Pensions

– in the House of Lords at 2:44 pm on 16 November 2005.

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Photo of Lord Oakeshott of Seagrove Bay Lord Oakeshott of Seagrove Bay Spokesperson in the Lords, Treasury, Spokesperson in the Lords, Work & Pensions 2:44, 16 November 2005

asked Her Majesty's Government:

Why self-invested pension plans (SIPPs) will be allowed to invest in assets, including individual houses and fine wines, from 6 April 2006 when SIPPs will not be regulated before 2007.

Photo of Lord McKenzie of Luton Lord McKenzie of Luton Government Whip, Government Whip

My Lords, pension simplification replaces the numerous existing tax regimes for pensions, creating a single unified regime for tax-privileged pension savings, including a common set of investment rules. The Government are also consulting on widening the definition of persons eligible to establish a tax-privileged pension scheme and extending the existing regulatory regime. Subject to consultation, these proposals, designed to open up the personal pension market within a full regulatory framework, will be in place from April 2007.

Photo of Lord Oakeshott of Seagrove Bay Lord Oakeshott of Seagrove Bay Spokesperson in the Lords, Treasury, Spokesperson in the Lords, Work & Pensions

My Lords, I thank the Minister for that reply. Can he not see the serious concern in the City and the pension fund world about opening up self-invested pension plans to tax-sheltered investments in second homes, fine wines and the like? On Thursday, the Financial Times, under the heading, "Sipping and guzzling", stated:

"The unregulated nature of SIPP investments raises fears of another mis-selling scandal. The tax breaks may also be too good to last".

Why not announce now that the SIPP rules will not be relaxed until 2007, so that proper regulation can be in place and we can avoid the nightmare of a regulatory gap year?

Photo of Lord McKenzie of Luton Lord McKenzie of Luton Government Whip, Government Whip

My Lords, the Government are aware of that gap and the concerns that have been expressed, and we are keen to work with the pensions industry to find ways to ensure that consumers are provided with advice for making decisions about investing in SIPPs. Guidance is already available on the FSA and HMRC websites, but I should stress that these investments are not a new class of privileged investments for pension schemes. Most pension schemes already have these investment opportunities. Some 15 million people are already in schemes that are covered by them, but there has been a great deal of unjustified hype about these proposals and we think that, for many people, putting such assets into SIPPs would be inappropriate.

Photo of Lord Barnett Lord Barnett Labour

My Lords, I declare an interest as having benefited from the major tax relief available for annuities, but does my noble friend accept that the major problem with all change to pension laws is constant change? Does he accept that the case for a general pension reform, including SIPPs—and there is a major case for that—would be possible only if there was all-party agreement? Will he therefore rule out the possibility of seeking to deal with this on a party political basis and seek that agreement?

Photo of Lord McKenzie of Luton Lord McKenzie of Luton Government Whip, Government Whip

My Lords, we have already been through a simplification process which went through Parliament with all-party support. I thought that that was widely accepted as the right thing to do by the industry, by savers and by all parties in this House and the other place. But it is important to the huge issues that surround pensions that we seek to build a consensus, which is why the Government are looking forward to the final report of the commission in which the noble Lord, Lord Turner, has been involved to which we will respond appropriately in due course. Consensus is important. We are dealing with long-term issues.

Photo of Baroness Carnegy of Lour Baroness Carnegy of Lour Conservative

My Lords, for the benefit of noble Lords who, like me, are na-ve in these matters, how do fine wines produce a pension?

Photo of Lord McKenzie of Luton Lord McKenzie of Luton Government Whip, Government Whip

My Lords, that is a very good question. I understand that the concept is that fine wines may increase in value over time and, if held in a pension scheme, in due course, if realised, could provide the wherewithal to pay a pension. I think that that is the underlying concept, as is the case with any asset. The tax rules need to be taken into account. Holding such wines outside a pension scheme might generate some capital gains tax liability in due course. Put into a pension scheme they will engender some tax when they are taken out as a pension. Personally, I am more in favour of keeping fine wines in the kitchen rather than in a pension scheme.

Photo of Lord Newby Lord Newby Spokesperson in the Lords, Treasury

My Lords, is the Minister aware that members of the Liberal Democrat Treasury team in your Lordships' House and in another place have received letters—along with thousands of other people, no doubt—from a company called Inside Track, with the alluring heading, "Make your fortune in property and retire early". In setting out the case as to why one should buy property before it is built, it states:

"Then there's the boom in the 'buy-to-let' market which, incidentally, is likely to spiral thanks to changes in the pension laws".

Does that not demonstrate that this is a current problem, not an issue that will arise even from next April, far less from April 2007? Frankly, is not the Government's response totally complacent?

Photo of Lord McKenzie of Luton Lord McKenzie of Luton Government Whip, Government Whip

My Lords, I do not believe that the response is complacent. As the noble Lord has highlighted, part of the problem is that this has been built up in parts of the press although from my more recent reading of some of the financial press there is a more effective and sober assessment of what these things entail. The reality is that if people put these assets into a pension scheme they are taking away from their own individual ownership at the moment. If there is use of things such as second homes, there will be a tax charge on people using it unless a full rent is paid for doing so.

These are some of the matters which have not been properly explained in the press and it is important that we continue to make people aware of that in whatever way we can which is why these consequences have been set out on the website of the HMRC and the FSA. But the Government are working with SIPP providers to ensure that consumers are protected as fully as they can be. The gap is unfortunate but we need to make sure that, if there is to be regulation, there is a proper process which is undertaken so that the regulation is effective. We cannot just put a regulation in place overnight and it is right that the FSA is given a proper opportunity to consult on changes to its rule book so that when the regulation—which is not just about SIPPs but concerns the regime generally—comes into force it is effective and has wide support.

Photo of Lord Skelmersdale Lord Skelmersdale Deputy Chief Whip, Whips, Spokespersons In the Lords, Work & Pensions & Welfare Reform

My Lords, so now we know, fame is not the spur to regulation, A-day is. The question that really ought to be asked is why it will have taken the Government 10 years to produce proper regulation of SIPPs.

Photo of Lord McKenzie of Luton Lord McKenzie of Luton Government Whip, Government Whip

My Lords, one could ask what regulation was in place before that. The Government have recently gone through a major simplification of the tax regime, to make sure that there are common rules relating to investments and contributions that exist right across the piece. The Government have done their bit—it has been ignored by previous governments for far too long.