Taxation of Pensions Bill

Debate between Toby Perkins and Cathy Jamieson

Wednesday 3rd December 2014 Commons Chamber

[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.