Clause 46 - Lifetime allowance charge: power to amend the transitional provision in Part 2 of Schedule 18 to FA 2011 etc

Finance Bill – in a Public Bill Committee am 12:30 pm ar 6 Mehefin 2013.

Danfonwch hysbysiad imi am ddadleuon fel hyn

Question proposed, That the clause stand part of the Bill.

Photo of Chris Leslie Chris Leslie Shadow Minister (Treasury)

As if we could not get any more excitement in this Committee, we now turn to pensions, in which I know many hon. Members are very interested. Clause 46,  which deals with the question of the lifetime allowance charge and the power to amend the transitional provision in part 2 of schedule 18 to the Finance Act 2011, is now with us. The clause relates to the lifetime allowance and the changes that have been made. This provision is only one facet of that.

As all hon. Members will know, the lifetime allowance is the amount that a person can claim for their pension throughout their lifetime without incurring a tax charge. It was introduced in April 2006, at the level of £1.5 million. Those with pension pots exceeding that amount before 2006 could apply for primary protection or enhanced protection. The aim behind protection was to ensure that those whose pots already exceeded the lifetime allowance, otherwise known as the LTA—not the Lawn Tennis Association, but something quite different—before its introduction would not incur unnecessary charges.

The LTA gradually increased in subsequent years and then it was decreased in 2012 from £1.8 million to £1.5 million. To protect those with an LTA worth £1.8 million and over, Her Majesty’s Revenue and Customs allowed a limited period for them to apply for protection for their pension pots to avoid a tax charge on the excess amount.

Clause 46 allows HMRC to alter provisions that were intended for the transitional period for when the lifetime allowance was last decreased. Fixed protection was introduced as a result of that decrease in the LTA. That fixed protection had to be applied for before April 2012 and it allowed a fixed LTA of £1.8 million. There are tighter restrictions on having fixed protection. The main points are that it cannot be dropped and it cannot be replaced with the previous protection on a pension pot.

This clause gives HMRC additional powers to make specific regulations in relation to transitional protection notices. However, expanding HMRC’s power will also expand the need for accountability of the regulations that it is implementing. Obviously, there will be, at first glance, very little sympathy from many of our constituents for those fortunate enough to have what appears to be a large pension pot—£1.5 million or above—but there are legitimate questions that need to be asked for those affected and how they will make choices about whether they would like to apply for the fixed protection 2014 if the alternative option is going to continue through the consultation period.

I therefore have a number of specific questions to ask the Minister. How will the fixed protection arrangement be assessed, and how will an individual know whether they have the right to that higher lifetime allowance? When will the final provisions of the individual protection 2014 be announced? In other words, what are the consultation arrangements around that? I would be grateful if the Minister set those out.

How many people will be allowed the higher lifetime allowance arrangement under individual protection? If everyone is in with a good chance of increasing their lifetime allowance, what is the point of reducing the standard of lifetime allowance? What is the deadline for applying for fixed protection 2014? Should not the deadline be introduced once provisions for individual protection have been decided?

As a result of the new powers to make regulations, if any future regulation does not go according to plan, will the Government take responsibility? Is the Treasury  opening up a liability in some respects on this issue? Finally, will the new provisions be subject to the negative or affirmative procedure for statutory instruments? It seems to be the negative procedure, but could he explain why?

Photo of Sajid Javid Sajid Javid The Economic Secretary to the Treasury

Clause 46 is intended to ensure that the fixed protection regime introduced in 2012 works as intended.

I welcome the comments of the Opposition spokesman, although I note that some of his questions, in particular to do with individual protection and how that regime will work, are more connected with the next clause, which I will be discussing. Perhaps he will bear with me if I do not answer certain points directly. I will, however, ensure that they get answered when we discuss clause 47, which is more directly linked to that line of questioning.

In the Finance Act 2012, we reduced the lifetime allowance for pension savers from £1.8 million to £1.5 million from April 2012. At the same time, we introduced the fixed protection regime to protect those individuals who had already built up pension savings in the expectation that the lifetime allowance would remain at its 2011-12 level of £1.8 million. Following the introduction of those changes, in discussions with the pensions industry we were made aware of a number of areas where improvements could be made to the fixed protection rules. We therefore announced in the 2012 Budget that a regulation-making power would be introduced in the 2013 Finance Bill to allow the changes to be made.

The clause allows a new power to make regulations that can amend the tax rules for the existing fixed protection regime. Draft regulations were published for consultation alongside the draft clause in December 2012. The regulations are intended to help ensure that fixed protection is not lost through circumstances outside the control of the member.

For example, the regulations will ensure that where the member opts for an active membership of their pension scheme, any statutory increases applied to deferred pension benefits will not lead to the loss of fixed protection. The regulations also apply where someone has UK tax relief pension savings in a non-UK pension scheme that are tested against the lifetime allowance. The regulations ensure that, for the purposes of fixed protection, those savings are subject to the same conditions as if savings had been in a UK-registered pension scheme.

The changes in the draft regulations are reflected in a new fixed protection regime under clause 47, which I will come on to shortly. That will ensure that both fixed protection regimes—the one with the changes to lifetime and output made previously, and the one with the changes we announced in the Budget, which I will come to under clause 47—match each other as closely as possible.

In conclusion, the changes to the fixed protection regime will ensure that the rules work as intended and are applied fairly across everyone with UK tax relief pension savings.

Photo of Chris Leslie Chris Leslie Shadow Minister (Treasury)

Might some inspiration be about to strike the Minister on some of the specific issues? Some questions bleed across from this clause to the next one, but it might be useful for him to dispatch some now. I  can see on his face, however, that information is flowing through his veins and is about to be uttered to the Committee and placed on the record—perhaps.

Photo of Sajid Javid Sajid Javid The Economic Secretary to the Treasury 12:45, 6 Mehefin 2013

Some inspiration has just come my way, which I am happy to share with the hon. Gentleman. He asked whether the regulations are made under the negative or the positive procedure. They are to be made under the negative procedure, which I understand to be usual for changes of this type. He asked when the changes will be consulted on. That will be in the next couple of weeks—shortly.

The hon. Gentleman also asked when the changes would apply. They will apply from 17 April. The set of changes we have discussed here will apply from 5 April 2014. The changes that we announced in the Budget to the lifetime allowance will apply from April 2017.

Photo of Chris Leslie Chris Leslie Shadow Minister (Treasury)

I apologise to the Minister. I just wanted to double check the date. I thought he said 17 April at one point, but he meant April 2017.

Photo of Chris Leslie Chris Leslie Shadow Minister (Treasury)

Oh. What is the rationale for that date? It does not align with a tax year. It is a strange midway point through the month.

Photo of Sajid Javid Sajid Javid The Economic Secretary to the Treasury

If the hon. Gentleman would allow me, when I come to the next clause I will clarify that point for him.

Photo of Chris Leslie Chris Leslie Shadow Minister (Treasury)

Of course I am happy to allow the Minister that latitude.

Question put and agreed to.

Clause 46 accordingly ordered to stand part of the Bill.