Schedule 19

Part of Finance Bill – in a Public Bill Committee at 10:30 am on 5 June 2007.

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Photo of Stephen Timms Stephen Timms The Chief Secretary to the Treasury 10:30, 5 June 2007

I welcome you back to the Chair, Mr. Gale, refreshed after the break and raring to go, as I am sure we all are.

I am pleased to have the opportunity to speak to the two Government amendments and I shall say a few words about what we are doing with schedule 19. The amendments will make minor drafting changes. Amendment No. 134 clarifies the fact that there will be no further charge to inheritance tax on the death of a dependant where the left-over funds in an alternatively secured pension—ASP—were chargeable to inheritance tax on the death of a scheme member. AmendmentNo. 135 ensures that the changes to remove an option to transfer funds on death from an ASP fund will not affect any members with ASPs who died before 6 April 2007.

I shall briefly remind the Committee of the principles that we have set out in relation to pensions tax relief. The key point is that generous tax relief is provided to encourage and support pension saving that will produce  an income in retirement. Pensions tax relief is intended neither to support pre-retirement incomes, nor to support open-ended asset accumulation or bequests. Pension savings are necessarily less flexible than other savings—they are locked away until retirement—which is why it is right to provide favourable tax treatment for pensions savings.

In 2005-06, the tax incentives to encourage people to save for retirement totalled about £14 billion. The best way to secure an income in retirement is via a scheme pension or an annuity. At the time of the 2006 pre-Budget report, we published a paper on the annuities market that explained the underlying policy and the academic evidence base for that policy, and responded in detail to the views of the Pensions Commission on that area.

As we developed our proposals for the new pensions tax regime, the A-day regime, we received a number of representations from groups with principled, religious objections to the pooling of mortality risk in annuities. Therefore, in the December 2003 consultation document “Simplifying the taxation of pensions”, the Government set out our proposals for the ASP. That option and the rules that apply to the sums remaining on the death of member of an ASP were enacted in the Finance Act 2004. Our intentions in doing that were very clear, but it was apparent that some people wanted to use ASPs for uses other than providing a pension.

Some changes were therefore announced in the pre-Budget report in 2006. I will remind the Committee of what it said:

“In line with the principle that pensions tax relief is provided to produce an income in retirement, the Government will bring forward legislation to make changes to the rules governing Alternatively Secured Pensions (ASPs). This will introduce a new requirement to withdraw a minimum level of income each year from an ASP fund. The facility to transfer funds on death as a lump sum to pension funds of other members of the scheme will be removed from the authorised payments rules, with these payments attracting an unauthorised payments charge.”

Clause 68 and schedule 19 change the ASP rules in line with the announcements that we have made. I would be very happy to go through the detail of the proposals, but for now I simply commend the amendments and the schedule to the Committee.