Finance Bill

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Mr. Mark Todd (South Derbyshire) (Lab): Why not?

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Mr. Flight: I should be delighted to protect the hon. Gentleman. However, there is an important point of principle here. If a clear precedent of grandfathering has been set—as grandfathering was introduced 15 years ago, it mostly affects those who are approaching retirement—it is morally wrong suddenly to change things. Whatever the Minister may say, it amounts to retrospection.

Rob Marris (Wolverhampton, South-West) (Lab): Not today, but earlier in our proceedings on the pensions part of the Bill, the hon. Member for Arundel and South Downs differed slightly from the hon. Member for Tatton (Mr. Osborne) and proposed a rough and ready approach to certain provisions. Why is he now not prepared to have a rough and ready approach to those whom he describes as fat cats?

Mr. Flight: I recollect using the phrase ''rough and ready''. I cannot recollect the context, but I believe that I was being descriptive, rather than supporting such an approach. I seem to remember saying something along the lines that people may accept a degree of rough and ready justice. In fairness, it is different having a rough and ready approach, whether it is right or not, for people who have not been promised something else previously. I am surprised that, as a lawyer, the hon. Gentleman should rest comfortable with a complete disregard of what was in effect a legal principle laid down in 1989 that a person in a scheme before that date who stayed in the scheme would not be subject to the changes.

Norman Lamb (North Norfolk) (LD): Does the hon. Gentleman have any idea of the number of people likely to be affected?

Mr. Flight: I do not think that anyone has a precise number, but it must be extremely small. First, the Government say that only a limited number of people are affected by the new lifetime limit anyway and, secondly, the provision relates only to those who have continued to work in the same business and have been in the same pension scheme since 1989. Therefore, implicitly, it is a relatively small proportion of those who the Government are satisfied are affected by the lifetime cap. The fact that the absolute amounts of money are not that huge lends support to the argument that it would have been a more principled stance to stick by the existing rules for those people.

Rob Marris: The hon. Gentleman, in responding to my intervention, suggested that I had put forward a position. I recall that I merely asked him a question, to which he replied.

There is a drafting error in amendment No. 392—perhaps the error is in the amendment paper. After the words

    ''arise in respect of benefits paid to''

in proposed new paragraph 20(2), the word ''or'' is missing.

Mr. Flight: I thank the hon. Gentleman for his excellent legal drafting abilities. He is correct.

Mr. Quentin Davies (Grantham and Stamford) (Con): One more point must be made. It is clear from the debate that a relatively small number of people would be affected by the amendment. If we do

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not accept my hon. Friend's amendment, we may create an incentive for people who are highly paid, who are in danger of going above the lifetime earnings limit, who have been with the same employer since 1989 and who were already highly paid at that time to leave their employment by A-day and to take their benefits in order to preserve them. It seems perverse to force highly paid people, who may be making a great contribution to the economy, reluctantly to leave their job simply because the financial penalties of remaining in it and in their pension scheme would be considerable. They would incur a great opportunity cost if they remained.

It is important that we never create in our tax law an incentive for people to behave in an economically perverse manner. Nothing can be more perverse than someone leaving employment and going into idleness or unemployment, or taking their pension earlier than they otherwise would have wished. I hope that the Financial Secretary will address that point when she responds.

Ruth Kelly: The amendment seeks to retain tax regimes that were in place prior to 1989. It would defeat the key objective of this reform, which is tax simplification. Pre-1989 members come in at least two varieties: members who joined their scheme between 1970 and 1987, and those who joined between 1987 and 1989. There are also some members of the pre-1970 regime, who are referred to as old code members.

Norman Lamb: I wonder whether the Financial Secretary could indicate whether the Government have made any assessment as to the number of people involved in those categories.

Ruth Kelly: We certainly have made such an assessment. The intention behind involving the National Audit Office was to verify the number of people who were likely to be affected. It suggested a total of some 10,000, at about 1,000 a year.

The pre-1970 regime came to an end 34 years ago, yet there are still old code members. Insurance companies, pension schemes and the Revenue must retain knowledge of how that regime operated and how it interacted with the successor regimes. The amendment tabled by the hon. Member for Arundel and South Downs would force the pensions industry and the Revenue to do the same for pre-1989 members. It would involve running two systems in parallel for the old regime and the new, simplified one.

If the hon. Gentleman will not listen to me, perhaps he will heed the words of people in the pensions industry. Only a small minority of people recommended his approach. The Association of Independent Financial Advisers stated:

    ''These proposals are refreshingly radical, especially in sweeping away the complexity of numerous layers of legislation. The growth and promotion of private pension provision should be improved.''

The Society of Pension Consultants stated:

    ''The proposals should lead to a substantial reduction in administrative costs for employers, pension funds and pension providers. Even more importantly, for the great majority of people, they will sweep away many of the regulatory restrictions which make pensions baffling and discouraging for many.''

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Those are the industry's words, not mine. Simplification will reduce administration and make pensions easier to understand for the vast majority.

10.45 am

Mr. Davies: The Financial Secretary is enjoying the laudatory comments that she is quoting, but do they not relate only to the Government's reforms as a whole—the system of having a new lifetime cap, and the simplifications, to which we all pay tribute? They are surely not germane to the point about the treatment of members of pre-1989 schemes. I cannot believe that the flattering remarks that she is reading make any sense if they simply narrowly apply to that special case.

Ruth Kelly: I am about to deal with the point that was raised—[Interruption.] Hon. Members should contain themselves and listen to the response. I was making the point that, in the past, every single pension tax reform maintained the previous system. That is why we have ended up with eight separate pension regimes. The pension industry was practically in despair. All the major representatives came to me, on several occasions, and said, ''Please go ahead with your pension reform proposals. We desperately need a simpler system.'' Operating the previous eight regimes, and taking a further one forward, would be extremely disappointing and would not contribute to our aim of increasing pension saving in the future, nor would it reduce the administrative costs on schemes, which we consider quite an important part of our proposals.

Let us see what the amendment tabled by the hon. Member for Arundel and South Downs would mean in practice. I will not go through all the detail of how his amendment might work. However, I will briefly outline some of the areas where complications would arise if we were to retain the previous, pre-1989 regime.

Take the example of continuous service. If the member's employment status changes, a view would have to be taken on whether he had retained his pre-1989 status. Concurrency—the ability to hold an occupational scheme pension and a personal pension at the same time—is a feature of the new regime, but not of the old. Which rule would apply? Would every person joining a personal pension have to be asked if they were a pre-1989 member? Flexible retirement for occupational scheme members is allowed under the new system, but not the old.

Retained benefits—I am delighted to see you in the Chair, Sir John, as I know that you have a keen interest in abolishing the retained benefits rule, as has the hon. Member for Arundel and South Downs—would have to be kept and expanded to deal with benefits accrued after 6 April 2006. Which lump sum limit would apply? Would it be 25 per cent., as under the new system, or the greater of 3N over 80 or the commutation of 2.25 times the maximum pension commuted at 12 to 1?

I could go through all the other areas where complexity would arise. It is not a silly point to say that the system that the hon. Gentleman proposes

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would introduce vast complexity to the arrangements. It would drag us back to the previous set-up, which the pension industry itself wants abolished.

The alternative proposition is to offer people protection for rights that they have accrued under the previous regime. We are offering not only fair protection rights for previously accrued benefits, but extremely generous transitional arrangements to protect rights that have been accrued. Indeed, if someone registers for enhanced protection and they have already accumulated a lump sum of £1.5 million or above, they will be able to see that grow on the stock market and not have it tested in the future.

On the point raised by the hon. Member for Grantham and Stamford (Mr. Davies), the system that we propose is more generous to people currently in work. Under the new rules, they could take their benefits and continue to work, because we are introducing flexible retirement for the first time through the proposals. That section of the population would clearly benefit from the new regime.

The rationale behind our regime is extremely clear. It has been welcomed by all the major representative groups in the pension industry, as well as individual pension providers, who will see their administrative costs fall. Not only is it radical, it is fair, and it is for that reason that I recommend it to the Committee.

 
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