The clause ensures that people cannot borrow money secured against their pension, except in the circumstance of a pension sharing order caused by divorce—the term for that is ''assignment.'' It is worth noting in passing that that does not prevent a bank from taking a pension into account when lending money. However, a loan cannot be secured against a pension.
The amendments are designed to explore a possible problem. As well as pension sharing orders, there are other circumstances in which something akin to an assignment or charge may arise—for example, a charge in favour of the Legal Aid Board or the Child Support Agency. The amendments would ensure that a payment in those circumstances is not caught unexpectedly by the clause by giving the Inland Revenue a power to set out such prescribed circumstances. I suggest that the Financial Secretary grabs the opportunity that I have given her.
Before I respond to the amendments, it would be worth while putting them in context by saying a little about the clause.
Under the new regime, we will provide tax reliefs—very generous ones—for saving in registered pension schemes. As I have told the Committee on several occasions, we do that with the intention that the tax relief funds be used for a specific purpose: to provide a pension income for a member's life, and for any dependants after the member's death. We have set out clearly in the new regime the sort of authorised payments that schemes can make that fit the purpose behind giving tax relief. Those authorised payments are set out in clauses 150 to 160, which we have discussed.
We also need to address the situation in which a registered scheme makes payments that are not consistent with the purpose of giving relief. In the legislation, those payments are called unauthorised payments. In general, an unauthorised payment is any payment made by a registered scheme that falls outside the authorised payments rules.
The legislation also provides for unauthorised payments to arise in three specific cases, which are set out at clauses 161 to 163. Clause 161 provides for an unauthorised payment to arise when a scheme member, or a dependant entitled to benefits on the member's death, assigns their pension rights to someone else. They might do this, for example, by assigning their pension to their spouse, or by selling their pension rights for cash to a third party. Clearly, it would be wrong to allow the lifetime allowance charge to be side-stepped in that way or for tax-relieved funds intended to provide an income for life in retirement to be capable of being sold for short-term gain. The clause seeks to discourage such stratagems by treating someone who assigns their benefit rights as having received an unauthorised payment at the time the rights are assigned, of the higher of what they actually received for the assignment or the amount they would
have received had the assignment been made on arm's-length terms. The usual tax consequences will apply to such unauthorised payments.
We recognise that it is legitimate to assign future benefit rights where a spouse's pension is shared on divorce, and that is specifically provided for in the Bill. The clause excludes such assignments from being treated as unauthorised payments.
The amendment is designed to extend the circumstances in which rights to benefits from a registered pension scheme may be assigned. The question whether we should assign pension rights for reasons relating to the Child Support Agency is, perhaps, outside the terms of this debate. Perhaps that is the debate that the hon. Gentleman wishes to conduct. His amendment would provide for assignments in prescribed circumstances, although it does not specify what those circumstances should be.
I want to give the Financial Secretary's officials as much time as possible to come up with an answer to my question.
There are already circumstances where something akin to an assignment happens and a charge is made, for example, in favour of the Legal Aid Board or the Child Support Agency. I want to ensure that that can continue.
As I said, the amendment provides for assignments in prescribed circumstances, but does not set out what those circumstances should be. That directly conflicts with the intention of the clause, which is to ensure that assignments other than those that are specifically allowed will be treated as unauthorised payments. The clause provides that the assignment of benefit rights is an unauthorised payment, so it effectively determines the time at which the unauthorised payment arises.
Some have argued that the excluded circumstances for the scheme pension are too narrow and need to include compliance with, for example, a court order, an excess of contribution before bankruptcy, or a pension that is calculated wrongly, and so on. The CBI has made a representation on that. We do not believe that that argument is correct. The amount of pension payable will not be affected by a pension sharing order and will be precluded from being a scheme pension. The pension sharing order affects the person to whom it is transferred. Although a member's pension is generally payable only to a member, an exception is provided for pension sharing orders.
We have not received any representations about the points that the hon. Gentleman raises on CSA payments and the Legal Aid Board, but if people make representations to us saying that some legitimate payments would not be allowed under this system, we would listen to them. However, the amendment is technically deficient and would not address his point.
provision in the Bill, how will the Government be able legally to accommodate such occasions that arise, when the definitions are too narrow to allow it? The point of the reference to prescribed circumstances is to permit eventualities to be dealt with as necessary by secondary legislation.
The hon. Gentleman makes an interesting point. The only circumstance in which that situation arises is on the pension sharing order in divorces. We have had no other representations on that, and we do not think that any argument could be advanced on it. Of course, I assure the hon. Gentleman that I will consider the measure and ensure that the situations that we have identified are comprehensive. However, as I have said to the Committee, this is the only situation that we can identify in which the provision will be necessary. The point made by the hon. Member for Tatton does not deal with the issue that he has raised, so I urge him to withdraw the amendment.
I am glad to hear the Financial Secretary say that she will investigate this point, particularly in relation to the Child Support Agency. We, as constituency Members, do not want to have to deal in a few years' time with all sorts of CSA cases, where, because of some unintended consequence of the Bill, charges cannot be made on pensions, or something akin to assignments cannot be made. Given that she has said that she will investigate the matter further, and will look into whether there are circumstances other than divorce for which we would need flexibility in the Bill, I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Amendments made: No. 317, in
clause 161, page 142, line 41, leave out 'the member's personal representatives' and insert
'to the member's personal representatives in respect of the member'.
No. 318, in
clause 161, page 143, line 7, leave out 'member'.[Ruth Kelly.]
Clause 161, as amended, ordered to stand part of the Bill.