Clause 141 - Meaning of ''member''

Finance Bill – in a Public Bill Committee at 10:00 am on 8th June 2004.

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

Photo of John Butterfill John Butterfill Conservative, Bournemouth West

With this it will be convenient to discuss the following amendments:

No. 201, in

clause 177, page 151, line 28, leave out 'an active' and insert 'a'.

No. 202, in

clause 186, page 159, line 19, leave out 'pensioner'.

No. 203, in

clause 266, page 216, leave out line 1.

No. 204, in

clause 266, page 218, leave out lines 23 and 24.

No. 205, in

schedule 32, page 451, line 33, leave out 'pensioner'.

No. 206, in

schedule 32, page 451, line 36, leave out 'pensioner'.

New clause 15—Meaning of ''member''—

'In this Part ''member'' in relation to a pension scheme means a person who has:

(a) accrued rights under the pension scheme; or

(b) rights under the pension scheme which are attributable (directly or indirectly) to pension credits;

and such a person is a member whether or not there are presently arrangements made under the pension scheme for the accrual of benefits to or in respect of that person and whether or not the person is entitled to the present payment of benefits under the pension scheme.'.

Photo of George Osborne George Osborne Conservative, Tatton 10:15 am, 8th June 2004

This is a complicated set of amendments designed to achieve a fairly simple purpose. Clause 141 is the next of the definitional clauses. It states that ''member'' can mean either

''active member, pensioner member, deferred member or pension credit member''.

Our first objection is on the ground of simplification—we are going to be the champions of simplification in this Committee. If we are trying to simplify the Bill, surely we should avoid additional definitions wherever possible. We are not clear that it is necessary to establish four different definitions of a member.

Our second objection is that the provision is unclear. For example, what is the status of a member in service who has reached the normal retirement date under a scheme and so ceased to accrue benefits? The third objection is that there could be a member who is, at the

same time, an active member, a pensioner member and a deferred member. Surely that is bound to lead to confusion.

We attempted to amend the clause, but we decided that the simplest solution was to come up with a new clause to replace it—new clause 15. I am confident that the Government will accept the new clause because it suggests a far simpler definition of ''member'': someone who has

''accrued rights under the pension scheme''

''rights . . . which are attributable (directly or indirectly) to pension credits''.

The person is a member whether or not they are currently accruing benefits or receiving them. We do not make a distinction between those two things. We recommend the new clause to the Committee as a small victory for simplification.

Photo of Ruth Kelly Ruth Kelly Financial Secretary, HM Treasury

I understand that the hon. Gentleman is attempting to enter fully into the spirit of pension simplification and I applaud him for that, but there is always a danger of over-simplifying and I fear that the changes that he proposes would do just that. His proposed definition of ''member'' covers people with accrued rights and rights attributable to pension credits, but it is not clear whether that definition extends to people who have just joined the scheme, or to those who have rights transferred from another scheme.

More important, the hon. Gentleman's alternative definition does away with the distinction in clause 141 between an active member and a pensioner member. I agree that in most places there is no need to make that distinction, but there is at least one circumstance in which the distinction is important. Paragraph 10 of schedule 32 contains a rule that permits the substantial augmentation of pensions payable to scheme members without any testing against the lifetime allowance, provided that there are at least 50 pensioner members and that they all benefit from the augmentation. The effect is to constrain the awarding of big pension increases when it comes to small numbers of wealthy retired members.

Amendments Nos. 205 and 206 would remove the word ''pensioner'' from the provision in schedule 32. That could undermine the rule, since one member of the scheme could receive a very generous increase in his pension, while a further 49 members, who were not yet receiving any pension, would gain no benefit at all. Moreover, the one member would avoid any tax charge that might arise from exceeding the lifetime allowance. Although the amendments are an admirable attempt to take simplification a step further, they are flawed.

Photo of George Osborne George Osborne Conservative, Tatton

Can the Financial Secretary confirm that, because of the flexibility—it is one of the things that we welcome—for people to take part of their benefits, and because of the removal of the requirement to retire, someone could be an active member, a pensioner member and a deferred member at the same time?

Photo of Ruth Kelly Ruth Kelly Financial Secretary, HM Treasury

The hon. Gentleman makes an interesting point, but most people can be in only one category at a time. Active membership takes precedence over pensioner or deferred membership, so relief is allowed for an active member making contributions to a registered scheme even if that person has started to take benefits. However, a member who is a pension credit member will generally belong to one of the other categories as well. They will be someone with rights under a pension sharing on divorce order who may have started to take benefits and who may also have other pension arrangements. The rules around pension credits are designed to reflect that, but that is a particular situation and not one that has general application. I therefore suggest that the hon. Gentleman do not press his amendments to a Division.

Photo of George Osborne George Osborne Conservative, Tatton

I am not wholly convinced by what the Financial Secretary says. Her principal argument against the amendments seems to be that the different definitions do not really count, except in respect of one small part of a schedule, in which there is a power to augment pensions. The Government could have redrafted the schedule, rather than put in the Bill four different definitions of a member, not least because, as the Financial Secretary confirmed, it is possible for someone to be a member in all four senses of the word, even if active membership takes precedence.

Surely, the provision will be confusing. Pension fund members may ask whether they are an active member, a pensioner member or a deferred member. Perhaps they receive pension credits as well. My hon. Friends and I were attempting to help the Government to simplify pensions law.

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

If the hon. Gentleman carefully reads new clause 15, he will see that it includes two main parts—paragraphs (a) and (b)—and four possibilities follow on from them. I work out that there are 12 possible definitions of a member in the new clause. Therefore, I suggest to him that it is not in fact a simplification.

Photo of George Osborne George Osborne Conservative, Tatton

I am delighted that the hon. Gentleman is in the Committee. I thought that he would be out watching Venus passing in front of the sun, but he decided to turn up here instead. We have served together on other Committees, and I know that he has a legal eye for such things.

Obviously, I do not accept the hon. Gentleman's argument. New clause 15 says that a person is a member whether or not they accrue or receive benefits. It simply defines someone who has accrued rights under a pension scheme. I agree that it includes a separate category for pension credits, which is a particular subset with which we need to deal, but it reduces the definitions from four to two—it halves the number of categories. However, the Financial

Secretary has not yet entered into the spirit of simplification, and I shall not lead my large army over the hill and press for a Division on the matter.

Question put and agreed to.

Clause 141 ordered to stand part of the Bill.