that the Government's amendments address the point raised in amendment No. 379. The Minister has convinced me on amendment No. 378, or at least answered the question, and I would not want to propose anything that damaged people's positions.

I am not sure that the Minister has convinced me on amendments Nos. 382, 383 and 389 to 391. Her main point is that that the 25 to 1 factor assumes that people have already taken their maximum tax-free lump sum. That is saying that, for those who have not, hard luck. However, the point is not sufficiently material that we would wish to put it to a vote. I therefore beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Amendments made: No. 503, in

    schedule 34, page 467, line 22, leave out from '199)' to first 'an' in line 33 on page 468 and insert

    'on the assumption that the individual became entitled to the present payment of benefits in respect of the rights on that date.

    (6) Section 201 has effect for the purposes of sub-paragraph (5) as if the reference to such age (if any) as must have been reached to avoid any reduction in benefits on account of age in paragraph (a) of section (Valuation assumptions) were to the relevant age; and for this purpose ''the relevant age'' is—

    (a) if on 10th December 2003 the terms of the arrangement made provision for a reduction in the amount of benefits payable in respect of rights under the arrangement on account of the holder of the rights being below a particular age, that age, and

    (b) otherwise, 60.

    9 (1) This paragraph applies if any of the individual's uncrystallised rights on 5th April 2006 are rights under one or more arrangements under a pension scheme or schemes within paragraph 1(1)(a) to (d).

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    (2) The value of the individual's uncrystallised rights on 5th April 2006 under the arrangement, or the aggregate of the values of the individual's uncrystallised rights on 5th April 2006 under such of the arrangements as relate to a particular employment, is the lower of—

    (a) the value, or the aggregate of the values, calculated under paragraph 8, and

    (b) the amount arrived at in accordance with sub-paragraph (3).

    (3) The amount arrived at in accordance with this sub-paragraph is—

    20{**multi**}MPP

    where MPP is the maximum permitted pension.

    (4) ''The maximum permitted pension'' means the maximum annual pension that could be paid to the individual on 5th April 2006 under the arrangement or arrangements if it or they were made under a pension scheme within paragraph 1(1)(a) without giving the Board of Inland Revenue grounds for withdrawing approval of the pension scheme under section 591B of ICTA.

    (5) For the purposes of sub-paragraph (4) it is to be assumed—

    (a) if the individual was in the employment to which the arrangement or arrangements relates or relate on 5th April 2006, that the individual left the employment on that date, and

    (b) if the individual had not reached the lowest age at which a pension may be paid under a pension scheme within paragraph 1(1)(a) to a person in good health without giving the Board of Inland Revenue grounds for withdrawing the approval of the pension scheme, that that fact would not give the Board such grounds.

    (6) For the purposes of this paragraph'.—

No. 504, in

    schedule 34, page 468, line 39, leave out 'an' and insert 'the'.—

No. 505, in

    schedule 34, page 469, line 16, at end insert—

    '(2A) But a pension, annuity or right is not a relevant existing pension if entitlement to it was attributable to the death of any person.'.—[Ruth Kelly.]

Ruth Kelly: I beg to move amendment No. 506, in

    schedule 34, page 469, line 44, leave out from beginning to end of line 2 on page 470 and insert

    'if notice of intention to rely on it is given to the Inland Revenue in accordance with regulations made by the Board of Inland Revenue.

    (2) But this paragraph ceases to apply if—

    (a) relevant benefit accrual occurs under the arrangement, or any of the arrangements (see paragraph 13),

    (b) a transfer of sums or assets held for the purposes of, or representing accrued rights under, the arrangement or any of the arrangements is made that is not a permitted transfer, or

    (c) an arrangement relating to the individual is made under a registered pension scheme otherwise than solely for the purposes of a permitted transfer.'.

The Chairman: With this it will be convenient to discuss the following:

Government amendment No. 508.

Amendment No. 384, in

    schedule 34, page 470, line 20, at end insert 'in a prescribed manner'.

Government amendments Nos. 571, 572, 511 and 573.

Amendment No. 386, in

    schedule 34, page 472, line 6, leave out 'pregnancy or childbirth' and insert

    'being on maternity leave, adoption leave, parental leave, paternity leave (each as defined in accordance with the Employment Rights Act 1996) or in other prescribed circumstances'.

Government amendments Nos. 513 to 519.

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Ruth Kelly: Government amendment Nos. 506, 508, 511, 513, 519 and 571 to 573 alter the way that enhanced protection arrangements operate in relation to calculating benefits accrued by defined benefit or cash benefit schemes. The changes come about because of a late representation by the Association of Consulting Actuaries. It was concerned that the proposals for calculating earnings after 5 April 2006 would be administratively burdensome.

As set out in the December 2003 consultation paper, enhanced protection was a simple proposition. There is no test of the pension fund against the lifetime allowance in return for there being no relevant benefit accrued after 5 April 2006. Schedule 34 as it stands attempts to do the same for defined benefit and cash benefit arrangements, by specifying that the pre-A-day service, the scheme accrual rate and what constitutes pensionable pay cannot change and by setting a limit on the amount of earnings that can be pensioned.

The amendments take a different approach to the same issue. The member's rights are valued on 5 April 2006. They can increase thereafter in line with the retail prices index without endangering enhanced protection but, as an alternative, at the first benefit crystallisation event, the member's rights on 5 April 2006 can be recalculated according to various assumptions. Provided that the aggregate of the benefits taken do not exceed the higher of those two amounts, enhanced protection still applies and is not lost.

The amendments also restrict the transfers that can be allowed in order to retain the right to enhanced protection. The purpose of the amendment is to avoid transfers being used to manipulate valuations and, thus, increase the protection given.

The amendments seek to clarify how enhanced protection works and I commend them to the Committee.

That brings me to two amendments tabled by the hon. Member for Arundel and South Downs. Amendment No. 384 deals with the surrender of excess pension rights. That is where, at A-day, someone has accrued pension rights in an occupational pension scheme in excess of what would have been allowed under Revenue rules.

I believe that it is common ground between us that such excess rights should be surrendered before an individual acquires enhanced protection. Otherwise, we would be giving protection to rights in excess of what the member was entitled to. The amendment seeks to put conditions on the surrender of such rights.

I agree that the reduction of pension rights should be dealt with in a proper and consistent manner, but I do not believe that it is necessary for the Inland Revenue or the Treasury to prescribe the conditions and regulations. DWP legislation already prescribes the circumstances in which an individual may surrender pension rights. Inland Revenue officials are liaising with DWP officials on the matter to clarify whether any amendment to DWP regulations will be needed to facilitate the surrenders envisaged in schedule 34. I believe that the proper place for

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requirements concerning surrenders of pension rights is in DWP regulations and scheme rules.

I look forward to hearing whether those points meet the hon. Gentleman's concerns.

10.15 am

Mr. Flight: As I understand it, one of the Government amendments addresses the point that is raised in amendment No. 386, which is grouped with these amendments.

Ruth Kelly: I am just about to come to amendment No. 386. I appreciate fully the hon. Gentleman's intentions in tabling it, but I believe that it is drawn too widely. Only absence due to ordinary maternity leave, ordinary adoption leave and paternity leave as defined in the Employment Rights Act 1996 give rights to adjustments in pensionable earnings. In drafting Government amendments Nos. 512 and 508, we took into account the purpose of his amendment and permitted adjustments to pensionable earnings for absences due to pregnancy, maternity, paternity and adoption. The Government amendments are better focused than his and I therefore commend them to the Committee.

Mr. Flight: Amendment No. 384 raises an issue that the Financial Secretary recognises must be addressed. In essence, she has assured us that it will be covered by DWP arrangements, so it does not need to be covered in the Bill. Government amendments Nos. 512 and 508 deal with my points about relevant earnings that may be lower for allowable reasons beyond just pregnancy or childbirth.

Amendment agreed to.

Amendments made: No. 508, in

    schedule 34, page 470, line 12, leave out from beginning to end of line 34 and insert—

    '(a) the value of the uncrystallised rights of the individual on 5th April 2006 under an arrangement, or

    (b) the aggregate of the values of the uncrystallised rights of the individual on 5th April 2006 under arrangements,

    is arrived at in accordance with paragraph 9 unless such rights as, in accordance with regulations made by the Board of Inland Revenue, are to be treated as representing the relevant excess have been surrendered.

    (6) In sub-paragraph (5) ''the relevant excess'' means the amount by which the value of—

    (a) the individual's uncrystallised rights, or

    (b) the aggregate of the values of the individual's uncrystallised rights,

    (as arrived at in accordance with paragraph 9) exceeds what it would be if arrived at under paragraph 8.

    (7) For the purposes of this paragraph and paragraphs 13 and 13A, a transfer of sums or assets held for the purposes of, or representing accrued rights under, an arrangement is a permitted transfer if—

    (a) all sums and assets held for the purposes of, or representing rights under, the arrangements relating to the individual under the pension scheme under which the arrangement is made are transferred by the transfer,

    (b) the sums or assets held for the purposes of, or representing accrued rights under, the arrangement are transferred so that sub-paragraph (8) applies in relation to them, and

    (c) the aggregate of the amount of those sums and the market value of those assets'.

No. 571, in

Column Number: 667

    schedule 34, page 470, line 36, at end insert—

    '(8) This sub-paragraph applies in relation to sums or assets held for the purposes of, or representing accrued rights under, the arrangement if—

    (a) they are transferred so as to become held for the purposes of a money purchase arrangement that is not a cash balance arrangement, or two or more more money purchase arrangements that are not cash balance arrangements, under a registered pension scheme or recognised overseas pension scheme, or

    (b) where the transfer occurs in connection with the winding up of the pension scheme under which the arrangement is made and the arrangement is a cash balance arrangement or a defined benefits arrangement, they are transferred so as to become held for the purposes of, or to represent rights under, a cash balance arrangement or defined benefits arrangement relating to the same employment as the arrangement and made under a registered pension scheme or recognised overseas pension scheme.

    (9) Where there is a permitted transfer—

    (a) if the transfer is a permitted transfer by virtue of sub-paragraph (8)(a), this paragraph (and paragraphs 13 and 13A) apply in relation to the arrangement, or each of the arrangements, to which the transfer is made, and

    (b) if the transfer is a permitted transfer by virtue of sub-paragraph (8)(b), this paragraph (and paragraphs 13 and 13B) apply as if the arrangement to which the transfer is made were the same as that from which it is made.'.

No. 572, in

    schedule 34, page 470, line 38, leave out from 'arrangement' to 'a' in line 8 on page 471 and insert—

    (a) in the case of a money purchase arrangement that is not a cash balance arrangement, if a relevant contribution is paid under the arrangement (see paragraph 13A), and

    (b) in the case of a cash balance arrangement or defined benefits arrangement, if, when a benefit crystallisation event or transfer that is a permitted transfer by virtue of paragraph 12(8)(a) (a ''relevant event'') occurs in relation to the individual and the arrangement, the relevant crystallised amount exceeds the appropriate limit (see paragraph 13B).

    13A For the purposes of paragraph 13(1)(a)'.

No. 511, in

    schedule 34, page 471, line 18, leave out 'sub-paragraph (1)(b)' and insert 'paragraph 13(1)(a)'.

No. 573, in

    schedule 34, page 471, line 26, leave out from beginning to end of line 11 on page 472 and insert—

    '13B (1) For the purposes of paragraph 13(1)(b) ''the relevant crystallised amount'' is—

    (a) if the relevant event is the first relevant event occurring in relation to the individual and to the arrangement or any other cash balance arrangement or defined benefits arrangement related to the arrangement (''the first relevant event''), the amount crystallised by that event, and

    (b) otherwise, the aggregate of the amount crystallised by the relevant event and the amount crystallised by the relevant event, or by each of the relevant events, which has or have previously occurred in relation to the individual and to the arrangement or any other cash balance arrangement or defined benefits arrangement related to the arrangement.

    (2) If the relevant event is a permitted transfer which is not a benefit crystallisation event, sub-paragraph (1) applies as if the amount crystallised by the event were the aggregate of—

    (a) the amount of any sums held for the purposes of, or representing accrued rights under, the arrangement, and

    (b) the market value of any assets held for the purposes of, or representing accrued rights under, the arrangement.

    (3) For the purposes of this paragraph (and paragraph 15) another arrangement is related to the arrangement if—

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    (a) the other arrangement relates to the individual, and

    (b) both the arrangement and the other arrangement relate to the same employment;

    and whether an arrangement relates to an employment is to be determined in accordance with paragraph 9(6).

    (4) For the purposes of paragraph 13(1)(b) ''the appropriate limit'', in relation to a relevant event, is the greater of—

    (a) the value of the individual's rights on 5th April 2006 under the arrangement, or (where there is or are one or more other cash balance arrangements or defined benefits arrangements related to the arrangement) the aggregate of the value of the individual's rights under the arrangement and the other arrangement or arrangements, arrived at in accordance with paragraphs 8 and 9, as increased by the relevant indexation percentage (see sub-paragraph (5)), and

    (b) what would be the value of those rights, so arrived at, on the assumptions specified in sub-paragraph (6).

    (5) For the purposes of sub-paragraph (4)(a) ''the relevant indexation percentage'', in relation to a relevant event, means whichever is the greatest of—

    (a) the percentage by which an amount would be increased if it were increased for the period beginning with 6th April 2006 and ending with the date on which the relevant event occurs at an annual rate of 5%,

    (b) the percentage by which an amount would be increased if it were increased for that period at an annual percentage rate referred to in regulations made by the Board of Inland Revenue, and

    (c) the percentage by which the retail prices index for the month in which the relevant event occurs is higher than that for April 2006.

    (6) The assumptions referred to in sub-paragraph (4)(b) are—

    (a) that the individual's age on 5th April 2006 were what it is at the time of the first relevant event (so that neither paragraph 8(6) nor section (Valuation assumptions)(a) applies in arriving at what would be the value of the rights under paragraph 8), and

    (b) that the amount of the earnings which would have fallen to be taken into account under the arrangement for calculating the amount of benefits payable to or in respect of the individual (if the individual became entitled to the present payment of benefits in respect of the rights under the arrangement on that date) were the lesser of the two amounts specified in sub-paragraph (7).

    (7) The amounts referred to in sub-paragraph (6)(b) are—

    (a) the current amount of the relevant pensionable earnings immediately before the first relevant event, and

    (b) the post-commencement earnings limit (see paragraphs 15 and 16).

    (8) But sub-paragraph (6)(b) applies in relation to an arrangement under a pension scheme within paragraph 1(1)(c) or (e) as if for ''the lesser of the two amounts specified in sub-paragraph (7)'' there were substituted ''the amount specified in sub-paragraph (7)(a)''.

    (9) In this paragraph ''the relevant pensionable earnings'' means the description of earnings (or the portion of the description of earnings) of the individual by reference to which the amount of benefits payable to or in respect of the individual would have fallen to be calculated if the individual became entitled to the present payment of benefits in respect of the rights under the arrangement on 5th April 2006.

    (10) For the purposes of sub-paragraph (7)(a) ''the current amount'' of the relevant pensionable earnings immediately before the first relevant event is the amount of the relevant pensionable earnings which, at that time, would fall to be taken into account in calculating the amount of benefits payable to or in respect of the individual under the arrangement if the individual became entitled to the present payment of benefits at that time (but subject to sub-paragraph (11)).

    (11) If at that time the individual is absent from work in connection with pregnancy, maternity, paternity or adoption, the

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    current amount of the relevant pensionable earnings at that time includes what would be likely to be included in that amount if the individual were not so absent.'.

No. 513, in

    schedule 34, page 472, line 14, leave out

    'the pension scheme under which the arrangement'

    and insert

    'any pension scheme under which the arrangement or any other arrangement related to the arrangement'.

No. 514, in

    schedule 34, page 472, line 18, leave out 'benefit crystallisation' insert 'first relevant'.

No. 515, in

    schedule 34, page 472, line 20, leave out 'relevant earnings' and insert

    'individual's employment income from the employment to which the arrangement relates'.

No. 516, in

    schedule 34, page 472, line 23, leave out from second 'the' to end of line 24 and insert 'first relevant event occurs.'.

No. 517, in

    schedule 34, page 472, line 27, leave out 'relevant earnings are' and insert

    'individual's employment income from the employment to which the arrangement relates is'.

No. 518, in

    schedule 34, page 472, line 28, at end insert—

    '(7) For the purposes of this paragraph and paragraph 16 the amount of the individual's employment income includes, in relation to any time when the individual is absent from work in connection with pregnancy, maternity, paternity or adoption, what would be likely to be included in that amount if the individual were not so absent.'.

No. 519, in

    schedule 34, page 472, line 40, leave out 'relevant earnings' and insert

    'individual's employment income from the employment to which the arrangement relates'.—[Ruth Kelly.]

 
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