I beg to move amendment No. 136, in schedule 20, page 232, line 25, leave out paragraph 9 and insert—
‘9 In section 166(2)(a) (when person becomes entitled to pension commencement lump sum), after “paid” insert “(or, if the person dies before becoming entitled to the pension in connection with which it was anticipated it would be paid, immediately before death)”.
9A In section 219(7) (multiple benefit crystallisation events occuring by reason of payment of lump sum death benefits treated as occurring immediately before death), insert at the end “but immediately after any benefit crystallisation event occurring immediately before the individual’s death by virtue of section 166(2).”
9B (1) Schedule 29 (authorised lump sums) is amended as follows.
(2) In paragraph 1(1) (conditions to be met if lump sum is to be pension commencement lump sum)—
(a) for paragraph (a) substitute—
“(a) the member becomes entitled to it before reaching the age of 75,
(aa) the member becomes entitled to it in connection with becoming entitled to a relevant pension (or dies after becoming entitled to it but before becoming entitled to the relevant pension in connection with which it was anticipated that the member would become entitled to it)”,
(b) in paragraph (c), for “of three months beginning with” substitute “beginning six months before, and ending one year after,”, and
(c) omit paragraph (e) (but not including the “and” at the end).
(3) In paragraph 2 (“permitted maximum”), after sub-paragraph (5) insert—
“(5A) But if the member dies before becoming entitled to the relevant pension in connection with which it was anticipated that the member would become entitled to the lump sum, the permitted maximum is the available portion of the member’s lump sum allowance.”.’.
The tax reforms for pension schemes and pension savings that came into effect last April remove the complexity that had led over many years to different tax rules applying across numerous types of pension scheme. As I have said, those changes have been very successful. The long-term benefit is a streamlined regime that is easier to understand and cheaper to administer, and which was, and still is, broadly welcomed by the pensions and savings industry.
The regime was put together after close consultation with the industry over a number of years. That engagement has continued since the enactment of the FinanceAct 2004. That continuing dialogue has proved to be very useful and has led to a number of changes in this Bill to improve further the benefits of the new regime. All the technical improvements to the alignment of benefits are in response to representations from the pensions industry. The changes have been warmly welcomed. Most of them fall into one of two categories. Some are responses to either regulatory or tax changes elsewhere. The other group is wider in scope and covers a number of measures to eliminate undue restrictions on the administrative practices of schemes, and so provide greater flexibility for scheme members and administrators. Government amendments Nos. 136 and 137 belong to that second group.
In response to representations, amendment No. 137, on the rules of pension commencement lump sums, will allow lump sums to be paid up to six months before the pension commences so long as a pension scheme is arranging for a pension to commence. That will allow schemes and pension members greater flexibility in arranging a pension. It will allow savers time to take advantage of the open market option and choose the most suitable option annuity for them, and it meets principles underlying pensions tax relief. The amendment will apply retrospectively to A-day to ensure that those lump sums that have been paid remain tax-free. It has been welcomed by the pensions industry and would ensure that tax-free lump sums can continue to be paid in a flexible way. I commend it to the Committee.
My right hon. Friend referred to lump sums being taken early and the possibility of taking advantage of the open market option and so on. Will he clarify whether the amendment will also cover lump sums from public sector schemes in which the open market option is not usually taken because such schemes have final salary pensions? If he cannot clarify that now, I shall be happy for him to write to me.
I think that the answer is yes. Once the industry made it clear to us that, in practice, the lump sum was often paid in a different period from the one that the legislation assumes, we were happy to make the change. Wherever that arises, this will fix it.