Ruth Kelly: The two amendments seek to change paragraph 45 of schedule 34, which is concerned with the transitional arrangements concerning unfunded retirement benefit schemes.
I apologise to the Committee, because the explanatory note for the paragraph referred to
It should have been ''unfunded pension promises''. I apologise for that typographical mistake, which may have caused some confusion.
Unfunded retirement benefit schemes can be either approved or unapproved, or in the new regime, registered or unregistered. Those schemes are in effect a promise to pay the employee a benefit in the future, but with no underlying employer contribution.
Paragraph 45 allows that, where there is an unfunded promise before 6 April 2006, an employer can consolidate the promise by making a contribution to a registered pension scheme. Provided the contribution is made in the period from 6 April to 7 July 2006, it will not count towards the pension input for the tax year 2006–07. That means the contribution is not taken into account when determining whether
Column Number: 687an employee is liable for an annual allowance charge for 2006–07.
The hon. Gentleman has put forward two amendments to paragraph 45. Amendment No. 397 is very widely drawn and seeks to remove the requirement that the employer makes the relevant consolidation contribution and open it up, so that anyone can make a contribution to discharge the employer's liability.
It is difficult to see why anyone other than the employer would want to discharge any employer's liability in respect of unfunded promises made by them. I suppose that another company within the same group might want to consolidate such unfunded promises. However, we have received no representations on that point. I will happily consider it further should it prove to be an obstacle in practice. In any event, it is not appropriate to open up the provision so widely that anyone can consolidate an unfunded pension promise, as the amendment would allow. The amendment could open up a possible loophole, so I ask the hon. Gentleman to consider withdrawing it.
Amendment No. 398 seeks to extend the meaning of ''relevant consolidation contribution'' by including a transfer from an ''arrangement'' that is not deemed to be a registered pension scheme and which was established before 6 April 2006. The term ''arrangement'' is not defined in the amendment, but the hon. Gentleman said that it was a funded unapproved pension scheme.
There is no need to make separate provision for transfers from unapproved funded pension schemes because clause 177(5) already provides for the transfer of any sum from one pension scheme to another at any time. That clause also makes clear that the transfer is not treated as a contribution, so although it is not relieved from tax it will not count towards the pension input amount. It has the same effect as the hon. Gentleman's amendment, and on that basis I hope that he will not press his amendments.
Mr. Davies: There is just one contingency that I would like the Financial Secretary to address. It relates to an employer having an unfunded pension liability and the proposal in the amendment tabled by my hon. Friend the Member for Arundel and South Downs that anybody should be allowed to discharge that unfunded liability.
The Financial Secretary says that she cannot conceive of any circumstances in which anyone other than the employer might want to discharge the employer's liability. One such case immediately occurs to me. A company is taking over another company, which has unfunded liabilities The company being taken over does not have the money to fund its liabilities, which is part of its problem, but another company with the money is taking it over, and part of the arrangement, the undertaking, the deal or the contract by which the takeover takes place is that those unfunded pension liabilities will be discharged
Column Number: 688by the offeror—the company taking over the other one.
Would it not be irrational to prevent such an arrangement taking place? Would not the amendment allow that to take place in a sensible fashion? I see from the Financial Secretary's body language that she does not disagree with me.
Mr. Flight: I am glad to note that the issue about funded, unapproved top-up schemes has been covered in clause 177. I would be interested to hear the Financial Secretary's response to the most helpful contribution by my hon. Friend the Member for Grantham and Stamford, because that was one of the areas in which we thought that another party might pay the unfunded amount.
Ruth Kelly: The point made by the hon. Member for Grantham and Stamford is important. However, it should be covered by the fact that the taking-over company would become the employer for those purposes. The issue is covered by the proposed legislation.
Mr. Davies: Not necessarily, because the offeree company might then be put into liquidation. The offeror company might purchase the shares and then cancel them, so the payment into the fund—in other words, the consolidation of the unfunded liability—might need to take place in the name of the offeror company. If such an arrangement is otherwise sensible and rationale, what possible purpose can there be in drafting tax law to prevent it?
Ruth Kelly: I am not aware that that particular point is an obstacle, but I will look into it and write to the hon. Gentleman.
Mr. Flight: May I just make the point the other way round? Unless there is some very good commercial reason, nobody will have any interest whatever in funding, and so there seems to be an argument for having fairly wide, rather than narrow, drafting. Narrow drafting could block up a very valuable commercial arrangement such as the one that my hon. Friend the Member for Grantham and Stamford has commented on.
We will not put this issue to a vote, but I ask the Government to think further about the point, because they seem to be looking through the wrong end of the telescope. It is better to have a wider draft than a narrow one. I cannot see any mischief that could arise from a wide draft.
Ruth Kelly: I want to clarify one particular point. There are problems with the proposal that the hon. Gentleman has put to the Committee. For example, somebody could try to manipulate the taxation relief by deliberately creating an unfunded pension scheme before 5 April 2006 and then making a contribution to it in excess of the annual allowance limit. Restricting the consolidation contribution to the employer avoids the possibility of such manipulation arising. We do not want to create an unintended tax loophole by drawing the provision too widely, although we will look at the individual points that have been raised and if there does prove to be an obstacle in practice, we will return with proposals.
Column Number: 689
Mr. Flight: I thank the Financial Secretary for her comments and, on the basis of what she said, I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Amendments made: No. 485, in
'Paragraphs 50 to 52 have'
'Paragraph 50 or 51 has'.
No. 486, in
'to which an employee has been'
'of which an employee is'.
No. 487, in
No. 488, in
No. 489, in
No. 490, in
No. 491, in
'none of paragraphs 50 to 52 apply'
'neither paragraph 50 nor paragraph 51 has effect'.
No. 493, in
(b) the scheme was entered into before 1st September 1993 and has not been varied on or after that date with a view to the provision of benefits under the scheme.'.
'(charge on benefits from non-approved schemes)'.
Column Number: 690
No. 495, in
No. 496, in
No. 497, in
'The amount referred to in sub-paragraph (3)(a)'
'For the purposes of sub-paragraph (3)(a)—
(a) ''the appropriate fraction'' of the amount of the market value of the assets of the scheme on 5th April 2006 is the same fraction as the fraction of the assets of the scheme to which the employee would have been entitled had the scheme been wound up on that date, and
(b) the amount of the market value of the assets of the scheme on that date'.
No. 498, in
'has effect if paragraph 50 does not.'.
No. 499, in
No. 500, in
(b) property which is part of or held for the purposes of the fund or scheme does not constitute relevant property for the purposes of Chapter 3 of Part 3 of that Act (settlements without interest in possession).'.—[Ruth Kelly.]
Schedule 34, as amended, agreed to.
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