Clause 160 - Scheme administration member payments

Finance Bill (except clauses 4, 5, 20, 28, 57 to 77, 86, 111 and 282 to 289, and schedules 1, 3, 11, 12, 21 and 37 to 39) – in a Public Bill Committee at 10:15 am on 15th June 2004.

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

I beg to move amendment No. 269, in

clause 160, page 142, line 24, after 'salaries', insert ', benefits'.

Photo of Mr John McWilliam Mr John McWilliam Labour, Blaydon

With this it will be convenient to discuss the following amendments: No. 277, in

clause 169, page 146, line 29, at end insert 'except in prescribed circumstances'.

No. 276, in

clause 169, page 146, line 30, after 'salaries', insert ', benefits'.{**W4**}

Photo of George Osborne George Osborne Conservative, Tatton

These are brief amendments. The clause is intended to ensure that a member of the scheme who is also its administrator can be paid, and that such payment would not count as an unauthorised payment. Amendment No. 269 would merely make it clear that payment can include benefits as well as a wage, salary or fee. Amendment No. 276 would apply the same flexibility to clause 169, which defines scheme administration payments. Amendment No. 277 would give additional flexibility by allowing payment of certain types of loan that often form part of an employment package, such as a season ticket or relocation expenses. Again, the amendments were suggested by the industry.

A more general observation—I suppose that I am straying somewhat into a stand part debate, but I am sure that with some flexibility you will allow it, Mr. McWilliam—is that scheme administration payments could emerge as a loophole. I would be interested to know how the Inland Revenue would deal with that. If someone had exceeded the £1.5 million lifetime allowance, they could pay themselves a salary as a scheme administrator and take out the excess. The Government tried to deal with that by defining a payment as something that a person at arm's length would expect to be paid. However, the salaries of scheme administrators vary considerably, and someone who had been able to accumulate £1.5 million would probably be able to argue that they should be well paid for their advice and expertise.

I make that point because I have already heard that advice is being given to individuals who exceed the £1.5 million that they can pay themselves as a scheme administrator. I can see the Inland Revenue trying to deal with the problem several Finance Bills into the future. That is why I flag it up now.

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

The hon. Gentleman raises an interesting point, but I am slightly confused by it. The amendments, especially Nos. 269 and 276, would prima facie make the situation worse by including all those benefits. His position seems slightly contradictory. Perhaps he could explain it.

Photo of George Osborne George Osborne Conservative, Tatton

The hon. Gentleman is comparing apples and pears. The main way in which this loophole might emerge is if people have exceeded their £1.5 million allowance and then pay themselves—in monetary terms—funds to reduce their pot to below £1.5 million. What I am saying is that in the normal course of events with small schemes there should be some flexibility so that payments do not necessarily have to be wages or salaries. We will shortly discuss the payment of benefits in kind. That is a relatively new feature of this regime. It should be extended, through my amendment, to clause 160.

Photo of Ruth Kelly Ruth Kelly Financial Secretary, HM Treasury

Amendment No. 269—and the related amendment No. 276 to clause 169—would allow pension schemes to pay benefits in kind to members involved in pension scheme administration. We do not accept that those amendments are appropriate.

The clause addresses the fact that registered pension schemes may have occasion to make payments to individuals who are members of the scheme in circumstances where the payment has no connection with the individual's scheme membership. For example, payments might be made to individuals who are employed on administration work for the pension scheme, or to individuals from whom the scheme is purchasing an asset. The hon. Member for Tatton drew attention such examples. The clause enables such payments to be authorised payments, provided they are at a commercial rate.

The clause allows schemes to undertake certain normal business transactions without adverse tax consequences. Clause 169 provides similar provisions so that registered schemes can make payments to sponsoring employers without their being taxed as unauthorised payments. We recognise that schemes may need to reimburse the employer for costs borne for the administration or management of the pension scheme. For example, the employer's staff may carry out some administrative duties for the scheme, and the scheme would then need to reimburse the employer for the use of employees' time. The purpose of both clauses is to enable a registered pension scheme to carry out normal commercial business with either the sponsoring employer or a member without those transactions being taxed as unauthorised payments.

Amendment No. 269 would allow pension schemes to pay benefits in kind to members involved in pension scheme administration. It is not necessary. A pension scheme can pay benefits without their being taxed as unauthorised payments under clause 162, subsection (2) of which provides that where an asset of a pension

scheme is used by a member it is not treated as an unauthorised payment if it is a benefit received by reason of an employment—for example, where an employee is provided with a company car. The amendment's effect is therefore already achieved in the Bill.

The clause does not limit the types of reward that an employee can obtain; it merely sets out the more usual ones. If an employee is rewarded for services by some other type of payment—for example, by the provision of luncheon vouchers—such payments will be authorised payments as long as they are commercial in nature.

Amendment No. 276 would effect the equivalent change in clause 169(3). Again, it is not necessary. Use of scheme assets by the sponsoring employer would not be a payment, and would therefore not be taxed as an unauthorised payment on the employer. If the benefits are in the form of a transfer of assets, the clause will allow them as authorised payments as long as they are a commercial reward for administrative services. As with clause 160, the definitions in clause 169 are illustrative and do not exclude other commercially valid payments. Therefore, the effect of the amendment is already achieved in the Bill.

Amendment No. 277 would provide a power to make regulations with regard to clause 169(3). Those regulations would limit the scope of scheme administrator payments. However, the amendment is deficient in the sense that it does not say who would prescribe the regulations.

Clause 169 deals with payments made to the sponsoring employer in the course of administering or managing the scheme—they are called scheme administration employer payments. The clause already allows regulations to be made that further categorise payments as being scheme administration employer payments, or that exclude certain payments from being scheme administration employer payments. We have no current plans to produce regulations under this power; we are simply providing the flexibility to make changes if, in future, different types of payment arise that need to be categorised.

Amendment No. 277 merely replicates the existing power to make regulations already provided for in the clause. All three amendments are unnecessary. I urge the hon. Gentleman not to press them.

Photo of George Osborne George Osborne Conservative, Tatton

I am very happy to withdraw an amendment if it is unnecessary, and it has given the opportunity to the Financial Secretary to confirm that what we were trying to achieve can be achieved in any case under the legislation. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 160 ordered to stand part of the Bill.