(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) - Clause 269 - Transitionals and savings

Part of Finance Bill – in a Public Bill Committee at 9:30 am on 22nd June 2004.

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Photo of Mr Howard Flight Mr Howard Flight Shadow Chief Secretary To the Treasury, Economic Affairs, Shadow Chief Secretary to the Treasury 9:30 am, 22nd June 2004

I welcome you to our deliberations this morning, Sir John.

As we all know, the clause introduces the transitional arrangements. I am glad to note that it contains powers for the Revenue to make by order any other transitional provisions that may appear appropriate, as, despite all the Government amendments to schedule 34, it strikes me forcefully that the transitional arrangements are ludicrously complex and impenetrable and that other changes may need to be made.

There seem to me to be two different types of person. One is a member of a pre-1989 uncapped scheme grandfathered 15 years ago in 1989. I have encountered a great deal of upset about the fact that what was grandfathered 15 years ago has been retrospectively changed. Indeed, a lawyer friend who has been a lifelong member of the Labour party commented to me that he was disgusted with the lack of principle with which his colleagues had disregarded the fact that he had an arrangement to save his pension: he has not changed his employment, he is still a member of the same pension scheme and he now finds himself, towards the end of his career, with a load of different rules. He pointed to the fact that the Conservative party had established the principle of grandfathering, which has been thrown to the wind. The second category is self-evidently members of schemes—whether defined benefit or defined contribution—currently subject to capping.

I ask the Minister to put on the record the underlying principles that the Government followed in producing the transitional arrangements applicable to those two different categories of people.

The Government will be aware that various outside parties have said that the arrangements that have emerged are not quite what the Green Paper envisaged and in some cases are less attractive. It has been said that the Bill should provide a more precise definition of the valuation method for DB used to register for primary protection, which will be significantly more restrictive than expected; that protection applies to 20 times the pension available on early retirement at A-day rather than the full accrued pension; and that, for those too young to retire, retirement at the earliest permissible age is assumed. If early retirement

reductions are brought into the equation, primary protection will be much less attractive and less available.

The point has been made that the valuation basis is more prohibitive than was originally suggested. Point C5 of the consultation document says:

''For DB benefits, pre A-day pension rights may be based on earnings when the benefits or part of the benefits are first taken, rather than on historic earnings. So, the taking of the first benefits under a DB scheme sets the maximum final pensionable salary''.

I shall not go into excessive illustrations, but the point is readily made that some people lose out because the calculation may put them under the ceiling for protection, but as time goes by, and even with the £1.8 million, they may be over, particularly if they are younger when they come to take their pension on retirement.

Some of the amendments that we tabled to schedule 34 have been echoed by the Government, but I repeat that, having read through the explanatory notes, I found the schedule to be probably the least clear part of the Bill. It is an area of complexity and one in which the people who most want to know where they stand are those caught in the transitional process, so I think it pertinent that the Minister lay down the broad principles for those two categories, from which individuals can subsequently explore with their advisers precisely where they stand.