Clause 173 - Personal pension arrangements: limit on contributions

Finance Bill – in a Public Bill Committee at 9:30 am on 22nd May 2003.

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Question proposed, That the clause stand part of the Bill.

Photo of Mr Howard Flight Mr Howard Flight Shadow Chief Secretary to the Treasury

As I understand it, the clause results from a particular court case and is intended to put it beyond doubt that employer contributions for employees are subject to the pension earning cap. The clause also makes it clear that the facility to carry back contributions to a previous year is available only for contributions paid by the member who made the personal pension arrangement. I wish to ask the Economic Secretary the reason for the second element. In the round, we desperately need to encourage private pension saving, and I do not see any reason for the rule as a matter of principle.

Photo of John Healey John Healey The Economic Secretary to the Treasury

The clause makes some technical amendments to personal pensions legislation to ensure that it works as originally intended. The original intention behind the legislation is clear, well understood and generally accepted by the pensions industry and by scheme members. Some have claimed, however, that the legislation does not successfully apply the earnings cap limit to contributions paid by a scheme member's employer. To put that matter beyond doubt, the clause makes some minor changes to the wording of the legislation, to take effect from Budget day.

On the hon. Gentleman's second point, a new cap is not being imposed. The old cap, which has been in place since 1989, limits the tax privileges available to people with high incomes. The purpose of the clause is to ensure that the cap cannot be avoided. The system will be simplified from 2004, when reliefs will be capped in a different way.

Question put and agreed to.

Clause 173 ordered to stand part of the Bill.