Schedule 1 — Pension flexibility etc

Business of the House – in the House of Commons at 4:45 pm on 3rd December 2014.

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Photo of David Gauke David Gauke The Financial Secretary to the Treasury 4:45 pm, 3rd December 2014

I beg to move amendment 1, page 37, line 37, after “arrangement”,”, insert

““nominee’s flexi-access drawdown fund”,”.

This Amendment, and Amendments 2, 3, 4, 5 and 6, insert two missing definitions into the amendments made by the Bill in each of the two subsisting versions of section 576A of the Income Tax (Earnings and Pensions) Act 2003.

Photo of Dawn Primarolo Dawn Primarolo Deputy Speaker (Second Deputy Chairman of Ways and Means)

With this it will be convenient to discuss Government amendments 2 to 39.

Photo of David Gauke David Gauke The Financial Secretary to the Treasury

Amendments 1 to 8 are all of a minor and technical nature, amending various definitions and removing unnecessary sections. I would be happy to explain those in more detail if hon. Members are interested, but if they are not, I will move on to amendments 9 to 39.

As hon. Members will recall, we had a very useful debate in Committee about the new information requirements for individuals that are set out in part 6 of schedule 1 of the Bill. I said at the time that the Government were keen to work with industry and consumer groups to ensure that the requirements are proportionate, and that we would consider the issue further. We have therefore continued to have constructive discussions with the pensions industry about the impacts of the Bill. As a result of this ongoing consultation, we have tabled a number of amendments that we believe are a proportionate response to the concerns raised. These changes will make the reporting requirements that individuals need to meet easier to comply with, while still ensuring that they have access to the right information to help them pay the right amount of tax. Government amendments 9 to 39 therefore make a number of changes to the information requirements in the Bill to provide that individuals have to tell schemes that they have flexibly accessed their pension savings only if they are an active member of that scheme, and to increase the time they have to comply from 31 days to 91 days.

It might be helpful if I start by setting out why these information requirements are required. As we have discussed many times during the course of this Bill’s passage through the House, when an individual accesses their pension flexibly, their annual allowance for tax-relieved defined contribution pension contributions will reduce from £40,000 to £10,000. That will protect the Exchequer and ensure that the new system cannot be exploited to achieve unintended tax advantages by individuals’ diverting their salary into their pension and withdrawing it immediately with tax relief. It is therefore important that individuals understand the tax consequences of saving into a pension after accessing their savings flexibly. For that reason, the Bill placed a new requirement on individuals to tell all their pension providers once they had flexibly accessed a pension. This was intended to ensure that individuals do not use the new system to gain a tax advantage that is not intended. However, the

Government have always been clear that they are keen to ensure these requirements are proportionate. Having considered the issue carefully, we are amending the Bill to provide that people need to tell only the schemes to which they are contributing or that they contribute to in the future. They will also have an extended period of 91 days in which to do so. These changes will make the new system easier for individuals and schemes to comply with, while also ensuring that the new annual allowance is implemented effectively. Again, I would be happy to explain these amendments in more detail if hon. Members are interested.

Photo of Ian Swales Ian Swales Liberal Democrat, Redcar

I am certainly not asking the Minister to explain all this in a lot more detail and detain the House in doing so. One specific point raised in Committee was that people contributing to a workplace defined benefit scheme will not know how much of their annual allowance is being used in that scheme at the time when they are able to make contributions to a defined contribution scheme. Has he considered the possibility that such people could be treated—I think the Bill tends to do this—as though they are deliberately trying to avoid tax, whereas they may just have a lack of knowledge at the time they do this?

Photo of David Gauke David Gauke The Financial Secretary to the Treasury

My hon. Friend makes an important point. There will be particular issues with defined benefit schemes. It may be that individuals do not know when contributions are paid by their employer. Where the scheme provides defined benefits only, the information requirement does not apply, and individuals will never need to notify it. If the scheme also provides money purchase benefits—for example, if it has a separate AVC section—the requirement can only apply where contributions are made to the AVC section. Defined benefit schemes are excluded as they will not have to send pension saving statements to the individual based on the £10,000 money purchase annual allowance. I hope that helps my hon. Friend.

As I have set out, we have tabled a small number of minor and technical amendments to ensure that the Bill works as intended. We have also tabled amendments to make the reporting requirements easier to comply with while still achieving their purpose of ensuring that individuals have access to the right information to help them pay the right amount of tax. I hope that these changes will be welcomed by the House and that amendments 1 to 39 will be made to schedule 1.

Photo of Cathy Jamieson Cathy Jamieson Shadow Minister (Treasury) 5:15 pm, 3rd December 2014

I thank the Minister for bringing forward these amendments. We had a fair amount of debate and discussion in Committee on some of the issues, so I am not intending to ask him to go through each amendment, especially the minor and technical ones, in great detail.

I recognise that Government amendments 9 to 39 were brought forward as a result of the comments and concerns that we and the industry raised on the reporting requirements. The Bill as introduced placed a requirement on individuals who access their pension flexibly to inform all schemes of which they are a member that they are subject to the new £10,000 allowance. They would have been required to do that within 31 days of receiving a statement from their pension scheme and, as we said in Committee, failure to comply could lead to them being fined.

We pointed out in Committee that it was unreasonable to expect individuals to dig up information on schemes that they might not have paid into for many years and to which the annual allowance rules were therefore unlikely to apply. We also pointed out, with reference to evidence from both Ros Altmann and the Association of Taxation Technicians, that the 31-day time frame was a short and unreasonable deadline. The Government amendments change that, so that individuals will be required only to tell schemes to which they are currently contributing, or subsequently contribute to, that they are subject to the £10,000 annual allowance. They also change the length of time that individuals have to comply with this requirement to 91 days.

We welcome the Government amendments. Although we may not have persuaded the Minister to take on all our concerns, we are glad to have played some small part in persuading him to make those changes and to bring forward those amendments today. As I have said, we welcome and support them.

Amendment 1 agreed to.

Amendments made: 2, page 37, line 38, after “annuity””, insert “, “successor’s flexi-access drawdown fund””.

See the explanatory statement for Amendment 1.

Amendment 3, page 37, line 41, leave out “and 22A” and insert “, 22A, 27E and 27K”.

See the explanatory statement for Amendment 1.

Amendment 4, page 39, line 35, after “arrangement”,”, insert ““nominee’s flexi-access drawdown fund”,”.

See the explanatory statement for Amendment 1.

Amendment 5, page 39, line 36, after “annuity””, insert “, “successor’s flexi-access drawdown fund””.

See the explanatory statement for Amendment 1.

Amendment 6, page 39, line 39, leave out “and 22A” and insert “, 22A, 27E and 27K”.

See the explanatory statement to Amendment 1.

Amendment 7, page 42, leave out lines 1 to 3.

This Amendment, and Amendment 8, each remove a subsection inserted by the Bill into a version of section 576A of the Income Tax (Earnings and Pensions) Act 2003 because the subsections relate to payments not included in the lists of “relevant withdrawals” inserted by the Bill as introduced.

Amendment 8, page 44, leave out lines 28 to 30.

See the explanatory statement for Amendment 7.

Amendment 9, page 46, line 8, at end insert—

“() if the member is entitled to payment of a lifetime annuity under a flexible annuity contract as defined by section 227G(8), a relevant event occurs when the first payment of the annuity is made,

() if—

(i) the member is entitled to payment of a scheme pension under a money purchase arrangement under the scheme,

(ii) the member became entitled to the scheme pension on or after 6 April 2015,

(iii) the member became entitled to the scheme pension at a time when fewer than 11 other individuals were entitled to the present payment of a scheme pension, or dependants’ scheme pension, under the scheme, and

(iv) the scheme pension is not payable under an annuity contract treated under section 153(8) or (8A) as having become a registered pension scheme, a relevant event occurs when the first payment of the scheme pension is made, and”.

This Amendment inserts, in a list that sets out the events that give rise to an individual first flexibly accessing pension rights, missing entries corresponding to the new section 227G(7) and (9) inserted by paragraph 65 of Schedule 1 to the Bill.

Amendment 10, page 46, leave out lines 26 to 41 and insert

“and

(c) the duties under regulation 14ZB and the circumstances in which the member will have to comply with them.”.

This Amendment condenses the text currently in the Bill of new regulation 14ZA(3)(c) and (d). New regulation 14ZA(3) lists matters that are to be explained in statements under new regulation 14ZA that are provided by scheme administrators to members.

Amendment 11, page 47, line 12, at end insert

“if active or contributing etc”.

This Amendment adds words to the title of the new regulation 14ZB to reflect changes to be made in that new regulation by, in particular, Amendment 12.

Amendment 12, page 47, leave out lines 13 to 35 and insert—

‘(1) Paragraphs (2) and (3) apply if—

(a) an individual receives a statement under regulation 14ZA from the scheme administrator of a registered pension scheme (the “flexed” registered pension scheme), and

(b) on the date of the relevant event concerned, or at any later time, the individual is an accruing member (see paragraph (6)) of the flexed or any other registered pension scheme.

(1A) In this regulation—

“the relevant 13-week period” means the period of 91 days beginning with—

(a) the date of receipt if the individual is an accruing member of any registered pension scheme on any day in the period—(b) if not, the first day after the date of receipt when the individual is an accruing member of a registered pension scheme, and

“the intervening period” means the period—

(a) beginning with the date of the relevant event concerned, and(b) ending with the first day of the relevant 13-week period.

(2) The individual must before the end of the relevant 13-week period—

(a) pass on a copy of the statement, or

(b) otherwise give notice—

(i) of receipt of the statement, and

(ii) of the date of the relevant event concerned or (if applicable) of its having occurred more than 2 years before the start of the relevant 13-week period, to the scheme administrator of each other registered pension scheme of which the individual is an accruing member on any day in the intervening period; but this is subject to paragraph (5).

(3) Where, in the case of a particular registered pension scheme other than the flexed scheme, the individual is not an accruing member of that other scheme on any day in the intervening period but becomes an accruing member of that other scheme on a day (“the activation day”) after the last day of that period, the individual must before the end of the 91 days beginning with the activation day—

(a) pass on a copy of the statement, or

(b) otherwise give notice—

(i) of receipt of the statement, and

(ii) of the date of the relevant event concerned or (if applicable) of its having occurred more than 2 years before the activation day, to the scheme administrator of that other scheme; but this is subject to paragraphs (4) and (5).”.

This Amendment makes a change in new regulation 14ZB to simplify the obligations for individuals who have flexibly accessed their pension savings. Information will need to be provided to a scheme only when the individual is an accruing member of that scheme and within a 91 day period.

Amendment 13, page 47, line 37, leave out “a” and insert “an accruing”.

This Amendment, and Amendments 14 and 15, are consequential on Amendment 12 and make changes in new regulation 14ZB to ensure that an individual does not have to tell the scheme administrator if they become an accruing member of the scheme as a result of a recognised transfer.

Amendment 14, page 47, line 38, after “becomes”, insert

“an accruing member of that scheme upon or after becoming”.

See the explanatory statement for Amendment 13.

Amendment 15, page 47, line 38, at end insert

“after the date of the relevant event concerned.”

See the explanatory statement for Amendment 13.

Amendment 16, page 47, line 42, after second “(3)”, insert

“, or has previously complied with paragraph (2) or (3),”.

This Amendment ensures that a member of a pension scheme does not have to provide information under new regulation 14ZB more than once to the same pension scheme.

Amendment 17, page 47, line 43, at end insert—

‘(6) For the purposes of this regulation, the individual is an accruing member of a registered pension scheme on any particular day if—

(a) the individual is an active member of the scheme on that day as a result of there presently being arrangements for the accrual of benefits to or in respect of the individual under a cash balance arrangement or hybrid arrangement, or

(b) a relevant contribution is made under the scheme on that day.

(7) For the purposes of this regulation, a relevant contribution is made under a registered pension scheme if—

(a) a relievable pension contribution is paid by or on behalf of the individual under a non-cash-balance money purchase arrangement relating to the individual under the scheme,

(b) a contribution is paid in respect of the individual by an employer of the individual under a non-cash-balance money purchase arrangement relating to the individual under the scheme, or

(c) a contribution—

(i) paid under the scheme by an employer of the individual, and

(ii) paid otherwise than in respect of any individual, becomes held for the purposes of a non-cash-balance money purchase arrangement relating to the individual under the scheme; and in this paragraph “non-cash-balance money purchase arrangement” means a money purchase arrangement other than a cash balance arrangement.”

This Amendment defines terms used in the provisions inserted by Amendment 12. The definitions are largely based on the text currently in the Bill of new regulation 14ZD(1)(b) and (8).

Amendment 18, page 48, line 33, leave out “active member” and insert

“accruing member (see paragraph (7A))”.

This Amendment makes a change in new regulation 14ZD to bring that new regulation into line with the changes made by Amendment 12 in new regulation 14ZB.

Amendment 19, page 48, line 34, leave out from “scheme” to end of line 38.

This Amendment makes a change in new regulation 14ZD to bring that new regulation into line with the changes made by Amendment 12 in new regulation 14ZB. The text left out is replaced by the new regulation 14ZD(7A) inserted by Amendment 27.

Amendment 20, page 48, line 38, at end insert—

‘(1A) In this regulation “the relevant 13-week period” means the period of 91 days beginning with—

(a) 6 April 2015 if on that date the individual is an accruing member of any registered pension scheme, or

(b) if not, the first day after 6 April 2015 when the individual is an accruing member of a registered pension scheme.”

This Amendment makes a change in new regulation 14ZD to bring that new regulation into line with the changes made by Amendment 12 in new regulation 14ZB.

Amendment 21, page 48, line 39, leave out from second “the” to end of line 44 and insert “relevant 13-week period,”.

This Amendment makes a change in new regulation 14ZD to bring that new regulation into line with the changes made by Amendment 12 in new regulation 14ZB.

Amendment 22, page 48, line 47, leave out

“a member on the first day of that” and insert

“an accruing member on the first day of the relevant 13-week”.

This Amendment makes a change in new regulation 14ZD to bring that new regulation into line with the changes made by Amendment 12 in new regulation 14ZB.

Amendment 23, page 49, line 1, leave out from “Where” to “provide” in line 4 and insert

“, in the case of a particular registered pension scheme other than the flexed scheme, the individual is not an accruing member of that other scheme on the first day of the relevant 13-week period but becomes an accruing member of that other scheme on a day (“the activation day”) after the first day of that period, the individual must, before the end of the 91 days beginning with the activation day,”.

This Amendment makes a change in new regulation 14ZD to bring that new regulation into line with the changes made by Amendment 12 in new regulation 14ZB.

Amendment 24, page 49, line 16, after “becomes”, insert

“an accruing member of that scheme upon or after becoming”.

This Amendment, and Amendment 25, are consequential on Amendments changing earlier provisions of new regulation 14ZD and further change that regulation to ensure that an individual does not have to tell the scheme administrator if they become an accruing member of the scheme as a result of a recognised transfer.

Amendment 25, page 49, line 17, at end insert “after 6 April 2015.”

See the explanatory statement for Amendment 24.

Amendment 26, page 49, line 21, after second “(3)”, insert

“, or has previously complied with paragraph (2) or (3),”.

This Amendment ensures that a member of a pension scheme does not have to provide information under new regulation 14ZD more than once to the same pension scheme.

Amendment 27, page 49, line 22, at end insert—

‘(7A) For the purposes of this regulation, the individual is an accruing member of a registered pension scheme on any particular day if—

(a) the individual is an active member of the scheme on that day as a result of there presently being arrangements for the accrual of benefits to or in respect of the individual under a cash balance arrangement or hybrid arrangement, or

(b) a relevant contribution is made under the scheme on that day.”

This Amendment inserts a definition of a phrase used in the text inserted by the Amendments making changes in the earlier provisions of new regulation 14ZD. It replaces the text left out by Amendment 19.

Amendment 28, page 49, line 23, leave out “paid” and insert

“made under a registered pension scheme”.

This Amendment adjusts the definition of “relevant contribution” in new regulation 14ZD to bring it into line with the definition inserted into new regulation 14ZB by Amendment 17.

Amendment 29, page 49, line 27, leave out

“flexed or any other registered pension”.

This Amendment is consequential on Amendment 28 and further adjusts the definition of “relevant contribution” in new regulation 14ZD to bring it into line with the definition inserted into new regulation 14ZB by Amendment 17.

Amendment 30, page 49, line 32, leave out

“flexed or any other registered pension”.

This Amendment is consequential on Amendment 28 and further adjusts the definition of “relevant contribution” in new regulation 14ZD to bring it into line with the definition inserted into new regulation 14ZB by Amendment 17.

Amendment 31, page 49, line 34, leave out

“flexed or any other registered pension”.

This Amendment is consequential on Amendment 28 and further adjusts the definition of “relevant contribution” in new regulation 14ZD to bring it into line with the definition inserted into new regulation 14ZB by Amendment 17.

Amendment 32, page 49, line 39, leave out

“under which the contribution was paid”.

This Amendment is consequential on Amendment 28 and further adjusts the definition of “relevant contribution” in new regulation 14ZD to bring it into line with the definition inserted into new regulation 14ZB by Amendment 17.

Amendment 33, page 49, line 43, after “if”, insert

“active or contributing etc and”.

This Amendment adds words to the title of the new regulation 14ZE to reflect changes to be made in that new regulation by, in particular, Amendment 34.

Amendment 34, page 49, line 45, leave out from beginning to end of line 13 on page 50 and insert—

‘(1) Paragraphs (2) and (3) apply if—

(a) under paragraph 8C of Schedule 28, the drawdown pension fund in respect of an arrangement relating to an individual under a registered pension scheme (the “flexed” registered pension scheme) becomes the individual’s flexi-access drawdown fund in respect of the arrangement, and

(b) on the conversion date, or at any later time, the individual is an accruing member (see paragraph (6)) of the flexed or any other registered pension scheme.

(1A) In this regulation “the relevant 13-week period” means the period of 91 days beginning with—

(a) the conversion date if on that date the individual is an accruing member of any registered pension scheme, or

(b) if not, the first day after that date when the individual is an accruing member of a registered pension scheme.

(2) The individual must, before the end of the relevant 13-week period, inform the scheme administrator of each other registered pension scheme of which the individual is an accruing member on the first day of the relevant 13-week period—

(a) of the conversion, and

(b) of the conversion date or (if applicable) of the conversion’s having occurred more than 2 years before the start of the relevant 13-week period; but this is subject to paragraph (5).

(3) Where, in the case of a particular registered pension scheme other than the flexed scheme, the individual is not an accruing member of that other scheme on the first day of the relevant 13-week period but becomes an accruing member of that other scheme on a day (“the activation day”) after the first day of that period, the individual must, before the end of the 91 days beginning with the activation day, inform the scheme administrator of that other scheme—

(a) of the conversion, and

(b) of the conversion date or (if applicable) of the conversion’s having occurred more than 2 years before the activation day; but this is subject to paragraphs (4) and (5).”.

This amendment makes a change in new regulation 14ZE to simplify the obligations for individuals who have converted their existing drawdown fund to a flexi-access drawdown fund, bringing that regulation into line with new regulation 14ZB as amended by Amendment 12.

Amendment 35, page 50, line 15, leave out “a” and insert “an accruing”.

This Amendment, and Amendments 36 and 37, are consequential on Amendment 34 and make changes in new regulation 14ZE to ensure that an individual does not have to tell the scheme administrator if they become an accruing member of the scheme as a result of a recognised transfer.

Amendment 36, page 50, line 16, after “becomes”, insert

“an accruing member of that scheme upon or after becoming”.

See the explanatory statement for Amendment 35.

Amendment 37, page 50, line 16, at end insert “after the conversion date.”

See the explanatory statement for Amendment 35.

Amendment 38, page 50, line 20, after second “(3)”, insert

“, or has previously complied with paragraph (2) or (3),”.

This Amendment ensures that a member of a pension scheme does not have to provide information under new regulation 14ZE more than once to the same pension scheme.

Amendment 39, page 50, line 21, at end insert—

‘(6) For the purposes of this regulation, the individual is an accruing member of a registered pension scheme on any particular day if—

(a) the individual is an active member of the scheme on that day as a result of there presently being arrangements for the accrual of benefits to or in respect of the individual under a cash balance arrangement or hybrid arrangement, or

(b) a relevant contribution is made under the scheme on that day.

(7) For the purposes of this regulation, a relevant contribution is made under a registered pension scheme if—

(a) a relievable pension contribution is paid by or on behalf of the individual under a non-cash-balance money purchase arrangement relating to the individual under the scheme,

(b) a contribution is paid in respect of the individual by an employer of the individual under a non-cash-balance money purchase arrangement relating to the individual under the scheme, or

(c) a contribution—

(i) paid under the scheme by an employer of the individual, and

(ii) paid otherwise than in respect of any individual, becomes held for the purposes of a non-cash-balance money purchase arrangement relating to the individual under the scheme; and in this paragraph “non-cash-balance money purchase arrangement” means a money purchase arrangement other than a cash balance arrangement.”” —(Mr Gauke.)

This Amendment defines terms used in the provisions inserted by Amendment 34. The definitions are largely based on the text currently in the Bill of new regulation 14ZD(1)(b) and (8).

Third Reading

Photo of David Gauke David Gauke The Financial Secretary to the Treasury 5:18 pm, 3rd December 2014

I beg to move, That the Bill be now read the Third time.

The House has reached the final stage of its consideration of the Bill, which will give individuals more choice about how they access their savings in retirement. I have been pleased by our wide-ranging and informed debates.

I would like to remind hon. Members of the measures in the Bill and their aims. While the Bill makes the tax system fairer by ensuring that people have more choice about how they access their savings, it contains measures to prevent individuals from exploiting that new flexibility to gain an unintended tax advantage, and to ensure that the taxation of pensions savings on death remains fair and appropriate under the new system.

At Budget 2014, the Chancellor announced the most radical reform to how people take their private pensions for nearly 100 years. The current system restricts choice at the point of retirement. Those with the smallest and largest amounts of pension savings are allowed flexibility, but those with a medium amount of savings have very limited options. The Bill will change that by extending flexibility to everyone with a defined contribution pension, regardless of their total pension savings.

The Bill also introduces a new method to allow people to access their pension flexibly. At present, people taking their pension as cash have to take all their tax-free lump sum—25% of their fund—and then place the other 75% in a draw-down fund. Any money they then take out of that fund will be taxed at their marginal rate.

The uncrystallised funds pension lump sum—UFPLUS —is a new option that will give individuals the flexibility to take one or more lump sums from their pension fund without having to enter into draw-down or to take all their tax-free lump sum in one go. When using that option, 25% of each payment will be tax-free, with the other 75% taxed at the individual’s marginal rate. We are also increasing choice by introducing changes to encourage innovation in the retirement income market. Following extensive consultation with the industry, the Bill will give providers scope to make annuities much more flexible products in line with consumers’ needs.

I have already discussed the fiscal impacts of those measures and related ones today, but I reiterate that the Government have now published Office for Budget Responsibility-certified costings for the policy overall alongside the autumn statement.

Photo of Graham Stuart Graham Stuart Chair, Education Committee

My hon. Friend will remember, as I do, that one of the first acts of the previous Labour Government on coming to power was to put a tax on pensions that helped to destroy the healthiest, strongest and most successful pension system in Europe. This Government, however, in much less promising economic times, have managed to bring flexibility and hope to all those who save for a secure retirement.

Photo of David Gauke David Gauke The Financial Secretary to the Treasury

I am grateful to my hon. Friend for helpfully reminding the House of that important point. It is a significant achievement of the Government that we have been able to undertake such a fundamental reform—perhaps the biggest for nearly 100 years—in this area. Our record compares favourably with that of our predecessor. Of course, the Bill is part of a wider set of Government reforms, including the single-tier pension, the rolling out of auto-enrolment and the triple-lock guarantee.

Photo of Stephen McPartland Stephen McPartland Conservative, Stevenage

How many people will benefit from this pensions revolution?

Photo of David Gauke David Gauke The Financial Secretary to the Treasury

Something like 320,000 people retire each year with defined contribution schemes, and those people will now have far more choice. Of course, people who are saving for their pensions will know that at the end of their working life, or at various points after the age of 55, they will have more flexibility with regard to their pension pot.

I am grateful for the interesting debates that we have had during the Bill’s passage through the House and I would like to reflect briefly on how it has changed since its introduction. The Government's recently tabled amendment regarding how individuals inform schemes if the £10,000 annual allowance applies to them will provide that people only need to tell schemes to which they are contributing, or contribute to in the future, when they access a pension flexibly. They will also have an extended time period of 91 days in which to do so. These changes will make the new system easier for individuals and schemes to comply with, while ensuring that the annual allowance is implemented effectively.

The Government have made a number of minor and technical amendments to the Bill to ensure that it works as intended. The most substantive changes have been to the taxation of pensions at death, to ensure that that taxation remains fair and appropriate under the new system. The changes will allow individuals who die with pension funds remaining to pass those funds on to anyone they choose. The funds can be paid tax-free if the individual dies before the age of 75; if they die having reached that age, and the funds are paid out as a pension, they will be taxed at the beneficiary’s marginal rate—or at 45%, if the funds are paid as a lump sum.

The aim of the changes is to ensure that individuals who have made sacrifices to save over the course of their life can pass on their pension savings without worrying about excessive tax charges after they die. They also preserve the incentive for people to keep money in their pension, as there will not be the fear of their beneficiaries being hit by a 55% tax charge.

Members may be interested to note that today, in the autumn statement, the Chancellor announced that the changes will extend to annuities. Death benefit payments from joint life and guaranteed term annuities will also be tax-free when the policyholder dies before the age of 75; such death benefits can be paid to any beneficiary. That will also apply when an individual uses uncrystallised or draw-down funds inherited from someone who dies before the age of 75 to buy a dependant’s annuity. Those changes will be legislated for in due course, although not through this Bill. In conclusion, the Bill is important. It will increase choice at retirement for individuals who have saved all their lives. It contains measures to prevent individuals from using the new flexibilities to gain unintended tax consequences, and ensures that the tax treatment of pensions on death remains fair.

Finally, I thank hon. Members who participated in debates on the Bill, both in the Chamber and in Committee. In particular, I would like to mention the diligence of Cathy Jamieson, who has, I think, accounted for significantly more than 50% of the time taken to scrutinise the Bill. As I said, the Bill increases choice for the 320,000 people retiring each year, and I commend it to the House.

Photo of Cathy Jamieson Cathy Jamieson Shadow Minister (Treasury) 5:27 pm, 3rd December 2014

It is with a heavy heart that I rise to speak for the last time on the Taxation of Pensions Bill. It has been such an enjoyable experience. I am not quite sure how I will fill my days in the next few weeks, given that I will no longer be poring over absolutely every detail of the legislation. It does not seem long ago that I spoke on Second Reading—in fact, it was only two short months ago.

I should like to start where the Minister ended—by thanking everyone who has been involved in the process. I particularly thank right hon. and hon. Friends who have supported me in scrutinising the Bill, including in Committee, not least my hon. Friend Nic Dakin, who kept us all in line. Whenever I was about to take perhaps more than my fair share of time, he would keep me on track. I thank the Clerks in the Public Bill Office for their drafting advice and the role they played in ensuring that amendments were tabled in the appropriate manner. I also thank Library staff, who were excellent as always; they efficiently answered all my questions and responded to all my additional requests for information.

I thank the Minister—[Interruption.] I was going to say that he has, at all times, been polite and courteous; I hope he hears that I am saying something reasonably nice about him. That is not always how things happen. Throughout proceedings on the Bill, he has said no to pretty much all our requests and new clauses, in the nicest possible way. As I have said when speaking to our new clauses and amendments, we have been very consistent in our approach to the reforms; we have been clear that we support the principle of the Bill. We support increased flexibility and choice for savers, and that is why we have long advocated reform to the annuities market to help people to shop around and get a better deal. But we have had concerns about the speed at which the reforms have been pushed through. There was no consultation prior to the Budget statement and it has been difficult at times to get to grips with all the figures and the behavioural impacts relating to the Bill because the Government were not able to publish that analysis.

Nevertheless, we have endeavoured to identify the potential problems that the Bill presents, and we have judged everything against the three tests that we set at the outset—the advice test to ensure that savers get the right guidance, the fairness test to ensure that there are decent products for low and middle income savers, and the cost test to ensure that the reforms do not result in extra pressures on the state. It will be difficult to measure the Bill’s performance against those tests until the reforms take effect. We therefore reserve judgment on how it will work.

The Minister recapped the key issues that we debated. We made our views on the guidance guarantee abundantly clear. There is not a great deal more that we can say about that until we see how it works in practice. Ensuring that guidance meets customer expectation and requirements is a responsibility that now resides firmly with the Government. Our new clauses, which the Minister rejected, were concerned with measuring and reviewing the impact of the Bill because we wanted to gauge the degree to which the reforms produce additional opportunities for tax avoidance and to ensure that the Minister continues to monitor the impact of the Bill carefully as it is implemented.

We did not press new clause 2 to the vote. It called for a comprehensive review of the impact of the reforms, to be published 18 months after they take effect. We were keen to ensure that the Minister had every opportunity to give us the facts and figures. With the autumn statement today and the publication of the OBR policy costings, we now have some of that information and some of the numbers that we did not have previously.

There is one issue that I wish to raise even at this late stage. The Minister mentioned earlier that the OBR has run the rule over the figures, but it is important to note that the OBR policy costings document refers on page 87 to seven measures in the policy decisions table that are judged to have high or very high uncertainty around the central costing. Interestingly, one of those seven measures is pensions flexibility. The document refers to decisions since Budget 2014 and goes on to say:

“This costing receives a ‘very high’ uncertainty rating. The yield over the scorecard period—and the resulting costs in the longer term—depends on take-up and on other behavioural responses. Some people will temporarily increase pension saving in order to benefit from tax-free lump sum withdrawals. It is possible that funds will be redirected from annuities and into other assets, such as other financial products or housing. It is also possible that such funds could be used to finance consumer spending”.

That is exactly what we have been highlighting throughout the Bill proceedings, and exactly why we felt it was important that a review was built into the process. I hope that if the Minister does not take my word for it, although he often did so graciously, he will take account of the OBR’s comments.

We are clear that the success of the Bill will depend on the tests of fairness and cost that we set out. If the reforms have adverse consequences for those on middle or lower incomes or those who cannot afford the expensive regulated advice, they will not have succeeded. If the reforms lead to higher costs for the state because people have accessed their pensions too early and need additional state support, they will, again, not have succeeded. We hope the Government have factored in all the potential consequences, as they have assured us. I am pleased that they listened to us on the reporting requirements.

Does the Bill not look much better since the Government showed some flexibility in their approach? The word “flexibility” was frequently used in our discussions because that is what the Bill is all about. Had the Government taken their own advice and been a little more flexible in their approach from the outset, and perhaps a little less hasty, we might have arrived at a position where the Bill had been significantly improved and some of the outstanding questions could have been answered.

However, we have had a relatively short period to consider the Bill, notwithstanding the fact that, as the Minister pointed out, I seem to have taken up in excess of 50% of the time available to make the points. I think that it is the Opposition’s duty to scrutinise thoroughly, raise the issues, ensure that the Government have thought things through, press them on those points and lay out those areas where we think they need to continue to monitor and evaluate in future.

With those few words, the time has run out for those of us in this place. I would like to close by reiterating my thanks to everyone who has worked on the Bill. I have found this an interesting and enjoyable process—perhaps not everyone involved would agree—and I must say that I never thought I would say that about a Bill on pensions taxation.

Photo of Ian Swales Ian Swales Liberal Democrat, Redcar 5:35 pm, 3rd December 2014

I will not detain the House for long, but, as the Liberal Democrat representative here, I feel that it is important to say something. The Bill supports the pensions revolution being driven by the Minister for Pensions, my right hon. Friend Steve Webb, who has done a terrific job. We are well aware, of course, that the main pension aspects of the regulations are in the Department for Work and Pensions Bill, not in this Treasury Bill.

Like the shadow Minister, I enjoyed serving on the Bill Committee. In this place we are often very adversarial, but I think that proceedings on the Bill have been conducted in absolutely the right spirit. When it comes to pensions, it is extremely important to have cross-party support for the arrangements agreed, because pensions, by definition, involve long-term decisions. Were we to keep trying to change the pensions system every year or two, we would not be giving people certainty on what to do about their future. It has been a real pleasure to serve on a Bill on which, although we have sparred over various details, there has been strong agreement on the need to pass it. It has the full support of the Liberal Democrats.

Question put and agreed to.

Bill accordingly read the Third time and passed.