Self-invested Personal Pensions

Oral Answers to Questions — Treasury – in the House of Commons at 10:30 am on 10th November 2005.

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Photo of Danny Alexander Danny Alexander Shadow Spokesperson (Work and Pensions) 10:30 am, 10th November 2005

What assessment his Department has made of the likely impact of the new self-invested personal pension regulations on the demand for second homes in rural areas.

Photo of Ivan Lewis Ivan Lewis The Economic Secretary to the Treasury

There has been widespread speculation about the impact of the new rules that will allow self-invested personal pensions to invest in residential properties. Government guidance sets out the implications of putting a residential property into a SIPP. It is unlikely to be an appropriate investment for most people, but the Government are committed to keeping this area under review and will not hesitate to act if there is evidence of any abuse.

Photo of Danny Alexander Danny Alexander Shadow Spokesperson (Work and Pensions)

I am grateful to the Minister for that reply. Has he seen this morning's Financial Times, suggesting that Standard Life alone has so far sold £1.1 billion-worth of investment in those products? Is he aware that Scotland's second homes are concentrated in rural communities in the highlands and islands, for example, and that there is a real fear in those communities that even a small rise in demand for second homes, stimulated by the new rules, will push house prices even further beyond the means of local people? Why is the Minister—

Photo of Michael Martin Michael Martin Chair, Speaker's Committee on the Electoral Commission, Speaker of the House of Commons

Order. That is fine. I believe that the Minister will be able to answer the question.

Photo of Ivan Lewis Ivan Lewis The Economic Secretary to the Treasury

Thank you, Mr. Speaker, as ever, for your assistance.

We need to consider the issue in the context of pension tax simplification, which has been welcomed by almost everyone—the industry, financial services and all Opposition parties. It is also true to say that the rules do not put the investments into any tax privileged category over and above any other investments in a pension. There are already around 15 million pension savers who can invest in residential properties. At the moment, there are only around 200,000 savers in SIPPs. Having said that, if we find that the hon. Gentleman's concerns prove to be justified, we remain willing to act and to act appropriately. At this stage, however, we believe that pension tax simplification is the right thing to do and, in that context, SIPPs are relevant. However, if there are unintended consequences, we are willing to consider those and to act appropriately.

Photo of Andrew Love Andrew Love Labour, Edmonton

Concern has been expressed, especially in the media, about the possibilities of mis-selling, and the Minister commented on that. There has also been concern about whether there will be an adequate regulatory regime. Is he aware of those concerns? What action is he likely to take to ensure the protection of the public?

Photo of Ivan Lewis Ivan Lewis The Economic Secretary to the Treasury

My hon. Friend raises a legitimate issue. At the moment, there is a 12-month gap between the regulatory regime that the Financial Services Authority will be able to introduce and the changes from 1 April next year in terms of pension tax simplifications and, specifically, the impact on SIPPs. Clearly, the Treasury and the FSA are concerned about that gap, and we are considering whether we can do anything practical about it. Having said that, it is important that the FSA follows its usual consultation processes before rushing in inappropriate rules. We are conscious of the 12-month gap.

Photo of Patrick McLoughlin Patrick McLoughlin Opposition Deputy Chief Whip (Commons)

May I congratulate the Under-Secretary of State for Environment, Food and Rural Affairs, Jim Knight, on coming into the Chamber for this question? It is obvious that DEFRA takes the matter seriously. Is the Minister telling us that the Government have done no work on the possible implications of the measure for the countryside? Is he saying that he does not believe that it will have an impact on the price of rural housing?

Photo of Ivan Lewis Ivan Lewis The Economic Secretary to the Treasury

I am saying that there have been a lot of accusations in the press and elsewhere about the potential of SIPPs that are not supported by the evidence. Having said that, we have been working on the potential consequences of the changes, including the potential impact on rural communities and on housing, which is why if we feel, having considered the evidence, that there are undesirable consequences, we will take the necessary steps.

Photo of Paddy Tipping Paddy Tipping PPS (Rt Hon Jack Straw, Secretary of State), Foreign & Commonwealth Office

What discussion has the Minister and his officials had with the Affordable Rural Housing Commission? It, too, has raised concerns.

Photo of Ivan Lewis Ivan Lewis The Economic Secretary to the Treasury

I personally have not had discussions with that organisation, but I am willing, as part of the deliberations that we are having, to ensure that that organisation and similar organisations are consulted properly and that we take account of their views.

Photo of Adam Price Adam Price Spokesperson (Economy and Taxation; Education & Skills; Miner's Compensation; Regeneration; Trade & Industry)

In drawing up the proposals originally, it is unlikely that the Government intended to help fund second homes at the expense of other taxpayers or the Exchequer. As part of the Minister's willingness to act, does he reserve the right to exclude second homes from the proposals?

Photo of Ivan Lewis Ivan Lewis The Economic Secretary to the Treasury

As I have said, we are aware of the concerns expressed. We are also aware of the benefits of pension tax simplification, which has been welcomed continually by anyone who has considered the issues. It is not generally known that around 15 million pension savers can already invest in residential property. That has nothing to do with the changes to SIPPs. However, I once again reassure the hon. Gentleman that if we feel that they will have a seriously detrimental impact on our housing policy or on rural communities, we shall certainly consider that and, if appropriate, take the necessary action.