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The next group of amendments, Amendments Nos. 130ET, 141B and 142C, relate to an extension of the current restriction on annuitisation. The Young scheme assets review recommended continuing to restrict the purchase of annuities to protect scheme assets pending the Government taking them in. This amendment seeks to extend the restriction on annuitisation introduced by regulations following the Pensions Act 2007 that has recently expired. This extension will have a retrospective effect back to 26 June 2008 so that there is no gap between the regulations which expired on 25 June and the new powers. This amendment will also introduce a new sanction where annuity contracts entered into contrary to the restriction can be made void by the FAS scheme manager. The new sanction under which annuity contracts entered into contrary to the extended restriction can be made void is also retrospective, covering the period from 26 June onwards. The new clause comes into effect on Royal Assent and applies to the whole of the United Kingdom.
Finally, Amendment No. 130ER relates to solvent schemes becoming eligible for the FAS. Noble Lords will be aware that we laid the Financial Assistance Scheme (Miscellaneous Amendments) Regulations 2008 before Parliament on 18 June and, indeed, debated them in the Chamber just last Monday. Further to the existing employer insolvency-related conditions, these regulations include an alternative qualifying condition such that if the employer has paid the debt to the pension scheme he was legally obliged to pay, the scheme could join the FAS. This brings many schemes with solvent employers into the FAS. While we expect the regulations to cover those schemes with solvent employers of which we are already aware, the history of the FAS shows that new schemes can come forward with circumstances that no one had realised existed. By removing the requirement to have any condition on the employer in primary legislation, this technical amendment will provide us with the latitude to include more pension schemes within the FAS. I hope that these amendments will receive the support of the Committee. I beg to move.
Lord Skelmersdale: As the Minister said, my Amendment No. 130EU has been put very naturally into this group, as indeed has Amendment No. 130ET. Having been an occasional film goer for many years, I am amused that part of this group is indeed labelled ET. I do not think there is anything to say about fingertip touching on these amendments, but I should explain why I tabled Amendment No. 130EU, which, as the noble Lord said, is principally about Desmond and Sons, although there are other schemes involved. I did it, as I do from time to time in your Lordships House, to keep the Government up to the mark on
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Lord Oakeshott of Seagrove Bay: I thank the Government on behalf of the Desmond and Sons pension scheme for what they have done. Sean ODwyer from the pensioners committee has written me very moving letters through my noble friend Lord Alderdice pointing out that pensioners have had their pensions cut on average by almost a half, from £470 a month to £250. Many of them are in their 70s and 80s. What is proposed is excellent and shows that Parliament and Government can respond to hard cases of this sort. I thank the noble Lord for that.
Lord McKenzie of Luton: I thank the noble Lords, Lord Skelmersdale and Lord Oakeshott, for their kind support for the amendments. For the record, we referred to Desmond and Sons, which has the most members346but there are two other schemes of which we are aware that will be helped by these provisions. One is Stanleys Press with 37 members and the other is Pinneys of Luton with 19 members.
(7) In subsection (2)(n), at the end add , except regulations prescribing an exception for the purposes of paragraph (b) of the definition of qualifying pension scheme in subsection (2) of that section;.
(2A) Subsection (1) does not apply to regulations under section 286 prescribing an exception for the purposes of paragraph (b) of the definition of qualifying pension scheme in subsection (2) of that section, if a draft of the instrument containing them has been laid before and approved by a resolution of each House of Parliament.
(8) An application under the Financial Assistance Scheme (Halting Annuitisation) Regulations 2007 (S.I. 2007/2533) that has not been determined before 26th June 2008 has effect as if made under subsection (2)(b).
(1) This section applies in any case in which payments due to be made under section 286 are received by the qualifying members in a tax year other than that during which payments were due to be made (payments in arrears).
The noble Lord said: During the Pensions Bill last year, we fought long and hard for the financial assistance scheme to pay pensioners 90 per cent of their expected pension accrual, and it was only at the end of last year that the Government finally conceded. A smaller point that was often overlooked in those debates was the enormous delays that pensioners were suffering to
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To add insult to injury, it also appears that not only are the potential recipients not receiving any interest when their arrears finally arrive but they are expected to pay tax on these non-existent sums payments. Can the Minister confirm that HMRC does not intend to repay any overpayment of tax until as late as mid-2009? Can he explain why that is? Additionally, can he confirm whether HMRC is taxing the arrears at 20 per cent, even though, if the payments had been made on time, they would have been subject to only 10 per cent? Why is the pensioner once again being expected to pay for the failure of the Government to keep their promises promptly? I beg to move.
Lord McKenzie of Luton: The amendment would introduce a power to make regulations so that any financial assistance scheme payments in arrears could be attributed to a tax year other than the one in which the payments were received. It would also allow a claim to be made for repayment of any income tax overpaid in respect of any arrears. The amendment is not necessary, but it may be helpful if I outline how existing tax law works in respect of FAS payments
For income tax purposes, FAS payments are treated as pension income and, as such, are subject to existing income tax rules. The rules state that payments for a past period require income tax to be deducted initially through the PAYE system in the year in which they are received. However, the payments can subsequently be allocated to the years to which they relate and the tax adjusted accordingly, depending on the individuals personal circumstances in those years. In other words, people can already obtain repayments from HMRC under existing rules. In practice, that means that, when FAS payments are made for a past period, the FAS operational unit will operate the existing tax code issued by HMRC. For the majority of members, this will be the basic rate tax of 20 per cent. For FAS recipients who think that they have paid too much tax, HMRC will, at their request, attribute their payment to the relevant tax years and reassess their tax. I hope that the Committee will see that this means that overall no one need pay more tax than they would have if the payments had been made in the years to which they relate.
The Government have responded promptly and positively to concerns raised by Dr Ros Altmann of the Pensions Action Group in relation to the tax position of members who receive payments for a past period. We appreciate that tax matters can be complex, and, in liaison with HMRC and the Pensions Action Group, we have produced supporting information for FAS members who receive payments for a past period. In addition, we have arranged for a dedicated telephone
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With regard to where we are on recalculating FAS assistance, since regulations came into force in early June the FAS operational unit has been recalculating assessments, now that assistance is payable at the 90 per cent level from normal retirement age. One thousand, two hundred and fifty-seven payments at the new rate were made in the June payroll, and we expect to have completed the reassessments by the end of August 2008. I hope that that is of assistance to the noble Lord.
Lord Skelmersdale: I am grateful to the Minister, and I am sure that the Pensions Action Group will be partially grateful. As the Minister has explained, if the recipients should have been paid at the time when the 10 per cent tax rate was operating, they will have to claimthat claim, under the normal government rules, will have to be validatedbefore they get a tax rebate. It is a rather strange way of operating, but I am afraid that from the Governments point of view I must agree with the Minister that this is a proper administrative method to achieve the objective that he and I have sought to accomplish, so I am not going to press the amendment in any way.
Lord McKenzie of Luton: It might be helpful if I explained that the individuals who wish to relate back part of the money that they have been paid can get a letter from the FAS operational unit that will set out the years to which it relates. That system is in place to facilitate that. I also stress that it is not necessarily in everyones interests to relate back the payment that they receive to an earlier year.
Lord Skelmersdale: That must be true, but in his additional remarks the Minister has just said that the individuals can receive a letter from the FAS. Will they? is the question that I would like to ask before I decide what to do with the amendment.
The noble Lord said: This is an extremely complicated area, and I hope to goodness I have got my question right. In moving this amendment, which is about the bulk annuitisation rules within the financial assistance scheme, I shall start by saying that it is very, very, very, very, very much a probing one.
Lord Skelmersdale: I cannot be more emphatic than thateven me, with my extensive use of the English language. It is a probing amendment, not least because I do not believe that the point I am hoping to raise is actually decided by primary legislation. The amendment is also highly technical. However, I should be interested to know why the Government have decided to proceed as they have. My concern is that they are not considering post-1997 escalation in the factors used to calculate the annuity derived from tax-free commutations or transfers. Pensioners who took the cash are therefore receiving less than 90 per cent of expected pension and are disadvantaged compared with those who did not commute. Surely this is an arbitrary penalty for a decision made at a time when the pensioner could have no way of knowing the effect. Why are the Government not using calculations that are of general use in the marketplace and would rule out this particular anomaly? I beg to move.
Lord McKenzie of Luton: The financial assistance scheme has to use annuity rates in a number of different circumstances where the amount of annuity which the trustees could have purchased for an individual at the end of wind-up is not known. For instance, where a member has taken part of their pension as a lump sum while the scheme is still winding up, annuity factors are used to produce a notional annuity which can then be used to calculate the amount of top-up payable to that member by the FAS.
The annuity factors used by the FAS can affect the amount of assistance paid. Because of this, we recognise that it is important that those factors are generally in line with market conditions. While the amendment would not create a definite obligation on the Government to put these annuity factors into regulations, it would perhaps give an indication that Parliament expected the annuity factors to be set out in regulations rather than elsewhere. If we did so, Parliament would then have to debate any future changes to those factors. I never underestimate the knowledge and intelligence of Members of this House in particular, and of those in the other place, but I question whether our time is best spent considering pages and pages of annuity factors.
Members of the Committee will remember that the Government have recently completed a review of the annuity factors which have been in use since 2005. The Government Actuarys Department produced draft factors based on work by PricewaterhouseCoopers in relation to the financial model for the FAS that we commissioned from the Government Actuarys Department in 2007. These draft factors generally increased the amount of assistance paid. We consulted on them, and the factors were put into place only once we had considered the responses to that consultation. Furthermore, laying regulations each time the factors
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The noble Lord touched on indexation in relation to annuity factors. The factors produce a notional annuity that takes no account of indexation. It is acknowledged that this produces a higher notional amount, and so lower top-up assistance, than if indexation were built in. A deliberate decision was made that this was the most appropriate approach, since annuities that are bought for deferred members of FAS qualifying schemes during wind-up would not generally contain indexation. However, we will continue to consider this point in the context of delivering the complete package of FAS reforms, when FAS payments will be indexed in respect of assistance derived from post-April 1997 service.
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