Cathy Jamieson
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Taxation of Pensions Bill
Cathy Jamieson Excerpts(9 years, 11 months ago)
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Cathy Jamieson (Kilmarnock and Loudoun) (Lab/Co-op)
I beg to move, That the clause be read a Second time.
Madam Deputy Speaker (Mrs Eleanor Laing)
With this it will be convenient to discuss the following:
New clause 2—Pension flexibility: Treasury review—
‘(1) The Chancellor of the Exchequer shall, within a period of no more than 18 months from 6 April 2015, publish and lay before the House of Commons a comprehensive review of the impact of the changes made by this Act to the Finance Act 2004 and the Income Tax (Earnings and Pensions) Act 2003.
(2) The information published under subsection (1) must include—
(a) the distributional impact, by income decile of the population, of changes made by this Act to the Finance Act 2004 and Income Tax (Earnings and Pensions) Act 2003;
(b) the impact on Exchequer revenues of measures contained within Schedule 2: Death of a Pension Scheme Member, related to changes to the taxation of pensions at death;
(c) a behavioural analysis;
(d) an analysis of the cumulative impact of this Act on Exchequer revenues;
(e) an analysis of the impact of this Act on the purchase of annuities.”
Amendment (a) to new clause 2, line 13 at end insert—
“() an analysis of the impact of the changes introduced by this Act on the housing market;”
Cathy Jamieson
It is a pleasure to be here this afternoon for Report stage and Third Reading, and I do not think I can quite do justice to the excitement and delight that I felt when I saw that the final stages were indeed to be taken straight after the autumn statement. I am sure that is a view shared by the Minister, who will also be grateful for this miraculous feat of scheduling. Given the vast numbers who have turned out to hear us this afternoon, the excitement is obviously broadly shared across the House.
This is a serious Bill, however, and we have serious matters to discuss this afternoon, so I will now turn to the content of new clauses 1 and 2. There is a certain symmetry to the scheduling of today’s proceedings, because the reforms in the Bill were first announced in the Budget statement and we are now discussing the Bill’s final stages alongside the autumn statement. We should be impressed—if that is the right word—by the speed with which the Government have rushed through these very significant pension reforms, although, given that we will now rush through something else even more quickly as a result of the autumn statement, perhaps I should have waited to hear that statement before writing that line in my script for this debate.
Toby Perkins (Chesterfield) (Lab)
My hon. Friend has congratulated the Government on the speed with which they have brought in these measures. She will be aware that I have secured an Adjournment debate later today on the unintended consequences that have been visited on some of my constituents as a result of previous hastily introduced pension legislation. The Government have attempted to undo that legislation but, unfortunately, without any great success. Will my hon. Friend therefore temper her praise and reflect on the fact that hastily introduced pension legislation can often have unintended consequences?
Cathy Jamieson
I thank my hon. Friend for his intervention. If I had continued my speech for another couple of lines, he would have understood that my praise was somewhat tongue in cheek, given what I am about to say about the haste with which the measures have been introduced, about the impact that that has had, and about the concerns expressed by the industry. I know that my hon. Friend is taking up these issues on behalf of his constituents and putting them forward very seriously. We still do not know all the unintended consequences that will result from this Bill and the Pension Schemes Bill, which has now gone through the House, and that is one reason why I want to speak to the new clauses today.
At least one of the new clauses will seem familiar to those who had the pleasure, as I did, of serving on the Bill Committee. We have been consistent in our approach to the reforms. We have always said that we supported the principles of greater freedom and choice, but only when that leads to better outcomes for consumers. That is why we have consistently called on the Government to give us evidence that they have undertaken the appropriate assessment and analysis of the impact and potential consequences of the reforms. This also relates to what my hon. Friend has just said. For as long as we have pressed the Financial Secretary to the Treasury to provide that information, he has politely but firmly refused to do so. We on this side of the House are nothing if not persistent, however, and it would be remiss of us not to make one final attempt to bring the Government round to our way of thinking and to persuade them to accept our new clauses.
In a moment, I shall ask the Minister some questions on the figures that have been published today, but first I want to refer to some of the points that have been made about the speed with which the Bill has been taken through Parliament. Comments have been made in briefings and submitted in evidence as we have approached Third Reading. For example, the Association of British Insurers has stated that
“it is becoming increasingly clear that the first phase of the introduction of these reforms will be delivered in a period of regulatory uncertainty.”
The impact of that will be felt by the constituents of my hon. Friend the Member for Chesterfield (Toby Perkins). The ABI goes on to say:
“There is still a lack of clarity about what is expected of anyone offering retirement products from next April.”
I will come back to those points in a moment. The Bill has had thorough scrutiny, but a number of issues remain that we wish to pursue.
New clause 1 calls for a Treasury review within two years of the reforms coming into force on 6 April 2015, detailing the impact of the Bill on Government revenues, with particular reference to opportunities for tax avoidance and national insurance contributions avoidance. In Committee, we tried to get more details and figures, and the comments of John Greenwood and others were often quoted, particularly those relating to concerns that the Bill could allow individuals to divert large sums into their pensions through salary sacrifice. Those individuals would then be able to take as much as they wished from that pension in the following year, as 25% would be tax- free and the rest would be charged at their marginal rate, with no money deducted through national insurance contributions. Although the introduction of the money purchase annual allowance rules is supposed to prevent that, the reduced £10,000 limit is activated only after the pension has been flexibly accessed for the first time.
The Association of Accounting Technicians has raised concerns about this, saying:
“In the first year, before the £40,000 allowance is lost, individuals over the age of 55 will still have the scope to save tax and NI on the full £40,000, provided they have the necessary earnings, less their existing pension contributions. Where an individual flushes (passes) an extra £30,000 through pension rather than drawing salary they will achieve a saving of £3,600 in employee NI, more than £1,500 in income tax and, also, £4,140 in employer NI (13.8%) in the first year. A total loss to the public purse of £9,240. The “Freedom and choice in pensions” rules mean this money can be withdrawn immediately if an individual is over 55. This fact means that there will not be clear distinction between salary and pension for this age group.”
I have some questions for the Minister about that. Does he agree that the Bill, as it stands, would afford additional scope for tax avoidance of the type outlined? I know we have discussed this matter in Committee, but it is important to probe it until the last possible moment.
Ian Swales (Redcar) (LD)
The hon. Lady has obviously done a lot of research on this. As I understand it, once a flexible draw-down is started, the tax relief is then limited beyond that, so cascading £40,000 of tax relief year after year is not possible. That is my reading of the Bill.
Cathy Jamieson
I thank the hon. Gentleman for that intervention, as those are exactly the kind of detailed points that I hope the Minister will respond to when he gives his views on the provisions. These are exactly the sort of questions to ask: is that the type of tax avoidance that we have described and the AAT has suggested would be an issue? Is it possible? Is it an intended consequence of the Bill? During the Public Bill Committee he explicitly told us that allowing individuals to avoid income tax and national insurance contributions is “not the intention” of the reforms, and I had no doubt that he was genuine on that. However, people are still coming to us and repeatedly outlining concerns about the scale of tax avoidance that could be facilitated by the Bill. Therefore, it is important that we continue to pursue the matter, even at this late stage, and be given assurances on it.
Towers Watson has said that Ministers seem “sanguine” on this matter. I am sure that the Minister is not sanguine in any shape or form about the potential for tax avoidance, that he would want to close any loopholes and that he would want to send a clear message that it was not his intention that the Bill be used for any attempt at tax avoidance. That is particularly the case because, as has been repeated again today, tax revenues and the take into the Exchequer are falling, because of some of the Government’s other economic policies, particularly on wages and the impact on income tax and national insurance. It is not as though the Exchequer is going to be able to afford to lose hundreds of millions of pounds of tax income.
Interestingly, the written evidence from Towers Watson cited the Minister’s assurance that
“the government will be closely monitoring behaviour under the new system”,
and will take action “if loss accelerates” Towers Watson’s evidence suggests that it is very likely that action will be required. Complementing the AAT estimates of how much tax could be lost if individuals use salary sacrifice before they have accessed their pensions flexibly, Towers Watson provides an estimate of how much tax could be lost after a pension has been accessed flexibly and the money purchase annual allowance imposed. Towers Watson’s projection returns us to the point made by the hon. Member for Redcar (Ian Swales) and shows why we have pursued this matter vigorously. Towers Watson states that
“if £10,000 of salary is given up in exchange for an employer pension contribution, the employer could pay £1,380 less National Insurance while the employee would pay between £200 and £1,200 less”.
Although the annual allowance does not altogether remove the scope for tax avoidance, it does have a limiting effect, which of course we welcome. The crucial point made by Towers Watson, however, is that this is not a potential tax avoidance opportunity that has been “dreamt up by accountants”, but one that could be “created by legislation” before us today.
Taxpayers and employers need to know whether the Government will regard the diversion of salary through pensions as legitimate. Some people have suggested that the Government drafted the legislation oblivious to the loophole they were creating and that when they realised the consequences, they came up with the money purchase annual allowance rules as a partial stop-gap. I am inclined to be slightly more generous, because I am sure that the Government were very conscientious in drafting the Bill and gave consideration to all its component parts. I am sure that the Minister will reassure us on that point in his response. I know that he is concerned about the potential for tax avoidance, because he has repeatedly told us that he will “closely monitor behaviour” under the new system and that he will work with the industry to ensure that the system remains “fair and proportionate”.
Ian Swales
I am following the hon. Lady’s argument closely. Is she suggesting that this Bill creates new avenues for employer contributions to pension schemes? As I understand it, what she describes is available in the current system.
Cathy Jamieson
I thank the hon. Gentleman for his intervention. I hope the Minister will provide a clear steer to people about what would be acceptable both to employers and employees. I would also be interested to learn what he plans to do if the system turns out not to be fair and proportionate, and what form the monitoring will take. That is why we have proposed new clause 1. We did debate the matter in Committee, but we are still concerned that we have not heard exactly how the monitoring will take place and what the Minister intends to do.
Essentially, new clause 1 asks the Government to commit to doing something that the Minister has already said that they would do—to monitor and review the reforms to ensure that they are not used for the purpose of tax avoidance. We simply want that commitment in the Bill, to ensure that there are reports back to the House.
When we first debated the issue, concerns were raised about the time scale in which we were asking for the review. We had not, at that stage, fully anticipated how long it would be before patterns were established and problems had manifested themselves, which is why the new clause includes a two-year-time frame.
Mr Geoffrey Robinson (Coventry North West) (Lab)
Did I hear my hon. Friend correctly when she said that the Minister was minded to carry out a review of precisely the areas that we have suggested in new clauses 1 and 2? If so, will the Minister make that clear in his reply to my hon. Friend, because then we could avoid a vote on the new clause?
Cathy Jamieson
My hon. Friend makes an important point. As I have said, we did have some of this debate in Committee. I know that the Minister, at various stages, has said that everything is under review and that all things are reviewed. What we seek to do is to put some structure around that so that all reports are brought back before the House.
I think I have made my point in previous Bill Committees and probably at the Dispatch Box as well. Even in my relatively short time in this place and on the Front Bench, I have seen Ministers come and go before my very eyes. I have no doubt that the Minister is concerned to ensure that he does the right thing and monitors what is happening, but it is important to have that commitment on behalf of the Government, which is why I have tabled the new clause.
New clause 2 would provide for a Treasury review of the Bill’s operation within 18 months of 6 April 2015. Such a review would include an analysis of its distributional impact by income decile, an analysis of the impact on Government revenues of changes to the taxation of pensions on death, a behavioural analysis and an analysis of the impact on the purchase of annuities. Any Bill that will have a significant impact on not only people’s lives, but the broader industry and the economy, must be based on evidence, engagement and analysis. We know from our probing in Committee why the Government announced the reforms without consultation, and the Minister explained his position on concerns about the impact on the market. However, it would be helpful to have some idea of whether the Government had carried out the behavioural analysis and impact assessment that we are requesting, and indeed of not only the extent to which that had been done, but what information they could set out. Those points have also been pursued by my hon. Friend the Member for Cumbernauld, Kilsyth and Kirkintilloch East (Gregg McClymont), who worked tirelessly on the Pension Schemes Bill. That Bill includes provisions on the guidance guarantee, which is crucial to the Bill.
David Mowat (Warrington South) (Con)
Surely the purpose of such a review would be to drive action. We have an expectation of the Bill’s effect on the annuities market, so will the hon. Lady tell us how the results of the annuities aspect of her proposed review would affect a future Government’s actions? Does she think that it would make any difference to Government policy if there was a 10% or a 90% change in the purchase of annuities, because it seems to me that it would not?
Cathy Jamieson
The purpose of the monitoring is to determine whether the Bill has unintended consequences. We would want the process to deal with our concerns of whether the market responds to the changes and if the products that people have envisaged will be available. There is the oft-quoted example of what happened in Australia: people drew down money, but many found that they had not properly planned for the future.
The hon. Gentleman asks what the Government would do, but I think that the Government have a responsibility to keep all legislation under review by looking at its effects and examining whether measures are fit for purpose and if they do what they say on the tin. If changes need to be made, the Government of the day will bring forward appropriate provisions. They have a responsibility to make themselves aware of any unintended consequences that might arise from the Bill and they should tell us how they will close any loopholes.
Hywel Williams (Arfon) (PC)
I am sure that the hon. Lady agrees with the TUC when it says that it believes that
“greater emphasis should be placed on developing strong default options at retirement. These may include a combination of drawdown and annuitisation.”
Cathy Jamieson
The hon. Gentleman makes a valuable point. The Public Bill Committee examined what options will be available to people and how we can ensure that the balance is right so that they are encouraged not only to take up pensions at the earliest possible stage, such as through auto-enrolment, but to think about planning for their long-term future. The aim was to ensure that people would not think that there was a windfall at age 55, perhaps make wrong decisions about it, and find by their 75th birthday that they had not done the correct planning. The new clause is very much about trying to see how the provisions will impact on real people when the time comes for them to make these decisions. That is why we were talking about behavioural analysis; we want to ensure that lessons are learned from it.
David Mowat
Surely we know the answer to the question prompted by new clause 2(2)(e), more or less; it is that dramatically fewer annuities will be purchased. Okay, a review might show that the figure is 12% as opposed to 90%, but what action would be taken pursuant to that answer?
Cathy Jamieson
It is a bit chicken-and-egg: until we do the analysis, we do not really know the extent of the problem. The solution would come once the problems were identified. The hon. Gentleman makes an important point about annuities; that takes me back to the issue that I raised about the opportunity for new products. There is a relatively short period of time in which to develop them. The industry, of course, says that it will try to meet the “challenges”—it consistently uses that word—and ensure that there are options and products. None the less, I find it difficult to understand why the Government seem resistant to the new clauses.
I think it was Ernest Hemingway who said that his novels were like icebergs:
“There is seven-eighths of it under water for every part that shows.”
Sometimes the same can be said of legislation, because the devil is in the detail. One has to see the detail, and be on top of it over a period, to find out what the ongoing impact is. That is why, throughout the passage of the Bill, we have tried to identify and probe any fault-lines on the surface of the legislation.
The guidance guarantee has been the subject of considerable debate, although it essentially formed part of the Pension Schemes Bill. Although we have now seen information on the overarching standards and the apportioning of the levy, published on Friday by the Financial Conduct Authority, we have yet to see all the content of that guarantee. Of course, that is the responsibility of the Government, in tandem with delivery partners. It is vital that the guidance is up and running, and is equal to consumer needs, come April next year. The FCA policy statement published on Friday confirmed that, at least initially, there will be no “second line of defence”, as it was described, which makes it even more important that the guidance is fit for purpose.
In the Public Bill Committee, I talked about the potential impact of the reforms on eligibility for social care. We identified two separate but related points on social care that we believe the Government have not yet adequately addressed. The first is the impact that drawing down money under flexi-access may have on an individual’s entitlement to means-tested benefits and eligibility for social care. The second is a point that I raised earlier: the danger that too much emphasis has been placed on early access to funds. That may result in people taking too much, too quickly, and being left with insufficient funds to cover the cost of care later in life. That is why our review calls for a distributional impact of the reforms by income decile. That is also why we need behavioural analysis. Signs may emerge that consumers are accessing their pensions earlier, which increases the chance that they may be left short of money in later life.
As we heard in Committee, many individuals who access their pension flexibly risk being hit with an unexpected tax bill—a point that the Association of British Insurers highlighted:
“Many people will struggle to understand the tax consequences of these reforms. Apart from tax free lump sums, withdrawals from pension pots are taxable pension income…Not only may people find themselves unexpectedly paying higher rate tax, it is possible that some will be unaware that their tax may not be settled for a year after they have accessed their funds through a self-assessment process that they may be unfamiliar with.”
These risks have to be monitored and reviewed, so that any unintended consequences can be picked up and dealt with.
We also need to see—this comes back to the point raised earlier—whether the Bill results in a proliferation of new products. The impact of such products on consumer behaviour should be monitored. In its 2014 risk outlook the Financial Conduct Authority expressed concern that
“retirement income products and distribution may deliver poor customer outcomes”.
It said:
“While recent proposals for pension reform plan to allow consumers to access any amount of their pension pot at age 55, the need for consumers to understand the options available to them at retirement is still paramount. Any future innovation in decumulation products will compound these risks.”
The FCA was, again, trying to look to the future. We share those concerns. We do not want poor outcomes for consumers, and I am sure the Minister does not want that either.
A further issue is that new products may carry additional charges that eat away at an individual’s pension. Research from the House of Commons Library found that current income drawdown products could see 27% of an average pension pot of £30,000 eaten up in fees and charges. If the reforms lead to continued abuse of charges, the Government may have to consider the introduction of a charge cap.
The changes made in schedule 2 abolish the 55% tax on pension funds on the death of the member. We can see the Government’s reasons for doing this, but it would be worth monitoring the impact on consumer behaviour and Government revenue.
I said that I wanted to ask the Minister some particular questions in relation to the autumn statement and the figures that had been published. Throughout the Committee stage, when we were pressing for information and numbers, the Minister said that those would be published in due course. True to his word, that information is now available to us. What effect will the revisions have on the initial costings of the impact of these reforms? Has he had cause to reconsider the impact of the reforms? Can he explain why the tax take increases because of the annual allowance in 2015-16, but falls in subsequent years? What is the basis for those figures?
Can the Minister give us any more detail about the costing of the salary sacrifice and welfare forecast provisions? The numbers are there, but we do not have further information in the autumn statement policy costing document. In comparison to some of the figures provided in Committee, the estimates still seem low. Given that the Minister has revised his forecast to take into account salary sacrifice and welfare at such short notice that it is not included in the autumn statement documents, had the Government fully considered those factors when they initially drew up these reforms, or did they only later recognise the significance of those factors?
We have asked for a review, as set out in new clause 1, to show whether the Bill increases the scope for tax avoidance and the avoidance of national insurance contributions. In the light of the figures that have been published, is the Minister confident that all his projections will prove to be accurate?
I have had a fair opportunity to set out the case for new clauses 1 and 2, which will allow the Minister to keep his word and monitor, review and report information as appropriate. It is important that the clauses are added to the Bill to ensure that that happens. We need to keep a close watch on the progress of the reforms to make sure that they do not lead to adverse outcomes for consumers or place increased costs on the state. The Government have consistently assured us that they will closely monitor the impact of the Bill, so we see no reason why, even at this late stage, they cannot commit to make good on that assurance and accept the new clauses.
Hywel Williams
I rise to speak on behalf of Plaid Cymru and in support of amendment (a), which stands in my name, to Labour’s new clause 2. I agree with much of that new clause, but I wish to add that the Government should bring forward a report on the impact of the changes introduced by the Bill specifically on the housing market and introduce measures to rectify any problems, should it become apparent that there are negative consequences. I sincerely hope that my concerns are entirely unfounded.
Although we welcome the Government’s desire to reform the private pensions system, we in Plaid Cymru have concerns about the consequences of behavioural changes in the pensions industry, particularly in relation to individual pensioners taking large draw-downs of money. We are not against pension savers being able to access their pension pots as a lump sum. If that is how people wish to access their money, it is up to them to do as they see fit. Given the rates of return achieved these days, it is not surprising that many people will wish to take that route.
Our concern is that the effect might not be quite what the Government intend. Aside from consumer protection issues and stopping people being targeted by sharks and cowboys seeking to exploit those who are newly able to access comparatively large amounts of money, attention needs to be given to the longer-term possibility that those who draw down large amounts and whose subsequent investments fail, for whatever reason, will be left with little or no money on which to see out their final years, despite having contributed to a pension scheme for most of their lives, and that they will then become a burden on the public purse. It is fair enough to say that the buyer should beware, but we are not talking about purchasing a new television; a wrong decision in this case might have grave, long-term effects on people’s basic incomes.
As has already been mentioned, in Australia, where the Government have introduced changes similar to those intended here, many people took large draw-downs and invested the money in buy-to-let properties. As the TUC has noted, much evidence indicates that the same will happen here, despite Ministers’ talk of people making home improvements, buying new kitchens or going out and buying cars and other consumer goods that will boost the productive economy.
Research by the Australian investment management firm Challenger has found that one third of savers used their pension cash to buy a home, pay off an outstanding mortgage or make home improvements; one in five splashed out on a new car; and one in seven spent at least some of their pension on a holiday. The evidence from Australia is that, when given the choice, only one in 25 Australians now buy an annuity. In the US, another country where annuities are not mandatory, most people take their pension money as cash, rather than buying an annuity. Indeed, a buy-to-let property might appear to be one of the better options for many people, rather than keeping their money in their pension scheme or making other, more conservative investments.
Some large accountancy firms, such as PricewaterhouseCoopers, have said that the changes to the annuities system will be a net positive for the Treasury. They perhaps foresee the revenue raised through stamp duty and other associated taxes. But it is not the Treasury’s coffers that will suffer, at least not in the short term. It is the potential bubble in house prices that concerns me, particularly at a local level, and the potentially growing number of people who would then be unable to buy their own home, the strengthening of the historical over-reliance of the British economy on a buoyant housing market, and the potential effects on investors’ incomes should, or rather when, the bubble bursts.
I need hardly remind the House of the dangers of an over-inflated property market, of which buy-to-let is a significant factor, and indeed one of the significant causes of the financial crash in 2008. Even prior to the crash, in August 2007, Oxford Economics noted that buy to let
“is undoubtedly contributing to the overvaluation of housing.”
Were I cynical, I might even characterise inflation of the housing market as some sort of giant Ponzi scheme, helping to keep the economy afloat while doing little to contribute to productive capital, the epitome of the rentier society—if I were cynical.
Of more significance to my constituents, and to people throughout Wales and the more picturesque areas of the UK, is the potential that those taking large draw-downs would decide to buy holiday homes. I need not rehearse in any detail the arguments about the problems associated with an over-preponderance of holiday homes. Hon. Members who represent constituencies where that is a problem will be only too aware of the negative effects. Anyone who really wants to know about it might read my maiden speech from 2001, which addressed housing matters and this problem, in particular. To put it briefly, having too many holiday homes in an area has a negative, deadweight effect on the local economy. Local people, especially young people, are unable to afford homes because of price inflation and are forced to leave. In my constituency, and in much of rural Wales, there is the added dimension of the damaging effect that has on the Welsh language. We have been largely spared some of those effects over the years of economic difficulty, but now, if the Chancellor is to be believed, we are moving towards a new golden age of plenty, possibly financed in part by pension lump sums, with a consequent revival of these risks.
Cathy Jamieson
The new clauses ask for reviews and monitoring, and that is exactly what we want. As we have said repeatedly during the Bill’s passage so far, our proposals should not be interpreted in any other way. When a Bill is put before us, it is important for us to scrutinise it and try to improve it, and that was my reason for tabling the new clauses.
I am grateful to my hon. Friends the Members for Coventry North West (Mr Robinson), and for Chesterfield (Toby Perkins) and the hon. Member for Arfon (Hywel Williams) for their contributions. All of them have contributed additional information and raised additional issues which need to be considered, particularly my hon. Friend the Member for Chesterfield, who will initiate an Adjournment debate later. He did not want to reveal too much about that debate, lest we decide to miss his exciting speech. None the less, he did an excellent job in laying out some of the issues that he will refer to later on behalf of his constituents.
I have listened to the Minister. I am disappointed—as always—that he has not chosen to accept new clause 1 and new clause 2. On reflection, having listened to the debate, I am minded to press new clause 1 to the vote, but not to press new clause 2 at this stage.
Question put, That the clause be read a Second time.
Cathy Jamieson
I thank the Minister for bringing forward these amendments. We had a fair amount of debate and discussion in Committee on some of the issues, so I am not intending to ask him to go through each amendment, especially the minor and technical ones, in great detail.
I recognise that Government amendments 9 to 39 were brought forward as a result of the comments and concerns that we and the industry raised on the reporting requirements. The Bill as introduced placed a requirement on individuals who access their pension flexibly to inform all schemes of which they are a member that they are subject to the new £10,000 allowance. They would have been required to do that within 31 days of receiving a statement from their pension scheme and, as we said in Committee, failure to comply could lead to them being fined.
We pointed out in Committee that it was unreasonable to expect individuals to dig up information on schemes that they might not have paid into for many years and to which the annual allowance rules were therefore unlikely to apply. We also pointed out, with reference to evidence from both Ros Altmann and the Association of Taxation Technicians, that the 31-day time frame was a short and unreasonable deadline. The Government amendments change that, so that individuals will be required only to tell schemes to which they are currently contributing, or subsequently contribute to, that they are subject to the £10,000 annual allowance. They also change the length of time that individuals have to comply with this requirement to 91 days.
We welcome the Government amendments. Although we may not have persuaded the Minister to take on all our concerns, we are glad to have played some small part in persuading him to make those changes and to bring forward those amendments today. As I have said, we welcome and support them.
Amendment 1 agreed to.
Amendments made: 2, page 37, line 38, after “annuity””, insert “, “successor’s flexi-access drawdown fund””.
See the explanatory statement for Amendment 1.
Amendment 3, page 37, line 41, leave out “and 22A” and insert “, 22A, 27E and 27K”.
See the explanatory statement for Amendment 1.
Amendment 4, page 39, line 35, after “arrangement”,”, insert ““nominee’s flexi-access drawdown fund”,”.
See the explanatory statement for Amendment 1.
Amendment 5, page 39, line 36, after “annuity””, insert “, “successor’s flexi-access drawdown fund””.
See the explanatory statement for Amendment 1.
Amendment 6, page 39, line 39, leave out “and 22A” and insert “, 22A, 27E and 27K”.
See the explanatory statement to Amendment 1.
Amendment 7, page 42, leave out lines 1 to 3.
This Amendment, and Amendment 8, each remove a subsection inserted by the Bill into a version of section 576A of the Income Tax (Earnings and Pensions) Act 2003 because the subsections relate to payments not included in the lists of “relevant withdrawals” inserted by the Bill as introduced.
Amendment 8, page 44, leave out lines 28 to 30.
See the explanatory statement for Amendment 7.
Amendment 9, page 46, line 8, at end insert—
“() if the member is entitled to payment of a lifetime annuity under a flexible annuity contract as defined by section 227G(8), a relevant event occurs when the first payment of the annuity is made,
() if—
(i) the member is entitled to payment of a scheme pension under a money purchase arrangement under the scheme,
(ii) the member became entitled to the scheme pension on or after 6 April 2015,
(iii) the member became entitled to the scheme pension at a time when fewer than 11 other individuals were entitled to the present payment of a scheme pension, or dependants’ scheme pension, under the scheme, and
(iv) the scheme pension is not payable under an annuity contract treated under section 153(8) or (8A) as having become a registered pension scheme,
a relevant event occurs when the first payment of the scheme pension is made, and”.
This Amendment inserts, in a list that sets out the events that give rise to an individual first flexibly accessing pension rights, missing entries corresponding to the new section 227G(7) and (9) inserted by paragraph 65 of Schedule 1 to the Bill.
Amendment 10, page 46, leave out lines 26 to 41 and insert
“and
(c) the duties under regulation 14ZB and the circumstances in which the member will have to comply with them.”.
This Amendment condenses the text currently in the Bill of new regulation 14ZA(3)(c) and (d). New regulation 14ZA(3) lists matters that are to be explained in statements under new regulation 14ZA that are provided by scheme administrators to members.
Amendment 11, page 47, line 12, at end insert
“if active or contributing etc”.
This Amendment adds words to the title of the new regulation 14ZB to reflect changes to be made in that new regulation by, in particular, Amendment 12.
Amendment 12, page 47, leave out lines 13 to 35 and insert—
‘(1) Paragraphs (2) and (3) apply if—
(a) an individual receives a statement under regulation 14ZA from the scheme administrator of a registered pension scheme (the “flexed” registered pension scheme), and
(b) on the date of the relevant event concerned, or at any later time, the individual is an accruing member (see paragraph (6)) of the flexed or any other registered pension scheme.
(1A) In this regulation—
“the relevant 13-week period” means the period of 91 days beginning with—
(a) the date of receipt if the individual is an accruing member of any registered pension scheme on any day in the period—
(b) if not, the first day after the date of receipt when the individual is an accruing member of a registered pension scheme, and
“the intervening period” means the period—
(a) beginning with the date of the relevant event concerned, and
(b) ending with the first day of the relevant 13-week period.
(2) The individual must before the end of the relevant 13-week period—
(a) pass on a copy of the statement, or
(b) otherwise give notice—
(i) of receipt of the statement, and
(ii) of the date of the relevant event concerned or (if applicable) of its having occurred more than 2 years before the start of the relevant 13-week period,
to the scheme administrator of each other registered pension scheme of which the individual is an accruing member on any day in the intervening period; but this is subject to paragraph (5).
(3) Where, in the case of a particular registered pension scheme other than the flexed scheme, the individual is not an accruing member of that other scheme on any day in the intervening period but becomes an accruing member of that other scheme on a day (“the activation day”) after the last day of that period, the individual must before the end of the 91 days beginning with the activation day—
(a) pass on a copy of the statement, or
(b) otherwise give notice—
(i) of receipt of the statement, and
(ii) of the date of the relevant event concerned or (if applicable) of its having occurred more than 2 years before the activation day,
to the scheme administrator of that other scheme; but this is subject to paragraphs (4) and (5).”.
This Amendment makes a change in new regulation 14ZB to simplify the obligations for individuals who have flexibly accessed their pension savings. Information will need to be provided to a scheme only when the individual is an accruing member of that scheme and within a 91 day period.
Amendment 13, page 47, line 37, leave out “a” and insert “an accruing”.
This Amendment, and Amendments 14 and 15, are consequential on Amendment 12 and make changes in new regulation 14ZB to ensure that an individual does not have to tell the scheme administrator if they become an accruing member of the scheme as a result of a recognised transfer.
Amendment 14, page 47, line 38, after “becomes”, insert
“an accruing member of that scheme upon or after becoming”.
See the explanatory statement for Amendment 13.
Amendment 15, page 47, line 38, at end insert
“after the date of the relevant event concerned.”
See the explanatory statement for Amendment 13.
Amendment 16, page 47, line 42, after second “(3)”, insert
“, or has previously complied with paragraph (2) or (3),”.
This Amendment ensures that a member of a pension scheme does not have to provide information under new regulation 14ZB more than once to the same pension scheme.
Amendment 17, page 47, line 43, at end insert—
‘(6) For the purposes of this regulation, the individual is an accruing member of a registered pension scheme on any particular day if—
(a) the individual is an active member of the scheme on that day as a result of there presently being arrangements for the accrual of benefits to or in respect of the individual under a cash balance arrangement or hybrid arrangement, or
(b) a relevant contribution is made under the scheme on that day.
(7) For the purposes of this regulation, a relevant contribution is made under a registered pension scheme if—
(a) a relievable pension contribution is paid by or on behalf of the individual under a non-cash-balance money purchase arrangement relating to the individual under the scheme,
(b) a contribution is paid in respect of the individual by an employer of the individual under a non-cash-balance money purchase arrangement relating to the individual under the scheme, or
(c) a contribution—
(i) paid under the scheme by an employer of the individual, and
(ii) paid otherwise than in respect of any individual,
becomes held for the purposes of a non-cash-balance money purchase arrangement relating to the individual under the scheme;
and in this paragraph “non-cash-balance money purchase arrangement” means a money purchase arrangement other than a cash balance arrangement.”
This Amendment defines terms used in the provisions inserted by Amendment 12. The definitions are largely based on the text currently in the Bill of new regulation 14ZD(1)(b) and (8).
Amendment 18, page 48, line 33, leave out “active member” and insert
“accruing member (see paragraph (7A))”.
This Amendment makes a change in new regulation 14ZD to bring that new regulation into line with the changes made by Amendment 12 in new regulation 14ZB.
Amendment 19, page 48, line 34, leave out from “scheme” to end of line 38.
This Amendment makes a change in new regulation 14ZD to bring that new regulation into line with the changes made by Amendment 12 in new regulation 14ZB. The text left out is replaced by the new regulation 14ZD(7A) inserted by Amendment 27.
Amendment 20, page 48, line 38, at end insert—
‘(1A) In this regulation “the relevant 13-week period” means the period of 91 days beginning with—
(a) 6 April 2015 if on that date the individual is an accruing member of any registered pension scheme, or
(b) if not, the first day after 6 April 2015 when the individual is an accruing member of a registered pension scheme.”
This Amendment makes a change in new regulation 14ZD to bring that new regulation into line with the changes made by Amendment 12 in new regulation 14ZB.
Amendment 21, page 48, line 39, leave out from second “the” to end of line 44 and insert “relevant 13-week period,”.
This Amendment makes a change in new regulation 14ZD to bring that new regulation into line with the changes made by Amendment 12 in new regulation 14ZB.
Amendment 22, page 48, line 47, leave out
“a member on the first day of that”
and insert
“an accruing member on the first day of the relevant 13-week”.
This Amendment makes a change in new regulation 14ZD to bring that new regulation into line with the changes made by Amendment 12 in new regulation 14ZB.
Amendment 23, page 49, line 1, leave out from “Where” to “provide” in line 4 and insert
“, in the case of a particular registered pension scheme other than the flexed scheme, the individual is not an accruing member of that other scheme on the first day of the relevant 13-week period but becomes an accruing member of that other scheme on a day (“the activation day”) after the first day of that period, the individual must, before the end of the 91 days beginning with the activation day,”.
This Amendment makes a change in new regulation 14ZD to bring that new regulation into line with the changes made by Amendment 12 in new regulation 14ZB.
Amendment 24, page 49, line 16, after “becomes”, insert
“an accruing member of that scheme upon or after becoming”.
This Amendment, and Amendment 25, are consequential on Amendments changing earlier provisions of new regulation 14ZD and further change that regulation to ensure that an individual does not have to tell the scheme administrator if they become an accruing member of the scheme as a result of a recognised transfer.
Amendment 25, page 49, line 17, at end insert “after 6 April 2015.”
See the explanatory statement for Amendment 24.
Amendment 26, page 49, line 21, after second “(3)”, insert
“, or has previously complied with paragraph (2) or (3),”.
This Amendment ensures that a member of a pension scheme does not have to provide information under new regulation 14ZD more than once to the same pension scheme.
Amendment 27, page 49, line 22, at end insert—
‘(7A) For the purposes of this regulation, the individual is an accruing member of a registered pension scheme on any particular day if—
(a) the individual is an active member of the scheme on that day as a result of there presently being arrangements for the accrual of benefits to or in respect of the individual under a cash balance arrangement or hybrid arrangement, or
(b) a relevant contribution is made under the scheme on that day.”
This Amendment inserts a definition of a phrase used in the text inserted by the Amendments making changes in the earlier provisions of new regulation 14ZD. It replaces the text left out by Amendment 19.
Amendment 28, page 49, line 23, leave out “paid” and insert
“made under a registered pension scheme”.
This Amendment adjusts the definition of “relevant contribution” in new regulation 14ZD to bring it into line with the definition inserted into new regulation 14ZB by Amendment 17.
Amendment 29, page 49, line 27, leave out
“flexed or any other registered pension”.
This Amendment is consequential on Amendment 28 and further adjusts the definition of “relevant contribution” in new regulation 14ZD to bring it into line with the definition inserted into new regulation 14ZB by Amendment 17.
Amendment 30, page 49, line 32, leave out
“flexed or any other registered pension”.
This Amendment is consequential on Amendment 28 and further adjusts the definition of “relevant contribution” in new regulation 14ZD to bring it into line with the definition inserted into new regulation 14ZB by Amendment 17.
Amendment 31, page 49, line 34, leave out
“flexed or any other registered pension”.
This Amendment is consequential on Amendment 28 and further adjusts the definition of “relevant contribution” in new regulation 14ZD to bring it into line with the definition inserted into new regulation 14ZB by Amendment 17.
Amendment 32, page 49, line 39, leave out
“under which the contribution was paid”.
This Amendment is consequential on Amendment 28 and further adjusts the definition of “relevant contribution” in new regulation 14ZD to bring it into line with the definition inserted into new regulation 14ZB by Amendment 17.
Amendment 33, page 49, line 43, after “if”, insert
“active or contributing etc and”.
This Amendment adds words to the title of the new regulation 14ZE to reflect changes to be made in that new regulation by, in particular, Amendment 34.
Amendment 34, page 49, line 45, leave out from beginning to end of line 13 on page 50 and insert—
‘(1) Paragraphs (2) and (3) apply if—
(a) under paragraph 8C of Schedule 28, the drawdown pension fund in respect of an arrangement relating to an individual under a registered pension scheme (the “flexed” registered pension scheme) becomes the individual’s flexi-access drawdown fund in respect of the arrangement, and
(b) on the conversion date, or at any later time, the individual is an accruing member (see paragraph (6)) of the flexed or any other registered pension scheme.
(1A) In this regulation “the relevant 13-week period” means the period of 91 days beginning with—
(a) the conversion date if on that date the individual is an accruing member of any registered pension scheme, or
(b) if not, the first day after that date when the individual is an accruing member of a registered pension scheme.
(2) The individual must, before the end of the relevant 13-week period, inform the scheme administrator of each other registered pension scheme of which the individual is an accruing member on the first day of the relevant 13-week period—
(a) of the conversion, and
(b) of the conversion date or (if applicable) of the conversion’s having occurred more than 2 years before the start of the relevant 13-week period;
but this is subject to paragraph (5).
(3) Where, in the case of a particular registered pension scheme other than the flexed scheme, the individual is not an accruing member of that other scheme on the first day of the relevant 13-week period but becomes an accruing member of that other scheme on a day (“the activation day”) after the first day of that period, the individual must, before the end of the 91 days beginning with the activation day, inform the scheme administrator of that other scheme—
(a) of the conversion, and
(b) of the conversion date or (if applicable) of the conversion’s having occurred more than 2 years before the activation day;
but this is subject to paragraphs (4) and (5).”.
This amendment makes a change in new regulation 14ZE to simplify the obligations for individuals who have converted their existing drawdown fund to a flexi-access drawdown fund, bringing that regulation into line with new regulation 14ZB as amended by Amendment 12.
Amendment 35, page 50, line 15, leave out “a” and insert “an accruing”.
This Amendment, and Amendments 36 and 37, are consequential on Amendment 34 and make changes in new regulation 14ZE to ensure that an individual does not have to tell the scheme administrator if they become an accruing member of the scheme as a result of a recognised transfer.
Amendment 36, page 50, line 16, after “becomes”, insert
“an accruing member of that scheme upon or after becoming”.
See the explanatory statement for Amendment 35.
Amendment 37, page 50, line 16, at end insert “after the conversion date.”
See the explanatory statement for Amendment 35.
Amendment 38, page 50, line 20, after second “(3)”, insert
“, or has previously complied with paragraph (2) or (3),”.
This Amendment ensures that a member of a pension scheme does not have to provide information under new regulation 14ZE more than once to the same pension scheme.
Amendment 39, page 50, line 21, at end insert—
‘(6) For the purposes of this regulation, the individual is an accruing member of a registered pension scheme on any particular day if—
(a) the individual is an active member of the scheme on that day as a result of there presently being arrangements for the accrual of benefits to or in respect of the individual under a cash balance arrangement or hybrid arrangement, or
(b) a relevant contribution is made under the scheme on that day.
(7) For the purposes of this regulation, a relevant contribution is made under a registered pension scheme if—
(a) a relievable pension contribution is paid by or on behalf of the individual under a non-cash-balance money purchase arrangement relating to the individual under the scheme,
(b) a contribution is paid in respect of the individual by an employer of the individual under a non-cash-balance money purchase arrangement relating to the individual under the scheme, or
(c) a contribution—
(i) paid under the scheme by an employer of the individual, and
(ii) paid otherwise than in respect of any individual,
becomes held for the purposes of a non-cash-balance money purchase arrangement relating to the individual under the scheme;
and in this paragraph “non-cash-balance money purchase arrangement” means a money purchase arrangement other than a cash balance arrangement.”” —(Mr Gauke.)
This Amendment defines terms used in the provisions inserted by Amendment 34. The definitions are largely based on the text currently in the Bill of new regulation 14ZD(1)(b) and (8).
Third Reading
Cathy Jamieson
It is with a heavy heart that I rise to speak for the last time on the Taxation of Pensions Bill. It has been such an enjoyable experience. I am not quite sure how I will fill my days in the next few weeks, given that I will no longer be poring over absolutely every detail of the legislation. It does not seem long ago that I spoke on Second Reading—in fact, it was only two short months ago.
I should like to start where the Minister ended—by thanking everyone who has been involved in the process. I particularly thank right hon. and hon. Friends who have supported me in scrutinising the Bill, including in Committee, not least my hon. Friend the Member for Scunthorpe (Nic Dakin), who kept us all in line. Whenever I was about to take perhaps more than my fair share of time, he would keep me on track. I thank the Clerks in the Public Bill Office for their drafting advice and the role they played in ensuring that amendments were tabled in the appropriate manner. I also thank Library staff, who were excellent as always; they efficiently answered all my questions and responded to all my additional requests for information.
I thank the Minister—[Interruption.] I was going to say that he has, at all times, been polite and courteous; I hope he hears that I am saying something reasonably nice about him. That is not always how things happen. Throughout proceedings on the Bill, he has said no to pretty much all our requests and new clauses, in the nicest possible way. As I have said when speaking to our new clauses and amendments, we have been very consistent in our approach to the reforms; we have been clear that we support the principle of the Bill. We support increased flexibility and choice for savers, and that is why we have long advocated reform to the annuities market to help people to shop around and get a better deal. But we have had concerns about the speed at which the reforms have been pushed through. There was no consultation prior to the Budget statement and it has been difficult at times to get to grips with all the figures and the behavioural impacts relating to the Bill because the Government were not able to publish that analysis.
Nevertheless, we have endeavoured to identify the potential problems that the Bill presents, and we have judged everything against the three tests that we set at the outset—the advice test to ensure that savers get the right guidance, the fairness test to ensure that there are decent products for low and middle income savers, and the cost test to ensure that the reforms do not result in extra pressures on the state. It will be difficult to measure the Bill’s performance against those tests until the reforms take effect. We therefore reserve judgment on how it will work.
The Minister recapped the key issues that we debated. We made our views on the guidance guarantee abundantly clear. There is not a great deal more that we can say about that until we see how it works in practice. Ensuring that guidance meets customer expectation and requirements is a responsibility that now resides firmly with the Government. Our new clauses, which the Minister rejected, were concerned with measuring and reviewing the impact of the Bill because we wanted to gauge the degree to which the reforms produce additional opportunities for tax avoidance and to ensure that the Minister continues to monitor the impact of the Bill carefully as it is implemented.
We did not press new clause 2 to the vote. It called for a comprehensive review of the impact of the reforms, to be published 18 months after they take effect. We were keen to ensure that the Minister had every opportunity to give us the facts and figures. With the autumn statement today and the publication of the OBR policy costings, we now have some of that information and some of the numbers that we did not have previously.
There is one issue that I wish to raise even at this late stage. The Minister mentioned earlier that the OBR has run the rule over the figures, but it is important to note that the OBR policy costings document refers on page 87 to seven measures in the policy decisions table that are judged to have high or very high uncertainty around the central costing. Interestingly, one of those seven measures is pensions flexibility. The document refers to decisions since Budget 2014 and goes on to say:
“This costing receives a ‘very high’ uncertainty rating. The yield over the scorecard period—and the resulting costs in the longer term—depends on take-up and on other behavioural responses. Some people will temporarily increase pension saving in order to benefit from tax-free lump sum withdrawals. It is possible that funds will be redirected from annuities and into other assets, such as other financial products or housing. It is also possible that such funds could be used to finance consumer spending”.
That is exactly what we have been highlighting throughout the Bill proceedings, and exactly why we felt it was important that a review was built into the process. I hope that if the Minister does not take my word for it, although he often did so graciously, he will take account of the OBR’s comments.
We are clear that the success of the Bill will depend on the tests of fairness and cost that we set out. If the reforms have adverse consequences for those on middle or lower incomes or those who cannot afford the expensive regulated advice, they will not have succeeded. If the reforms lead to higher costs for the state because people have accessed their pensions too early and need additional state support, they will, again, not have succeeded. We hope the Government have factored in all the potential consequences, as they have assured us. I am pleased that they listened to us on the reporting requirements.
Does the Bill not look much better since the Government showed some flexibility in their approach? The word “flexibility” was frequently used in our discussions because that is what the Bill is all about. Had the Government taken their own advice and been a little more flexible in their approach from the outset, and perhaps a little less hasty, we might have arrived at a position where the Bill had been significantly improved and some of the outstanding questions could have been answered.
However, we have had a relatively short period to consider the Bill, notwithstanding the fact that, as the Minister pointed out, I seem to have taken up in excess of 50% of the time available to make the points. It is the Opposition’s duty to scrutinise thoroughly, raise the issues, ensure that the Government have thought things through, press them on those points and lay out those areas where we think they need to continue to monitor and evaluate in future.
With those few words, the time has run out for those of us in this place. I would like to close by reiterating my thanks to everyone who has worked on the Bill. I have found this an interesting and enjoyable process—perhaps not everyone involved would agree—and I must say that I never thought I would say that about a Bill on pensions taxation.