There are a number of specific amendments to the clause that I shall speak to, but I think that my hon. Friend the Member for Arundel and South Downs is keen to catch your eye to have a stand part discussion on the clause, Sir John.
Clause 143 and the following six clauses establish a new regime by which pension schemes register with the Inland Revenue rather than receiving specific approval as is currently the case. The explanatory notes—for once—explained what is going on well when they described it as a process now, check later procedure. It is meant to be quicker and more streamlined, which we welcome. We accept that the existing approval processes are fairly cumbersome. However, the changes carry risks for pension schemes and their members, including a risk that the Inland Revenue will not register a scheme, or will even de-register it—as we will deal with later—and that schemes will be subject to punitive taxation.
Although the current system is cumbersome, one of its advantages is that it ensures that no one can think that they have set up a pension scheme and find out later that it does not have the approval of the Inland Revenue. They need the approval as the first step. Under the new system, a scheme will write to the Inland Revenue and give the information that is required, which is explained in the consultation document, such as their name and address and the accounting year end. They also have to sign a statutory declaration.
Although I may have got the process wrong, and the Financial Secretary may correct me if I have, I understand that once the registration has been sent to the Revenue, unless it is obviously wrong, an acknowledgement of the registration will be returned. I have learned from the process of postal voting that there is a big difference in the law between issuing something and receiving it. Once the acknowledgement is issued, tax relief will be allowable on the pension contributions that are made after that date. In other words, someone could send their registration, receive the acknowledgement, happily set up a scheme and start running it and start receiving contributions that the members think are tax-relieved, but suddenly, because the checking process comes later, the Inland Revenue might write to them saying, ''We have now undertaken checks and decided that we cannot register your scheme. We have processed it, but on checking it we have found that it does not meet our criteria, or there have been mistakes.'' As I understand it, the contributions that the scheme will have received to that date will not have attracted tax relief. That will come as a shock to members.
Of course, bad people will try to exploit the system by setting up sham schemes. One of the risks of the legislation and this process is that it will make it somewhat easier to set up sham schemes. However, I am talking about genuine misunderstandings, omissions or mistakes, perhaps made by the scheme administrator, which have potentially damaging consequences for the member. Although subsection (5) makes it clear that the onus is on the Inland
Revenue to register a scheme, unless there are reasons for it to do otherwise, it says that the Inland Revenue can reject the registration if
''any information contained in the application is incorrect''.
That is a broad brush with which to reject registration, and it could have damaging consequences.
Amendment No. 290 would mean that where the Inland Revenue decided not to accept a registration, it would at least have to explain its reasons. One would hope that it would do that and that that would be good practice, but it is worth writing it into the Bill, not least for reasons of natural justice, so people know why a registration has been rejected, and because it allows them to make a meaningful appeal knowing the grounds on which the Inland Revenue made its decision. Amendment No. 291 would place the same requirement on the Inland Revenue when it de-registers a scheme.
Finally, referring to a point that I made earlier, could the Financial Secretary say something about the process now, check later process, including how long it will take? How long will that shadow hang over a scheme before a person receives confirmation that it has been duly checked and everything is bona fide? Will the process take many months if the Inland Revenue is overwhelmed with applications, or will it be done fairly quickly? Elsewhere in these clauses there is a requirement on the individual to do things within 30 days—for example, to lodge appeals. Are we talking about a similar time scale that the Inland Revenue applies to itself in order to make it clear that, once it has received the registration form, it will make the checks as quickly as possible—within 30 days, for example? That way, schemes need not fear that their tax-relieved contributions will turn out not to attract tax relief.
I support both the amendments, and amendment No. 289. As the hon. Gentleman rightly said, it is in the interests of natural justice that taxpayers be given proper reasons for any failure of the Inland Revenue to register. That is only fair and reasonable.
There is a slightly esoteric matter on which the Financial Secretary may be able to calm nerves. As she knows, if registration is denied, tax relief on contributions already made will also be denied. However, I hope that she will confirm that, if registration is subsequently permitted after amendments and further clarification, all contributions made that are within the limits allowable by the Inland Revenue will qualify for tax relief.
Amendment No. 289 is entirely sensible, and I hope that the Financial Secretary will assure the Committee that no further application need be made in respect of schemes referred to in subsection (9).
I understand the reasons behind the amendment. Of course, the scheme that has been refused registered status, or has had its registered status withdrawn, will want to know why; but before I address the amendments specifically, I should say that I am quite pleased that hon. Members seem generally to welcome the process now, check later approach, which will, of course, be much simpler for pension schemes than the current arrangement.
The hon. Member for Tatton asked how the process would work. The Revenue will ask for straightforward details, such as the scheme's name and contact details and the address of the administrator. The scheme will also be asked for a description of its legal structure—for example, it will be asked whether it is a trust—and an indication of how many members it is likely to have. Finally, it will be asked to say whether the members of the scheme will have any role in running it. That will be important for the Revenue's risk assessment strategy.
The Revenue expects to be able to process applications quickly—generally within one working day of receipt. It will reject an application only if something is wrong with it. The amendments are superfluous.
The Financial Secretary says that it will take one working day to check the information. My concern is that a scheme may send information that seems on the surface to be accurate, but the Inland Revenue may say, ''We need to investigate these people a little bit further,'' and take a month or two to do that. During that process, the scheme attracts tax-relieved contributions. At the end of the process, having checked the scheme, the Inland Revenue may decide that it cannot register it. What then happens to the contributions that the scheme had thought were tax-relieved?
This touches on the thrust of the amendments. The Inland Revenue would de-register a scheme only in extreme circumstances. If the Revenue spotted a trivial or obvious error, it would be able to check that straight away and perhaps phone up or email the person who had made the application. The onus is on the person who made the application to get it right.
I am surprised about the one-day turnaround. Trustees of pension funds will be cautious, and they will send in trust deeds and goodness knows what else to the Inland Revenue. It will take the Revenue a long time—a lot longer than one day—to go through the documents before it responds and gives its views.
Such documents would be superfluous to the application. The application form is completely straightforward, and should be easy to check by the Inland Revenue straight away. If an application is rejected, the Revenue will notify the scheme administrator of the fact in writing in accordance with subsection (6). The administrator will then have the opportunity to make a fresh application. The Revenue expects to reject only a small percentage of applications on the basis of incorrect information.
De-registration is a sanction that would be used only in the most serious of cases. The circumstances under which a scheme can be de-registered are set out in clause 148. Examples include failure to pay a substantial amount of tax due, and a significant failure to provide information that is required by the Inland Revenue. Clearly, we could not allow schemes to remain with the tax advantage regime if they were flouting the rules. Removing such a scheme from the regime does not mean that it cannot continue, but from the date of de-registration it must no longer be entitled to the tax advantages that come with registered status.
The situation that the hon. Member for Tatton envisages will not occur in the operation of the scheme. In most cases, the Revenue will explain its decision to reject an application as a natural extension of communicating with the scheme's administrator. In other words, the Revenue would give a reason as a matter of course so we are not talking about information that the Revenue would wish to withhold from the scheme administrator. If the Revenue did not give reasons, or gave inadequate reasons, that would invite an appeal from the scheme administrator, so there is an in-built incentive for the Revenue to explain its decisions, and the amendments are superfluous to the legislation.
Yes, there is an appeal system, which is clearly set out in clause 146, but that just means loss of time and greater expense. Only a few bodies are nominated as persons by whom registered pension schemes may be established, and given that they are largely—I hope, entirely—responsible people, it would be sensible to have a free flow of information from them to the Revenue and vice versa. It is in the interests of speed and of lessening bureaucracy and legal proceedings to avoid an appeal and have co-operation. Perhaps the clause should enshrine that.
I completely accept and sympathise with the hon. Gentleman's underlying argument. Co-operation is in the best interests not only of the Inland Revenue but of the scheme administrators. My argument is that the in-built incentives to avoid an appeal are so strong that to enshrine in legislation the fact that the Revenue must explain its decision to the scheme administrator is a step too far—it is superfluous. The Revenue will have a quick turnaround time, the application form will be straightforward, and it will of course explain its decision if it has to reject an application.
I say this as someone who is still a member of the Law Society and who practised law as a solicitor, although not in this area, before I entered this place. I recall that in certain circumstances of administrative law a public body cannot be appealed against or taken to judicial review if it does not give reasons for its decisions, but should it voluntarily give reasons, it is liable to judicial review—ergo, there is on
occasion an incentive for a public body not to give reasons. That is my concern and, I suspect, a concern of the hon. Member for Tatton.
That concern has not been expressed by the Inland Revenue, which intends to give explanations as a matter of routine. It has made it absolutely clear, and I give a commitment in this Committee, that it intends to explain the reasons for refusal. I hope that I have put to rest my hon. Friend's fears. The amendments are superfluous, and I ask that they be withdrawn.
I am in two minds about the hon. Member for Wolverhampton, South-West (Rob Marris). On the one hand, he sits in a key Tory marginal, which we must take back if I am to sit on the other side of the Committee. On the other hand, he has always caused trouble for Ministers in the various Committees on which I have served with him, so I would not want him to lose his seat.
I remember the Employment Bill Committee, in which the hon. Gentleman regularly took the Minister to task on various matters. That was helpful to my side of the Committee, and I did not object to it. Naturally, I think that he performs a good, constructive role. Other Labour Back-Bench Members may wish to follow his example.
Turning to the substance of the amendments, I am glad that we have had this debate. The Financial Secretary has given a verbal commitment that the Inland Revenue will, as a matter of routine—that was the phrase she used—provide explanations if it decides not to register a scheme. We shall see whether it turns around applications in one day. I can already envisage the written questions about the average time taken to process a registered scheme application, and since this will all take place in 2006, I shall be the one providing the answer. I am grateful that she saddled me with that commitment.
Would the hon. Gentleman be happy to hear some form of reassurance from the Financial Secretary about the points on tax relief that he and I raised?
I do have a concern about tax relief. However, if schemes were to be processed in one day, as the Financial Secretary assures us would be the case, the problem would not arise. It will become an issue of relevance in the way that I described if it takes several weeks or months to register a scheme.
Sorry, that was the hon. Gentleman's second point. I do not know the answer; perhaps the Financial Secretary can provide it. I suspect that the
decision by the tribunal would be that tax relief should be granted from the receipt of the application. I am getting used to giving answers.
Given the assurances that I have had from the Financial Secretary, I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
I beg to move amendment No. 289, in
clause 143, page 132, line 38, at end add
'and no application need be made to the Inland Revenue under this Part'.
My Liberal Democrat friend spoke to my amendment before I moved it. It is designed to clarify something that I am sure the Financial Secretary will be able to clarify in her response. Part 1 of schedule 34 states that any current approved pension will, on 6 April 2006, become a registered pension scheme unless it chooses not to. That seems sensible. The amendment would just make it clear that schemes do not have to make an application to the Inland Revenue for that to happen and that it will happen automatically. I am sure that that is so and I look forward to the Financial Secretary confirming that, because there has been some confusion in the industry about whether schemes will have to apply.
Perhaps the Financial Secretary could also deal with the point about what schemes must do if existing scheme rules do not meet the requirements of the new regime. I understand that there is a catch-all power in the legislation for scheme rules to be amended, but what does an existing scheme need to do as it approaches A-day to ensure that it is in order with the new regime? Does it need to make any application to the Inland Revenue? The amendment would sort that out.
Another point about the registration process, which will be of particular interest to current schemes and also to future schemes, is that the December 2003 consultation paper said that a facility of electronic registration would be developed. That is welcome. I have become an even greater fan of e-government since a constituent and friend became the new e-envoy. One of his jobs will be to allow the registration process to take place over the internet. However, there is an ominous sentence in the consultation document, which states:
''Making e-business the mandatory method for registering [and subsequently amending and reporting scheme details and information] could lead to a step change in delivery. Views would be welcomed on this approach.''
It is one thing to make e-registration possible but another to make it the mandatory means of registering a scheme. It will be easy for large schemes, but there are many small schemes and people may not be totally familiar with the technology and may prefer to continue to use a paper-based process. Perhaps the Financial Secretary will say something about the views that she has received in the past six months on that proposal in the consultation document.
The application arrangements set out in the clause are primarily for use by new schemes that are established after the simplified regime takes effect. There are separate transitional arrangements in schedule 34 under which existing schemes, if approved for tax purposes by the Inland Revenue, are admitted into the new regime. Paragraph 1 of that schedule states that any such scheme will
''be treated as becoming a registered . . . scheme'' from 6 April 2006. Therefore, it would be superfluous to say that those schemes do not need to make an application under this part of the legislation because that is already clear from schedule 34.
The Inland Revenue will use the time between now and 6 April 2006 to ensure that the pensions industry knows about the transitional arrangements. We expect that the vast majority of existing schemes will wish to remain within a tax-advantaged environment and they will not need to do anything, although they will need to be aware that entry into the new regime brings new responsibilities—for example, to apply the lifetime allowance test when certain events occur.
The Revenue will publish guidance and work closely with the industry to ensure that the right messages are conveyed to scheme administrators and, more widely, to scheme members and employers.
The hon. Member for Tatton raised the issue of whether electronic registration should be mandatory. He is correct that we consulted on that. Responses were, as one might expect, mixed. Although most of the respondents were in favour of the change, there were concerns about the cost of transition to a fully electronic system, so I inform the Committee that we do not propose to make e-filing mandatory, although I recognise the case made by the hon. Gentleman and his friend the e-envoy, that such a move could bring a step change in the efficiency of the process. At this moment, there is not sufficient support to make that step. On the grounds that the amendment is superfluous, I ask him to withdraw it.
It was not I who said that such a move would make a step change in delivery, nor my friend the e-envoy. It was the Government's consultation document that made that point.
My experience of e-government was when I tried to make a passport application online. I went through loads of processes and various pages and at the end it said ''press print'', and out came an application form that I could have got from the post office. I then had to send it in the post with my photographs and so on.
It is good to hear the groundbreaking news from the Financial Secretary that the Government are not going to make e-registration mandatory. I hear what she says
on my amendment about working with the industry to ensure that people are aware of the changes, and, as she put it, that the registration process will happen automatically unless they opt out of it. The issue of amending scheme rules to make them consistent with the new regime is something that we can come back to at a later stage. Although there is a general Inland Revenue power to change scheme rules in the legislation, I cannot remember where it is. Once I do, we can have that debate at greater length.
Given what the Financial Secretary has said, and the huge U-turn on e-registration, I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Question proposed, That the clause stand part of the Bill.
You, Sir John, and the Committee will be aware that the tax approval regime that registration replaces has been the policing force by which what pension funds can invest in has been effectively controlled. In the regime that is coming to an end, there are some areas that one might object to—for example the fact that money purchase pension schemes can never invest in venture capital—but the implication of the new registration regime is that there will be no limits at all on what any sort of pension fund can invest in. As I broadly support market economies, I am attracted to that, but I am also mindful of the vulnerability of some.
The Financial Secretary said that the Revenue wants to know where people might be managing their own money purchase pension scheme. Clearly it is a situation where people could be preyed on and persuaded to invest in inappropriate investments or indeed to have the weighting of their investments wrong. Through all the discussion and consultation preceding the reforms, the Government have said nothing at all, as far as I am aware, on the fundamental issue of whether we are going to move to an investment free-for-all for all forms of pension fund or whether it is their intention to introduce some regulation that will impinge on whether the Revenue agrees to register a fund. If so, they should make that absolutely clear. If not, and we are going to have a free-for-all in two years, that should be made absolutely clear. I would like to hear from the Minister what the Government's policy is on this.
I offer one minor word of caution. In the main, I have always felt that the investment rules for ISAs and PEPs have been sensible: they are extremely broad and do not prevent people from investing in things that they might want to invest in, but they have also had the advantage of protecting them from being exploited and from their own mistakes. However, while I am in favour of getting rid of constraints and regulations, if we are to move to a complete free-for-all we should be aware that that opens the door to problems in the future, with people turning around and saying, ''I was sold a pup and I should not have invested in that,'' or, ''It was mis-sold to me,'' and so forth.
I raise this issue now to make the point that the change from tax approval to registration effectively ends the old system of policing, and I would like to know what the Government's proposals are—if they have any—for the investment regime for pension funds in the future.
I believe that we will come on to debate the set of investment rules that will apply to pension schemes and how they will operate, although I am at a loss at the moment to remember under which clause that will take place, but given that the hon. Gentleman has raised this matter under the registration of pension schemes, perhaps I should say a few words on it now.
Order. I have some sympathy with the hon. Lady in that I am not entirely clear myself as to why the nature of the investments should be considered when we are looking at the requirements for registration. However, perhaps she is prepared to say something general.
I am more than happy for this to be talked about later, but the important point is that the investment regulations were a function of tax approval, and we are getting rid of tax approval and moving to registration. Under the old arrangements, things could be enforced: if people did not stick by what had been approved, their schemes were unapproved, with all the penalties. We are now moving to this new registration arrangement for which there is no policing, other than up front.
If there are to be rules about what can and cannot be invested in, with this clause getting rid of what was the policeman, it prompts the question of what will be the policeman of the future. Most of the industry understands that there will not be any rules. I am not sure what the Minister is referring to, but I have not been able to find anything other than what are some very minor references in comparison with the sort of regime that was provided by the Revenue under the approval system.
The hon. Gentleman is making points that arise more properly under clause 160. However, as he has made some general points, I will respond in general terms now.
I understand that the hon. Gentleman welcomes the general simplified approach to taxation arrangements and pensions, and the one set of investment rules that will now apply throughout all tax-privileged pensions. The general rule is that all commercial investments will be allowed, but there are certain restrictions; loans to sponsoring employers will be subject to restrictions, for example, and there are other restrictions, too.
The hon. Gentleman is right that the policing mechanisms have changed, although I propose to return to that when we debate this matter more fully. We have a process now, check later system. That should speed up the process enormously for scheme administrators and introduce huge simplicity to the arrangements. We have set out in detail the investment rules that will apply and how they will be policed through the audit system. However, with your
permission, Sir John, the precise mechanisms of how that will operate would be better debated later on in our proceedings.
Question put and agreed to.
Clause 143 ordered to stand part of the Bill.
Clauses 144 to 146 ordered to stand part of the Bill.