Taxation of Pensions Bill

Graham Stuart Excerpts

Wednesday 3rd December 2014 Commons Chamber

[Mr Gauke]

I beg to move, That the Bill be now read the Third time.

The House has reached the final stage of its consideration of the Bill, which will give individuals more choice about how they access their savings in retirement. I have been pleased by our wide-ranging and informed debates.

I would like to remind hon. Members of the measures in the Bill and their aims. While the Bill makes the tax system fairer by ensuring that people have more choice about how they access their savings, it contains measures to prevent individuals from exploiting that new flexibility to gain an unintended tax advantage, and to ensure that the taxation of pensions savings on death remains fair and appropriate under the new system.

At Budget 2014, the Chancellor announced the most radical reform to how people take their private pensions for nearly 100 years. The current system restricts choice at the point of retirement. Those with the smallest and largest amounts of pension savings are allowed flexibility, but those with a medium amount of savings have very limited options. The Bill will change that by extending flexibility to everyone with a defined contribution pension, regardless of their total pension savings.

The Bill also introduces a new method to allow people to access their pension flexibly. At present, people taking their pension as cash have to take all their tax-free lump sum—25% of their fund—and then place the other 75% in a draw-down fund. Any money they then take out of that fund will be taxed at their marginal rate.

The uncrystallised funds pension lump sum—UFPLUS —is a new option that will give individuals the flexibility to take one or more lump sums from their pension fund without having to enter into draw-down or to take all their tax-free lump sum in one go. When using that option, 25% of each payment will be tax-free, with the other 75% taxed at the individual’s marginal rate. We are also increasing choice by introducing changes to encourage innovation in the retirement income market. Following extensive consultation with the industry, the Bill will give providers scope to make annuities much more flexible products in line with consumers’ needs. I have already discussed the fiscal impacts of those measures and related ones today, but I reiterate that the Government have now published Office for Budget Responsibility-certified costings for the policy overall alongside the autumn statement.

[Mr Graham Stuart (Beverley and Holderness) (Con)]

My hon. Friend will remember, as I do, that one of the first acts of the previous Labour Government on coming to power was to put a tax on pensions that helped to destroy the healthiest, strongest and most successful pension system in Europe. This Government, however, in much less promising economic times, have managed to bring flexibility and hope to all those who save for a secure retirement.

[Mr Gauke]

I am grateful to my hon. Friend for helpfully reminding the House of that important point. It is a significant achievement of the Government that we have been able to undertake such a fundamental reform—perhaps the biggest for nearly 100 years—in this area. Our record compares favourably with that of our predecessor. Of course, the Bill is part of a wider set of Government reforms, including the single-tier pension, the rolling out of auto-enrolment and the triple-lock guarantee.