BMI Pension Fund Compensation

Debate between Priti Patel and Mark Lazarowicz

Wednesday 17th December 2014 Westminster Hall

[Priti Patel]

I will come on to that and address other Members’ points as well once I have made some progress. Some individuals may have existing enhanced or fixed protection, which means that they can test their pensions against the lifetime allowance at the time at which those protections were granted. That is subject to no further contributions being made to their pension schemes. As payments from the £84 million will be relievable contributions, members who have existing enhanced or fixed protection would lose those rights if the contribution was made to a defined contribution scheme. Again, only a small number of people will be affected by that.

Individuals will have a choice about how they access their share of the £84 million paid by Lufthansa to a defined contribution pension scheme on their behalf. From April 2015, individuals will be able to access the funds as a lump sum or as a series of payments or they can choose to purchase an annuity or draw-down product, provided that they are aged 55 or older. Alternatively, they could choose to transfer to a different pension arrangement. Payments on pensions will be subject to the individual’s marginal rate of income tax and no NICs will be payable.

I will come on to many of the points addressed in the debate. The hon. Member for Kilmarnock and Loudoun mentioned the costs for those affected. Those will depend on the precise circumstances and how payments are made. Such payments made direct to a scheme will be taxable, but the contributions will receive tax relief up to the normal limits. We do not have an estimate of the total cost to the Treasury should tax charges not be applied, but, as I said, that is dependent on the circumstances of how the payments are made.

The scheme was compared in a number of contributions to the Government’s approach in the one-off payments made under the Equitable Life payment scheme. It is worth highlighting that that scheme was established back in 2011 in response to the parliamentary ombudsman report that identified areas of Government maladministration in respect to the regulation of Equitable Life. The Government accepted the then ombudsman’s report and, as a result, made the ex-gratia payment for the loss stemming from what was Government maladministration at the time. The circumstances surrounding the loss of pensions relief for members of the BMI scheme is not owing to the Government’s maladministration and, therefore, it is not comparable in that sense at all.

The hon. Member for Edinburgh North and Leith as well as other Members touched on HMRC and reviewing rules relating to the annual allowance and lifetime allowance. As my hon. Friend the Financial Secretary has set out, HMRC must apply tax legislation consistently and it does not have discretion to waive tax charges intended by Parliament. The legislation is clear in respect of that: all new contributions into defined contribution schemes are tested against the annual allowance and all benefits are tested against the lifetime allowance.

It is fair to say that this is a complicated matter that is not at all comparable to Equitable Life. The Government are familiar with the case, which has been raised by many Members in the debate today as well as in previous representations.

[Mark Lazarowicz]

I accept that there is no direct parallel with Equitable Life except in the sense that the BMI pension fund members and others have also been the victims of a regulatory system that did not deliver what it ought to have done in some way. In recognition of that, they too deserve some action by Government. Tax treatment is one suggestion, but the House should be able to take forward other suggestions as well.

[Priti Patel]

The hon. Gentleman makes a valid point that we have an issue with regards to amending legislation that is meant to apply to all pension savers. We are obviously sympathetic and it is clear that the situation is not satisfactory. I will commit to taking away all the considerations and points raised and I intend to raise them directly with the Department for Work and Pensions, because what has happened and the effect that that has had on people is unacceptable. I am unable to be any more specific than that, because I am looking at this matter from the perspective of tax implications and not the overall implications, which would be done by the Department for Work and Pensions.

Finally, I will address a point made by the hon. Members for Livingston, for Banff and Buchan (Dr Whiteford) and for Kilmarnock and Loudoun about the Pensions Regulator and the PPF. I assure the House that the Pensions Regulator has the power to take action when it feels that there is deliberate manipulation in the affairs of an employer who is effectively seeking to walk away from their pensions liabilities. That is a valid point and the Pensions Regulator has powers to deal with that. It would be wrong for any organisation to seek to do that and it is solely for the Pensions Regulator to address that.

It is clearly not right to seek to offload pension obligations for the wrong reasons. The debate has highlighted that where individuals have done the right thing by seeking to save for the future by investing in their pensions, it is proper that we have the right safeguards in place. As I have said to all Members today, I will look to discuss this matter with the Department for Work and Pensions to see how we can take it further.