Dependants’ scheme pensions

Finance Bill – in a Public Bill Committee am 12:00 am ar 30 Mehefin 2016.

Danfonwch hysbysiad imi am ddadleuon fel hyn

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

Photo of David Gauke David Gauke The Financial Secretary to the Treasury 2:00, 30 Mehefin 2016

Welcome to the Chair, Mr Howarth; it is a great pleasure to see you again. I am pleased to see the Gale-Howarth team reunited.

The clause makes changes to simplify the administration of dependants’ scheme pensions. At present, when an individual who is entitled to a scheme pension dies, their dependants may be entitled to receive a scheme pension from the deceased’s registered pension scheme. The value of that dependant scheme pension must be tested annually to ensure that an individual has not avoided paying a lifetime allowance charge by setting aside excessive amounts to fund a pension for their dependants.

That test applies to all members who died on or after 6 April 2006, having reached age 75 and either started to take a scheme pension on a date from 6 April 2006 onwards or died without starting to take their scheme pension. That is the case even if their pension savings are small or with modest benefits for dependants where there is little chance of manipulating the lifetime allowance. As a result, the industry faces a substantial administrative burden, carrying out unnecessary tests on modest pension savings where the risk from abuse is low.

The changes made by the clause will remove the vast majority of dependants’ scheme pensions from the current test, thereby reducing the administrative burden for industry. New and simpler tests will be applied to determine whether the total of all the deceased’s pensions savings used to fund dependants’ scheme pensions are below a certain threshold. The threshold for this tax year will be either the total amount of the individual scheme pension at their death or, if higher, £25,000.

The clause also makes provision for an annual increase in both thresholds by 5%, or the rate of inflation if that is higher, so that more dependants’ scheme pensions are not drawn back into the current tests over time. The clause will exempt those cases where the deceased had already had all their pension savings tested against the lifetime allowance at age 75, before their death, or where the deceased had had enhanced protection since 2006, so that they are not subject to the lifetime allowance charge on their pensions during their lifetime. As a result of those changes, more than 90% of dependants’ scheme pensions will fall within the exclusions provided by the clause, which will mean that the current tests will focus on the larger dependants’ scheme pensions that remain, reducing administrative costs and making the scheme easier to operate.

The current tests serve a useful purpose as they prevent individuals from avoiding the lifetime allowance charge, but we want to reduce the administrative burdens where we can. The clause has been introduced to make the alteration of dependants’ scheme pensions simpler and to support the Government’s policy to reduce the administrative burden on UK industry. I hope the Committee will agree that the clause should stand part of the Bill.

Question put and agreed to.

Clause 21 accordingly ordered to stand part of the Bill.

Clause 22