Our aim is to provide clear rules showing what payments a pension scheme may make which accord with our purpose of giving tax relief. Those are called authorised payments. We also want to identify clearly which payments do not accord with that purpose—unauthorised payments. The rules on unauthorised payments that are made by direct payment ensure that the effect of those clauses continue after the death of the member to which the payments relate. The amendments ensure that similar rules apply to the clauses that deem unauthorised payments to apply to transactions other than direct payment.
As part of the pension rules, we need to make it clear what constitutes a payment. Clause 151 provides that definition and makes it clear that it includes a payment
of money, and money's worth. The clause also provides that assets held by those connected with members are deemed as being held by that member. The clause is an integral part of the new, clear framework and rules that will guide registered schemes through what they may or may not pay out.
Clause 161 ensures that where rights under registered pension schemes are assigned, the scheme is treated as having made an unauthorised payment at the time of the assignment. Amendments Nos. 317 and 318 clarify that position where it is the member's personal representative who assigns the benefits from a pension scheme. In such circumstances, the amendments ensure that the assignment by the personal representative is treated as being in respect of a member and so will be an unauthorised payment for the purposes of clause 150.
Clause 162 is the second of three clauses that provide for unauthorised payments to arise in specific circumstances. It sets out the specific circumstances in which unauthorised payments are deemed to arise. It deals with cases where the assets of a pension scheme are used to provide a benefit to the member, their family or their household. The new regime will provide a much freer choice for tax-favoured pension schemes over what sort of investment they make. We believe that schemes should as far as possible be left to decide, in light of market developments, their own investment strategy and choice of investment assets. The new simplified regime significantly reduces the current number of restrictions and the investments that can be held by pension schemes.
In the new simplified regime, a registered pension scheme may, if it wishes, invest in an asset that may be used to provide a benefit to a member of the family or household. However, if a benefit is provided in that way, clause 162 deems an unauthorised payment from the scheme to arise, which will attract an income tax charge. The clause provides for the amount of an unauthorised payment of this type to be valued for tax purposes in the same way as amounts under the existing benefit-in-kind tax legislation, which applies when an employee obtains a non-monetary benefit from their employer.
Clause 163 deals with a case where value passes out of the scheme without an actual physical payment being made. One way of doing that is through value-shifting arrangements. There are many ways in which value shifting might occur. To pick a simple one, a scheme might alter the terms of a lease, which increases the value of the member's asset and reduces that of the scheme. Clauses 161 to 163 apply to transactions carried out by registered pension schemes with members of that scheme and with those connected with members.
The amendments are designed to ensure that the clauses continue to apply to transactions undertaken with those connected with members after the death of the member. The new pension regime sets out detailed rules on what payments a registered pension scheme may make to dependants after the death of a member. It provides generous rules to enable members to provide for their dependants in a tax-efficient manner.
The benefits include tax-free lump sums, to be paid out if the member had not begun to receive benefits, and allow the continuation of tax benefits to be paid if the member had begun to receive them. However, the rules are designed to prevent registered pension schemes from being used purely as a method of passing tax relief funds to dependants, so they do not allow any tax-free payments to be made if the member was over 75 when he or she died.
The amendments are designed to ensure that those who are connected to members do not receive benefits from pension schemes after the death of the member in ways not intended by the pension rules, and they therefore protect the integrity of the rules. They narrow the rules on unauthorised payments made by cash payments and ensure that the rules related to transactions that pass value by means other than direct payment also work after the death of a member. The amendments will not affect the legitimate and generous benefits due to dependants. They are designed to ensure that the rules are not abused by unauthorised payments being made. I commend them to the Committee.
Amendment agreed to.
Amendment made: No. 299, in
clause 151, page 137, line 34, after 'employer' insert
'(or who was connected with a member at the date of the member's death)'.—[Ruth Kelly.]
Clause 151, as amended, ordered to stand part of the Bill.