I am delighted to welcome you to the chair for this afternoon's proceedings, Mr. McWilliam.
We have been debating the new registration process and in particular the provisions for de-registration and how they might be applied. The new registration process provides pension schemes with a more straightforward way of entering the tax advantage regime, but unfortunately there will always be a small number of schemes that do not play by the rules. The Inland Revenue can use a range of sanctions against such schemes. The ultimate sanction, for the most serious offenders, is to withdraw the scheme's registered status and so deny it access to the various tax exemptions. Under existing legislation, the Revenue already has the discretion to withdraw a scheme's tax approval, and this clause merely provides the equivalent power in the new regime.
The power would be used only where there was a flagrant disregard for the responsibilities that come with a pension scheme's tax-privileged treatment. The Government allow generous tax relief for pension schemes on the strict understanding that a scheme's funds are used only for certain purposes. If a scheme consistently or blatantly uses funds for other purposes, or fails to tell the Revenue what is happening to the funds, it is right that the Revenue should be able to apply the ultimate sanction of withdrawing tax-favoured status, subject of course to an appeal right.
The hon. Member for Tatton (Mr. Osborne) asked how the Revenue intends to apply the terms ''significant failure'', ''materially incorrect'' and ''substantial amount''. I freely admit that those phrases are not defined in the Bill. It would be difficult
to do so and would make the rules more complex. However, I can tell members of the Committee that the Revenue intends to issue guidance on the interpretation of those terms. Of course, it will only be guidance. Ultimately, it will be for the commissioners or the courts to decide whether the Revenue is interpreting the terms correctly. If the scheme administrator thinks that the Revenue is interpreting the terms too restrictively, an appeal can be made against de-registration and the commissioners will consider whether the decision to re-register is reasonable.
Members were interested to know at what point a scheme loses tax relief if it is de-registered. The Revenue's notification will state the date from which de-registration is effective. Any contributions, investment growth or authorised lump sum payments made before that date will benefit from full tax relief, but any occurring on or after that date will be subject to tax. There is no six-year clawback, as there is under the current regime.
The hon. Member for Tatton was also interested in the relationship between the Revenue's power to reclaim tax relief and de-register a scheme, and the pensions regulator and the pension protection fund. He quite rightly expressed a concern for the interests of otherwise innocent members of a pension scheme. However, de-registration would never be an automatic process. The clause merely states that the Revenue ''may withdraw'' a scheme's registration, and clause 148 sets out the circumstances in which that step may be taken. Before making a decision on de-registration, the Revenue would always take into account the circumstances of a scheme and its members. That is what happens under the current regime: the Revenue exercises its discretion before withdrawing a scheme's tax approval. The courts expect the Revenue to exercise its discretion in a way that does not cause undue damage to the interests of the members. That onus on the Revenue will continue under the new regime.
The Revenue expects to work closely with both the pensions regulator and the pension protection fund, subject to the statutory restriction on disclosure of confidential tax information. The Revenue already enjoys a good working relationship with the Occupational Pensions Regulatory Authority, which I am confident will continue when OPRA is succeeded by the pensions regulator. I think that I have covered all the points that have been raised.
Subsection (2) talks about the Inland Revenue notifying a scheme administrator. In a situation where there is a crooked scheme administrator, the scheme administrator might be notified but we would not then move on, under subsection (3), to notify the trustees and members. That is a possible lacuna. Will the Minister make a few remarks about that?
The relationship between the Revenue and the scheme administrators is primarily based on trust. The pension trustees are there to ensure that the scheme is operated in the interests of its members. If
the normal notification process did not work, I would expect the Revenue to take steps to ensure that the normal processes were followed. In this particular case we are talking about de-registration and the point from which tax relief is disallowed. It would be disallowed from the point of de-registration, hence from the point at which it was notified to the scheme administrator.
In a situation with a crooked administrator, the Revenue might notify that body of de-registration and, therefore, of withdrawal of the tax exemption, but because the administrator had been notified under subsection (2), the members and the trustees would not be notified under subsection (3), as that subsection kicks in only when there is no administrator.
I am concerned about a crooked administrator who receives that notification. The exemption would be withdrawn, but the members and trustees would not be automatically notified by the Revenue because a valid notice would have been served on an administrator, albeit a crooked one.
Order. Can I ask Members to speak up, please? We want to leave the doors open so that the Room will remain as comfortable as possible, but obviously there is more background noise than normal.
Clearly, the scheme administrator has certain responsibilities that it is up to it to discharge. My hon. Friend rightly highlights provisions in the Bill for notifying other responsible members where there is no administrator. However, we are relying on the general framework of law to operate, and the scheme administrator has to discharge its responsibilities. For those reasons, I suggest to hon. Members that they support the clause.
Question put and agreed to.
Clause 147 ordered to stand part of the Bill.
Clauses 148 and 149 ordered to stand part of the Bill.