Pension Annuities (Amendment) Bill

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Mr. Flight: My right hon. Friend made it clear that there is no intention to build in any tax incentive. The exit tax would prevent that. He has explained why that cannot be part of the Bill.

The essence of the question is whether people should be allowed to pass on to their children, after fair tax, any element of their pension savings. The Government are setting out their objection in principle to that rather more than they are making arguments about tax incentives or loss of tax revenue. One cannot make much of an argument that a lack of tax incentives leads to a significant loss of tax revenue.

Mr. Field: My hon. Friend must be misrepresenting the Government's position. They believe that people who have paid their taxes should be free to pass on their capital to whomever they wish.

Mr. Flight: I thought that the Government as well as the Conservative party now upheld that principle. It is clear from what the Minister said, however, that the objection to people passing on money is at the root of the problem.

There is now an annuity scheme that provides what people actually want and is approved by the Revenue. However, it has very high charges and when the Treasury was wearing a different hat, it was keen to discourage people from being forced to buy expensive insurance wrapper products when they were unnecessary to the end objective.

The Minister's case does not stand up with regard to any of the key issues. The fundamental point, which has been difficult to get across, but which my right hon. Friend the Member for Skipton and Ripon has made clear, is that it is necessary for other legislation to accompany the Bill, to establish an appropriate exit tax and to ensure that no tax incentives are introduced by mistake.

Mr. Field: When the Minister replies, I wish her to put on the record that it is not the Government's objective to prevent people from handing on capital. I

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hope that most hon. Members on both sides of the House agree that the handing on of capital should be supported, rather than curtailed.

In my constituency, I have always noticed what the rich are able to do and, usually, what is good for the rich is also good for the poor. I thought that the amendment would ensure that other ways to tax the movement of capital were not put at an advantage.

Ruth Kelly: I thank my right hon. Friend for his intervention. The Government do not intend to prevent people from passing capital between generations. We do not want a tax-privileged method of saving that is designed purely to give a person secure income during retirement to be subverted for a different end—passing on capital. Other saving methods are available to allow people to pass on capital between generations and they are a fundamental part of our democratic system.

The right hon. Member for Skipton and Ripon asked about the amendments. He said that he did not recognise many people coming to his surgery with £1 million-plus pension funds.

Mr. Curry: Well advertised though my surgeries are.

Ruth Kelly: I will not go into details of how I let my constituents know about my surgeries; I am sure that we can discuss that outside the Room.

Under the Bill, such a situation could become more prevalent. The fact that the right hon. Gentleman does not know many people with such funds illustrates that there are few people who would benefit from the Bill. In future, the number of people with larger pension funds could increase if that became a tax-privileged way of saving and the funds did not have to be set aside to provide a secure income during retirement.

I was grateful to the right hon. Gentleman for mentioning the exit charge. He said that he expects the Government to introduce a 35 per cent. exit charge in parallel with the Bill, if we were minded to accept it. I have already mentioned that a 35 per cent. charge is, in retrospect, not the appropriate rate for income withdrawal. Indeed, people who take advantage of

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income withdrawal are generally 40 per cent. taxpayers. They benefit from not only 40 per cent. up-front tax relief, but tax-free investment growth of the fund. Therefore, although I accept that there are different definitions of tax neutrality, if a tax-neutral rate were set under one definition, it would be at least 40 per cent., and it could be significantly higher. Would the right hon. Gentleman accept an exit charge of 55 or 60 per cent., or whatever would be required to make it tax neutral, to secure the passage of the Bill? Does he think that he is proposing tax-neutral measures?

Mr. Curry: I chose 35 per cent. because if a person dies before the age of 75 without having annuitised, there is a 35 per cent. exit charge. I am transposing that tax provision into the Bill. If the Minister makes a powerful case for a different provision or level of tax relief, I will listen to it. However, I am not prepared to argue about different figures without that debate.

Ruth Kelly: I am interested that the right hon. Gentleman accepts that 35 per cent. might not be the correct level for an exit charge. That becomes more important under the terms of his Bill than under existing legislation. If the rate were set at 35 per cent., that would shift the momentum to give an advantage to people moving money from savings vehicles into pension vehicles. If the rate were set much higher, the advantage would disappear and some problems would be overcome.

All the problems would not be overcome, however, as several are inherent in the Bill. The rate at which the exit charge might be set is critical to the Bill. The figures that we have considered have not taken account of the 35 per cent. exit charge, but even if there were such a charge, the Exchequer would incur a great cost.

        It being twenty-five minutes past Eleven o'clock, The Chairman adjourned the Committee without Question put, pursuant to the Standing Order.

        Adjourned till Thursday 28 February at five minutes to Nine o'clock.

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The following Members attended the Committee:
Stevenson, Mr. George (Chairman)
Browning, Mrs.
Burnside, David
Cable, Dr.
Cousins, Mr.
Curry, Mr.
Field, Mr. Frank

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Flight, Mr.
Hendrick, Mr.
Jones, Lynne
Kelly, Ruth
Quinn, Lawrie
Ryan, Joan
Stuart, Ms

 
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Prepared 14 February 2002