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The Committee consisted of the following Members:Liam Laurence Smyth,
Committee Clerk † attended
the Committee Public Bill CommitteeThursday 18 June 2009(Afternoon)[Mr. Peter Atkinson in the Chair]Finance Bill(Except Clauses 7, 8, 9, 11, 14, 16, 20 and 92)Schedule 35Pensions:
special annual allowance
charge Amendment
proposed (this day): 202, in
schedule 35, page 280,
line 36, leave out from ‘year’ to end
of line 38.—(Mr.
Hoban.) 1
pm Question
again proposed, That the amendment be
made.
The
Chairman: I remind the Committee that with this we are
discussing the following: amendment 203, in
schedule 35, page 280, line 39, leave
out sub-paragraph
(2). Amendment
204, in
schedule 35, page 291, line 7, at
end insert ‘but this
Schedule shall not apply where the individual concerned is aged 50 or
over at some time in the tax years 2009-10 and
2010-11.’.
The Financial
Secretary promised us that we would see the new Exchequer Secretary
this afternoon, but I understand after talking to her that she is
currently trying to complete her transitional arrangements between
Departments. Before
lunch, I was concluding the debate on the amendments by pointing out
that the Government’s desire to clamp down on potential tax
leakage through the forestalling arrangements is at risk of masking
some of the people who will fall victim to the hard edges of the
scheme. The Government should think about the individuals who may be
affected by the measure, in particular those who will fall foul of the
£150,000 earnings barrier. Having said that, the Minister has
made some important points about the cost of some the changes proposed
in the amendments. As I have said before, the main show in town is the
next group of amendments, and I am anxious to speak to them. I beg to
ask leave to withdraw the
amendment. Amendment,
by leave, withdrawn.
Mr.
Hoban: I beg to move amendment 228, in
schedule 35, page 283, line 15, leave
out paragraphs 7 to 13 and
insert— ‘Protected
pension input amounts 6A (1) A
protected pension input amount in relation to an individual is any
amount of regular contributions exceeding the special annual allowance,
having been paid immediately prior to
22 April 2009 or where an application to pay regular contributions was
received by the scheme administrator prior to noon on 22 April
2009. (2) Regular premiums
are— (a) quarterly or
more frequent contributions in which case the protected pension input
amount is the highest amount of regular premium paid in the tax-year
immediately preceding the current tax-year multiplied by the frequency
of contributions, or (b) annual
or recurring single contributions in which case the protected pension
input amount is the total contributions paid to the scheme or
arrangement over the three tax-years immediately preceding the current
tax-year dividend by three. (3)
In the case of a defined benefit scheme, the pension input value of
further accruals for tax-years 2009-10 and 2010-11 is protected as long
as there is no material change to the scheme that results in the rate
of benefit accrual
increasing.’.
The
Chairman: With this it will be convenient to discuss the
following: amendment 182, in
schedule 35, page 283, line 40, after
‘paid’, insert
‘under this sub-paragraph or under
sub-paragraph
(3A)’. Amendment
190, in
schedule 35, page 284, line 3, leave
out ‘a quarterly’ and insert ‘an
annual’. Amendment
183, in
schedule 35, page 284, line 11, at
end insert— ‘(3A) To the
extent such amount exceeds that referred to in paragraph 8(3), relevant
added years contributions also include contributions
paid— (a) with a view to
securing that the calculation of benefits under the arrangement is by
reference to a period of service in excess of pensionable service by
the individual; and (b) which
do not exceed the average amount of contributions made by the
individual in each of the three tax years ending 5 April 2009 (or if
the individual has not been a member of the pension scheme for those
tax years, the contributions made, in a case where he has been a member
for only one complete tax year, during that tax year, and the average
contributions, if he has been a member of this scheme for two complete
tax years, for those two tax years) or if provided that if in any of
those years the contribution exceeded the amount of the annual
allowance for that tax year (see section 228 of FA 2004) such
contribution shall be taken to be an amount equal to the annual
allowance for that tax
year.’. Amendment
184, in
schedule 35, page 284, line 41, after
‘paid’, insert
‘under this sub-paragraph or under
sub-paragraph
(3A)’. Amendment
191, in
schedule 35, page 284, line 46, leave
out ‘a quarterly’ and insert ‘an
annual’. Amendment
185, in
schedule 35, page 285, line 6, at
end insert— ‘(3A) To the
extent such amount exceeds that referred to in paragraph 9(3), relevant
added years contributions also include contributions
paid— (a) with a view to
securing that the calculation of benefits under the arrangement is by
reference to a period of service in excess of pensionable service by
the individual; and (b) which
do not exceed the average amount of contributions made by the
individual in each of the three tax years ending 5 April 2009 (or if
the individual has not been a member of the pension scheme for those
tax years, the contributions made, in a case where he has been a member
for only one
complete tax year, during that tax year, and the average contributions,
if he has been a member of this scheme for two complete tax years, for
those two tax years) or if provided that if in any of those years the
contribution exceeded the amount of the annual allowance for that tax
year (see section 228 of FA 2004) such contribution shall be taken to
be an amount equal to the annual allowance for that tax
year.’. Amendment
186, in
schedule 35, page 285, line 39, after
‘paid’, insert
‘under this sub-paragraph or under
sub-paragraph
(3A)’. Amendment
192, in
schedule 35, page 285, line 44, leave
out ‘a quarterly’ and insert ‘an
annual’. Amendment
187, in
schedule 35, page 286, line 4, at
end insert— ‘(3A) To the
extent such amount exceeds that referred to in paragraph 10(3) or
10(5), relevant added years contributions also include contributions
paid— (a) with a view to
securing that the calculation of benefits under the arrangement is by
reference to a period of service in excess of pensionable service by
the individual; and (b) which
do not exceed the average amount of contributions made by the
individual in each of the three tax years ending 5 April 2009 (or if
the individual has not been a member of the pension scheme for those
tax years, the contributions made, in a case where he has been a member
for only one complete tax year, during that tax year, and the average
contributions, if he has been a member of this scheme for two complete
tax years, for those two tax years) or if provided that if in any of
those years the contribution exceeded the amount of the annual
allowance for that tax year (see section 228 of FA 2004) such
contribution shall be taken to be an amount equal to the annual
allowance for that tax
year.’. Amendment
193, in
schedule 35, page 286, line 13, leave
out ‘a quarterly’ and insert ‘an
annual’. Amendment
194, in
schedule 35, page 286, line 37, leave
out ‘a quarterly’ and insert ‘an
annual’. Amendment
188, in
schedule 35, page 286, line 42, at
end insert— ‘(2A) To the
extent such amount exceeds that referred to in paragraph 11(2) the
amount arrived at under paragraph 3(2) in relation to the arrangement
is a protected pension input amount to the extent that it is
attributable to contributions paid which do not exceed the average
amount of contributions made by the individual in each of the three tax
years ending 5 April 2009 (or if the individual has not been a member
of the pension scheme for those tax years, the contributions made, in a
case where he has been a member for only one complete tax year, during
that tax year, and the average contributions, if he has been a member
of this scheme for two complete tax years, for those two tax years)
provided that if in any of those years the contribution exceeded the
amount of the annual allowance for that tax year (see section 228 of FA
2004) such contribution shall be taken to be an amount equal to the
annual allowance for that
year.’. Amendment
195, in
schedule 35, page 289, line 20, leave
out ‘a quarterly’ and insert ‘an
annual’. Amendment
197, in
schedule 35, page 290, line 3, leave
out from ‘contributions’ to end of line and insert
‘which— (a) are paid on a
quarterly or more frequent basis pursuant to an agreement for the
payment of such contributions,
or (b) if paid less frequently
than quarterly, half of the sum of the two highest contributions made
in the periods 6 April to 21 April in each of the tax years 2006-07,
200-08 and 2008-09 and for these purposes if only one such contribution
has been made in those three periods, half of that
amount.’. Amendment
196, in
schedule 35, page 290, line 3, leave
out ‘a quarterly’ and insert ‘an
annual’.
Mr.
Hoban: The list of amendments is fairly substantial. It is
not so much an � la carte or table d’hôte menu as
a buffet.
Mr.
Hoban: I was going to use that word, but my hon. Friend
the Member for Hammersmith and Fulham has the monopoly in our ranks on
the correct pronunciation of foreign words. I am sure that he will find
the opportunity at some point before the end of the proceedings to use
the word
smörgåsbord. The
amendments are all, in different ways, designed to address the issue of
the pattern of contributions that people make towards their pension
schemes, which I have touched upon in earlier discussions. I am
concerned that the schedule as drafted refers to regular contributions
in the context of “quarterly or more frequent” payments
into a pension scheme.
A number of groups of
individuals, by nature of their employment or the profitability of
their business, are not in a position to make a regular payment to a
pension scheme. A curious situation may arise where somebody who makes
pension payments of £100,000 in quarterly instalments throughout
the year will get full relief under the anti-forestalling provisions,
but somebody whose pension contributions are not that regular will only
get full relief for £20,000. We need to think carefully about
whether we are penalising people who are self-employed, who are
partners in businesses, or who run small businesses, and who may lose
out as a
consequence. I
understand what the Government are trying to achieve: they do not want
people to use the interregnum between now and the introduction of the
cap on the higher rate relief in 2011 to make huge annual contributions
within the level of the lifetime allowance. That is why I suggested
reducing the level of the allowance during the stand part debate on
clause 71. However, some people will be caught out as a consequence of
the rules, because they do not make a regular pattern of contributions,
and this is a serious matter for them. We need to find a way to meet
their concerns, while recognising the point the Minister has made and
will make again that some people will seek to use the flexibility over
the next two years to reduce their tax
bills. My
amendment buffet contains various groups that represent different
approaches to the same issue. I would be pleased if the Minister chose
from my selection, but I suspect that he will want to return to this
important matter on
Report. The
amendments would affect what is defined in the Bill as a protected
pension input amount, at term that covers existing pension
arrangements. Contributions made under pension arrangements that are
already in place should be able to continue up to the current levels of
relief until the new regime is introduced in 2011. Our problem is with
the design of the measures.
The provisions
that determine what will count as a protected input amount are drawn
quite narrowly. The wording adopted throughout paragraphs 7 to 13
refers to contributions that are
made “on
a quarterly or more frequent
basis”. That
means that anyone who has had an arrangement to make graded
contributions on an annual basis will be subject to a reduction in tax
relief. As I said before, that could apply to the self-employed, those
who own small businesses, or partners in lawyers’ or
accountants’
firms. A
number of my hon. Friends have been in those circumstances. My hon.
Friends the Members for Henley and for Poole have both been involved in
businesses in which pension contributions have been managed in such a
way. They will know how difficult it can be to predict their profits or
share of earnings and therefore their pension contributions. Those
amounts differ from year to year, depending on how successful the
business is and the investment decisions that are made; as a result,
their total contributions would vary from year to year. Also, they
might have paid their contributions to different institutions from year
to year, because one pension provider was better than another. That
would have an impact under the rules. Under the provisions in the
schedule, such people will lose the additional tax relief on any
contribution in excess of
£20,000. The
Association of British Insurers submission to the House of Lords
Economic Affairs Committee’s sub-committee on the Finance Bill
gave the example of an individual seeking to wind up his affairs to
fund his retirement. The individual received a salary of
£150,000 in 2008, but he received a reduced salary of
£70,000 in 2009 because business had been affected by the
economic downturn. He sold the business for £250,000 in
2009—probably less than he would have got for it
before—but then paid £200,000 into his pension. Even
though the individual has suffered a reduction in his earnings and has
been forced to sell his business, he will not be able to gain full
relief for his contributions, because his salary exceeded
£150,000 in the previous
year. The
Minister recognises this problem, as his remarks in the previous debate
demonstrated. His written statement on Budget day
stated: “The
Government recognise that those with less regular contribution patterns
may be affected and would welcome views on whether there are ways of
ensuring the contributions of this group are protected in the same way
as those making more regular patterns”.—[Official
Report, 22 April 2009; Vol. 491, c.
16WS.] A
number of proposals have emerged from our discussions with interested
parties, and they are reflected in the group of amendments. Some of the
amendments are mutually exclusive, but we have tried to give a feel for
the types of approach the Government may wish to
take. Amendment
228 is probably the most straightforward, but also the most prone to
defective drafting. It would delete paragraphs 7 to 13 and replace them
with a simple regime that encompasses all the various arrangements,
including annual contributions. It refers in particular to
defined-benefit schemes. It represents a crude way of approaching the
problem, but it would move us to an annual basis.
Amendments 190
to 196 change the language on payments in the paragraphs from “a
quarterly” or more frequent to “an annual” or more
frequent. It would prevent small business owners, the self-employed or
those who contribute to their pensions from annual bonuses losing the
tax relief they currently receive.
Amendments
182 to 188 take a different approach. They recognise that we cannot
have a free-for-all in the amount of contributions that may be made on
an annual basis, but take into account the history of contributions
made in the previous three years and restrict the protected amount to
the average of the contributions made in those three years. That has
some appeal as it reflects a past pattern of behaviour and recognises
that the contributions individuals make to their pension scheme may
fluctuate according to the performance of their business. It has some
attraction as a way of tackling the issue the Minister outlined, but
without allowing much flexibility or latitude in terms of
increases.
Amendments
182 to 187 aim to get the regular contributions requirement right
between self-employed and employed people by making the same provisions
for DB schemes’ existing cash balance arrangements and money
purchase arrangements. Paragraph 11 deals with money purchase
arrangements that are not part of occupational and public service
pensions. Most self-employed people will fall into that jurisdiction.
Amendment 188 would ensure that their annual contributions do not
disqualify them from the higher rate
relief. Paragraph
16 introduces the pre-22 April 2009 pension input amount. Any such
amounts do not give rise to a special annual allowance charge, but they
may be deducted in the calculation of adjusted contribution for the tax
year 2009-10. In that case, amendment 197 would allow an average amount
to be calculated that is half the sum of the two highest annual
contributions; or, if only one contribution has been made, half of
that. That is perhaps a more generous amendment than the one that
averages contributions over the past three years, but it too seeks to
provide
flexibility. This
is an important group of amendments addressing an issue the Financial
Secretary identified. We need to ensure, where possible, that there are
tax arrangements in place that recognise how people lead their lives
and the flexibility that people may have, not through choice but
perhaps through force of circumstances. They are often not able to make
the relevant decisions until the end of the tax year. While the
Minister has focused so far on how to stop avoidance, we should have
regard to those whose pattern of income makes it difficult to make
regular quarterly or more frequent contributions to pension
schemes.
The
amendments offer a range of options. I do not expect the Minister to
leap to his feet and say, “I am going to accept amendments x to
y,” because I suspect there are some drafting errors in the
amendments. However, they represent a genuine attempt to introduce
flexibility to the arrangements to reflect the needs of a specific
group of
people.
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