Taxation of Pensions Bill

Stephen McPartland Excerpts

Wednesday 3rd December 2014 Commons Chamber

[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.

[Stephen McPartland (Stevenage) (Con)]

Will my hon. Friend give way?

[Mr Gauke]

The floodgates have opened.

[Stephen McPartland]

How many people will benefit from this pensions revolution?

[Mr Gauke]

Some 320,000 people retire each year with defined contribution schemes, and those people will now have far more choice. Of course, people who are saving for their pensions will know that at the end of their working life, or at various points after the age of 55, they will have more flexibility with regard to their pension pot.

I am grateful for the interesting debates that we have had during the Bill’s passage through the House and I would like to reflect briefly on how it has changed since its introduction. The Government's recently tabled amendment regarding how individuals inform schemes if the £10,000 annual allowance applies to them will provide that people only need to tell schemes to which they are contributing, or contribute to in the future, when they access a pension flexibly. They will also have an extended time period of 91 days in which to do so. These changes will make the new system easier for individuals and schemes to comply with, while ensuring that the annual allowance is implemented effectively.

The Government have made a number of minor and technical amendments to the Bill to ensure that it works as intended. The most substantive changes have been to the taxation of pensions at death, to ensure that that taxation remains fair and appropriate under the new system. The changes will allow individuals who die with pension funds remaining to pass those funds on to anyone they choose. The funds can be paid tax-free if the individual dies before the age of 75; if they die having reached that age, and the funds are paid out as a pension, they will be taxed at the beneficiary’s marginal rate—or at 45%, if the funds are paid as a lump sum. The aim of the changes is to ensure that individuals who have made sacrifices to save over the course of their life can pass on their pension savings without worrying about excessive tax charges after they die. They also preserve the incentive for people to keep money in their pension, as there will not be the fear of their beneficiaries being hit by a 55% tax charge.

Members may be interested to note that today, in the autumn statement, the Chancellor announced that the changes will extend to annuities. Death benefit payments from joint life and guaranteed term annuities will also be tax-free when the policyholder dies before the age of 75; such death benefits can be paid to any beneficiary. That will also apply when an individual uses uncrystallised or draw-down funds inherited from someone who dies before the age of 75 to buy a dependant’s annuity. Those changes will be legislated for in due course, although not through this Bill. In conclusion, the Bill is important. It will increase choice at retirement for individuals who have saved all their lives. It contains measures to prevent individuals from using the new flexibilities to gain unintended tax consequences, and ensures that the tax treatment of pensions on death remains fair.

Finally, I thank hon. Members who participated in debates on the Bill, both in the Chamber and in Committee. In particular, I would like to mention the diligence of the hon. Member for Kilmarnock and Loudoun (Cathy Jamieson), who has, I think, accounted for significantly more than 50% of the time taken to scrutinise the Bill. As I said, the Bill increases choice for the 320,000 people retiring each year, and I commend it to the House.