(Except clauses 1, 3, 16, 183, 184 and 200 to 212, schedules 3 and 41 and certain new clauses and new schedules) - Clause 51 - Abolition of contracting out of state second pension: consequential amendments etc

Part of Finance Bill – in a Public Bill Committee am 9:10 am ar 11 Mehefin 2013.

Danfonwch hysbysiad imi am ddadleuon fel hyn

Photo of Sajid Javid Sajid Javid The Economic Secretary to the Treasury 9:10, 11 Mehefin 2013

I welcome you back to the Chair, Mr Crausby. I thank the hon. Member for Nottingham East for his comments, and I am pleased that he finds the topic as riveting and scintillating as I do.

Contracting out of the state second pension through defined contribution pension schemes was abolished from 6 April 2012—I shall say more about that in a moment—and clause 51 makes changes to tax legislation that follow on from that abolition. They will ensure that the tax rules and regulations are consistent and are aligned with each other.

By way of background, some pension schemes provide a pension that replaces all or part of the additional state pension, which is sometimes referred to as the state second pension. When people join one of those schemes, they are said to be contracted out of the additional state pension. Members of such pension schemes pay a lower rate of national insurance in return for giving up their entitlement to the additional state pension. To help to simplify the pension system, the Government are ending that facility.

The first stage of the process was the abolition of contracting out of the state second pension on a defined contribution basis. The previous Government announced on 12 March 2010 that contracting out on a defined contribution basis would be abolished from 6 April 2012, and the present Government confirmed that that would happen. The second stage of the process will be to abolish contracting out for members of defined benefit pension schemes. At Budget 2013, the Chancellor announced that that would take effect from 6 April 2016. Those changes are integral to the Government’s broader strategy of reforming the state pension with the introduction of a new single-tier pension from 6 April 2016.

Clause 51 will simplify pensions tax legislation and remove possible causes for confusion. It will remove or amend all provisions in the tax rules that refer to contracting out through a defined contribution pension scheme. I confirm for the hon. Gentleman that the clause refers only to defined contribution pension schemes, and it is not related to the Chancellor’s announcement in the Budget on defined benefit schemes. As I have explained, members of defined contribution pension schemes have not been able to contract out of the state second pension since April 2012, so no individual will be affected by this tidying-up exercise.

Secondary tax legislation contains additional references to contracting out on a defined contribution basis. We have consulted on draft regulations to remove or amend all provisions in secondary legislation that include such references, and those regulations will be introduced after the Bill has received Royal Assent. In addition, we anticipate making further consequential changes to pensions tax legislation in a future Finance Bill after contracting out for members of defined benefit pension schemes has been abolished.

I conclude by saying that clause 51 tidies up pension tax legislation by reflecting the fact that contracting out of the state second pension for members of defined contribution pension schemes was abolished from 6 April 2012.