I beg to move amendment No. 282, in
clause 186, page 159, line 21, after 'which', insert
'have accrued under the pension scheme to or in respect of members, or
(c) benefits which'.
The clause is, from the Government's point of view, about spreading tax relief to stop large companies manipulating pension payments for corporation tax relief. It kicks in when a pension contribution is 210 per cent. more than in the previous year and is more than £500,000. I should like to make a couple of brief stand-part-ish comments on that, before moving on to my amendment.
The National Association of Pension Funds has said that the clause is somewhat at odds with clause 185, in that the spreading provisions are mandatory, but the relief provisions are not, despite our best efforts to make them so. Perhaps the Financial Secretary could address that difference of approach. There seems to be one rule for the Revenue and another rule for everyone else. The Financial Secretary will have received a letter, which was copied to you and others, Sir John, from Maurice Parry-Wingfield, tax director of Deloitte and Touche, who writes:
''This provision does not appear to take into account the volatile nature of the funding of defined benefit pension schemes. For example it would not have been unusual for regular company contributions to more than double in recent years following poor investment performance. Under the current rules, full relief is given if the intention is to pay at the higher rate for a sustained period of time, and spreading of relief would only be required on 'special contributions'. We would propose that a similar exemption apply under the new regime where the funding level requires the higher contribution to be paid over a sustained period of time . . . As such it may encourage companies to take contribution holidays where surpluses are revealed on an actuarial valuation rather than fund more conservatively.''
Amendment No. 282 would go quite a long way to addressing that, because it would make it clear that a payment to a registered scheme to fund an existing deficit, for example, did not require spreading to gain relief. At the moment, the only exemptions to the spreading requirement are if large payments are required to fund cost of living pension increases for all pension members in the scheme, or to cover new scheme members.
One person in the industry wrote to me to say that, even with those exemptions, the new rules on spreading tax relief on employer contributions to pension schemes could cause problems in times of
company expansion. Employers who are trying to make up a pension scheme deficit will be hit, because such action is not covered by the exemption. They may be discouraged from doing what they want to do, which is to make up a deficit, because they will be hit by the spreading of relief. My amendment No. 282 does the Government's work for them and solves the problem.
Before responding to the amendment, may I remind the hon. Gentleman that we are introducing generous rules that allow employers to claim a deduction for contributions paid to registered pension schemes? There is to be no cap or limit on the amount of contributions that an employer can make in respect of its employees, and contributions paid will be allowed as a deduction when calculating taxable profits. Where an employer makes an exceptionally large contribution to a registered pension scheme, we would not wish to deny a deduction for it. However, we wish to continue the practice that is currently operated under Inland Revenue discretion for approved pension schemes to spread relief on those exceptional contributions over a period of years.
Under simplification, contributions will help to generate surpluses that may remain in schemes. As more funding is necessary, the surplus can cushion that and contributions can be gradually increased without the need for large, one-off injections of funds, as had to happen in the past. We have considered the provision carefully and it is not retained lightly. It seems to us that the new regime will allow employers to generate surplus funds, which can be used to guard against future downturns. I think that that is virtuous behaviour and that the spreading rules will seek to encourage it.
The alternative approach that employers can take is to delay funding until the very last minute allowed by the Department for Work and Pensions. That would definitely not be the sort of behaviour that we want to encourage. Firms taking advantage of the flexibility of simplification to pre-fund need not worry about spreading, but equally we do not want to encourage people to delay funding. Therefore, spreading aims to encourage advance funding.
We have considered the point raised in the letter that the hon. Gentleman cited, but surpluses will arise only in fully funded schemes. In such a scheme, the ordinary contributions plus the retained surplus should be sufficient to avoid the need for special contributions. The new rules encourage persistent, steady funding and not the stop-start funding that was a feature of the surplus rules that were previously in place.
Employers will be able to more than double their contributions from one year to the next without triggering the spreading rules. As the hon. Gentleman has pointed out, we will allow contributions to increase from one year to the next by 110 per cent. before requiring that a proportion of the contribution paid in the current chargeable period be spread. By bringing the spreading rules into statute,
employers will be better able to plan their contributions.
We have provided for certain contributions to be exempted from the spreading rules where they are paid to fund a cost-of-living increase for pensioner members, or to meet a future service liability for new entrants to a scheme. Therefore, the hon. Gentleman's amendments in relation to that subject are unnecessary and would provoke the sort of behaviour that he seems to want to discourage.
At least the Financial Secretary read the letter from Deloitte and Touche, even if she did not agree with it. I am not as confident as she is that the proposal will encourage responsible company behaviour. It may result in situations where companies want to make up the difference and to fund their schemes properly, but are discouraged from doing do by the spreading regime. However, I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Sitting suspended for a Division in the House.
On a point of order, Sir John. This morning, the hon. Member for Tatton asked whether the rules in clause 161 on the assignment of benefit rights would prevent the payment of a legal aid board payment, or a payment in respect of a Child Support Agency order from a member's pension. I have taken further advice and am pleased to confirm that such payments are not assignments of benefit rights. They do not, therefore, fall within the scope of clause 161 and are not unauthorised payments for the purposes of the pension rules.
Clause 186 ordered to stand part of the Bill.
Clauses 187 to 193 ordered to stand part of the Bill.