Clause 50 - Bridging pensions

Finance Bill – in a Public Bill Committee am 3:45 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)

Clause 50 enables a registered pension scheme to continue to pay a bridging pension until a member reaches state pension age. That is where the issue becomes quite interesting, because it relates to the choices made about the state pension age by the current and previous Administrations. Previously, a bridging pension had to be reduced by the age of 65.

A bridging pension is a supplementary pension paid by an occupational pension scheme to a member who retires and starts drawing a pension before reaching state pension age. Bridging pensions are designed to ensure that members receive a regular income from the date they retire. When the member reaches state pension age, their pension is reduced by the amount of the state pension. I think that clause 50 is designed to try to align the tax rules on the payment of bridging pensions with the DWP changes to the state pension age. Will the Minister confirm that that is indeed the intention?

The clause means that schemes that continue to pay bridging pensions will not face an additional tax charge as a result. However, it does not force schemes to continue to pay bridging pensions. It will have effect in relation to bridging pension payments made on or after 6 April 2013. Although it is a relatively uncontroversial proposition, will the Minister say what representations he has received on it? What were the views expressed in the consultation, which I think was a while back now, in 2011?

Will the Minister also set out the estimated cost to businesses of the policy change and its administration? Clearly there is a changing picture in relation to the state pension age—it is not fixed, and a number of changes have been set out by not just the previous Administration, but the current Government. I would be grateful if the Minister could help on those administration issues and on the costs to businesses that have to host such pensions.

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

Clause 50 makes changes to align the tax rules on the payment of bridging pensions with the changes to the state pension age. Bridging pensions may be paid by some pension schemes when an individual starts receiving a pension before they reach state pension age. The idea is that where an individual retires at, say, the age of 60, their pension is higher at the outset to compensate for the absence of a state pension. When the individual reaches state pension age, their scheme pension is reduced by approximately the level of the state pension, providing a level income throughout their retirement.

The tax rules require that a scheme pension must be payable for life and must not reduce, apart from in specific circumstances; this is one of those circumstances. Currently, legislation allows the pension to be reduced if the individual is aged between 60 and 65, 65 being the existing state pension age. However, the state pension age is increasing, and if no changes were made bridging pensions for individuals whose state pension age is 66 or older would have to reduce before the individual’s state pension age in order to comply with the tax rules. That would mean that the pensioner would face either an unintended gap in their level of retirement income or an unintended tax charge on their pension.

The hon. Gentleman asked whether the measures were related to the change in the state pension age; that is correct. He also asked about proposed changes by the Department for Work and Pensions to the state pension age; they would necessitate a further review of this legislation to make sure that it achieves the purpose that I have set out. The changes made by clause 50 will enable schemes to pay bridging pensions to members until the state pension age where that is later than the age of 65. The change is supported by industry as well as by individuals who would be affected.

Before I conclude, the hon. Gentleman also asked about consultation. I can confirm that the clause was subject to a two-month consultation period, during which we received two responses from the pensions industry. The responses raised concerns about the technical interaction of the new legislation with the existing pensions tax rules. Those concerns were found to be without basis.

The measures ensure that the rules for bridging pensions keep up with changes in the state pension age and allow pension schemes to continue to provide their members with a bridging pension from retirement to state pension age without a gap in the level of income for pensioners.

Question put and agreed to.

Clause 50 accordingly ordered to stand part of the Bill.

Photo of Steven Baker Steven Baker Ceidwadwyr, Wycombe

On a point of order, Mr Amess. I have learnt this afternoon that one member of the Committee will tonight be celebrating 30 years as a Member of Parliament. Would it be in order for the Committee to give you, Mr Amess, our very best wishes for your celebration tonight?

Photo of Sir David Amess Sir David Amess Ceidwadwyr, Southend West

Although that is not a point of order, it is an extremely nice thing to say and I thank the Committee.

Ordered, That further consideration be now adjourned. —(Brooks Newmark.)

Adjourned till Tuesday 11 June at ten minutes past Nine o’clock.