Extract from Committee stage (Commons) of the Finance (No 2) Bill - Apr 22
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Clause 29 Collective money purchase benefits Question proposed,
That the clause stand part of the Bill. The Chair With this it will
be convenient to discuss the following: Government amendments 17
and 18. That schedule 5 be the Fifth schedule to the Bill New
clause 9—Collective money purchase benefits (review)— “The
Chancellor of the Exchequer must lay before the House of Commons
within 24 months of the commencement of the first collective money
purchase pension scheme a review...Request free trial
Clause 29
Collective money purchase benefits Question proposed, That the clause stand part of the Bill. The Chair With this it will be convenient to discuss the following: Government amendments 17 and 18. That schedule 5 be the Fifth schedule to the Bill New clause 9—Collective money purchase benefits (review)— “The Chancellor of the Exchequer must lay before the House of Commons within 24 months of the commencement of the first collective money purchase pension scheme a review of the impact of section 29 and schedule 5 of this Act, including its impact on the distribution of benefits within collective money purchase schemes according to the age of the members of the scheme.” Jesse Norman Clause 29 and schedule 5 make changes to ensure that pension schemes providing collective money purchase benefits can operate as UK registered pension schemes, without giving rise to unintended tax consequences. The Government have successfully enabled collective money purchase pension schemes, which are also known as collective Defined contribution pension schemes. They are a new style of pension scheme, enabling employers and employees to work together to deliver mutually beneficial outcomes. The clause makes corresponding changes to accommodate collective money purchase schemes in the pensions tax legislation. The framework for such schemes is set out in the Pension Schemes Act 2021, which had cross-party support and received Royal Assent earlier this year. It was widely welcomed both inside and outside Parliament. The Government are proposing a number of technical changes to pensions tax legislation, so that collective money purchase pension schemes can operate on the same basis as other registered pension schemes. There is a special provision in the 2021 Act so that, in the unlikely event of a pension scheme that provides collective money purchase benefits being wound up, it can still make payments to its pensioners. Amendments 17 and 18 make minor changes so that there are no adverse tax consequences if in the future those payments are made by pension schemes in Northern Ireland in the process of being wound up. New clause 9 would require the Government to provide a review of the impact of the pensions tax legislation applicable to collective money purchase schemes and, in particular, of the distribution of benefits within those schemes according to the age of the members of the scheme. The purpose of clause 29 and schedule 5 is to enable pension schemes that provide collective money purchase benefits to operate in the same way as other registered pension schemes. As with all these schemes, tax law applies to all members on the same basis regardless of age. Tax law determines how much tax relief on contributions is given by the Government and the tax regime for benefits paid by registered pension schemes. Tax law does not affect how the pension scheme distributes the benefits it pays. Therefore, the new clause is outside the scope of what tax law can achieve. There is a sentiment in the new clause about the distribution of benefits for members of different ages more generally. Fairness of outcome for all members is important, and it is a key principle of the Government’s work on collective money purchase schemes. My hon. Friend the Minister for Pensions was clear when the 2021 Act was being considered by this House: regulations under that Act will require collective money purchase scheme rules to contain provisions so that there is no difference in treatment between different cohorts or age groups of scheme members when calculating and adjusting benefits. If the scheme design does not do that, it will not be authorised by the Pensions Regulator. For those reasons, I ask the Opposition to withdraw their amendment. 12:45:00 James Murray Clause 29 relates to the tax treatment of collective Defined contribution schemes as introduced by the Pension Schemes Act 2021. We support the introduction of CDC schemes, and schedule 5 sets out in detail how they will be treated for tax purposes. As the House of Commons Library explains, in CDC schemes both the employer and the employee contribute to a collective fund from which retirement incomes are drawn. The funding risk is borne collectively by the individuals whose investments make up the fund. In a similar way to a Defined contribution scheme, the employer carries no ongoing risk. The Opposition played a crucial role alongside trade unions to allow the Royal Mail to set up a CDC pension agreement with the Communication Workers Union in November 2018. We also warned, during the passage of the Pension Schemes Act, that we need CDC schemes to avoid the same pitfalls as defined benefit schemes as they relate to intergenerational fairness. CDC was first identified as a possible solution for Royal Mail workers being transferred to a less generous Defined contribution scheme in 2017, which might not have provided sufficient income in retirement. The principle of a CDC scheme was agreed, and a specific Royal Mail CDC scheme was designed and modelled. Work by Willis Towers Watson actuaries suggests that the CDC scheme will on average produce 70% more for an individual than a Defined contribution scheme, and 40% more, currently, than a defined benefit scheme, according to the CWU. The scheme would replicate the old defined benefit scheme in design, producing a wage for retirement generated by a CDC and a guaranteed lump sum. Although the CDC in different forms is used in other countries, such as Canada, Denmark and the Netherlands, no scheme of its type has previously existed in the UK. Legislation was therefore required. The first CDC scheme, in Royal Mail, is expected to be launched later this year, now that the Pension Schemes Act has been passed. Employers in the UK will now have an option to offer three, rather than two, types of scheme: Defined contribution defined benefit and collective Defined contribution Given that the design of the CDC scheme is entirely new, we recognise that the clause will ensure that they may function in the same way as other schemes in relation to existing pensions tax treatment such as the annual allowance. Our new clause 9 simply asks that the Treasury lays before the House within 24 months of the commencement of the first collective money purchase pension scheme a review of the impact of clause 29 and schedule of 5, including on the distribution of benefits within collective money purchase schemes according to the age of members of the scheme. CDC schemes are new. As the Minister has agreed, it is important that we ensure intergenerational fairness. I would therefore welcome his ongoing consideration as regards carrying out such a review. Jesse Norman I thank the hon. Gentleman for his comments. I anticipated them in my remarks. I would say that, as he has indicated, the issue was carefully discussed and reviewed—rightly so—in the passage of the Pension Schemes Act 2021. The importance of there being no difference in treatment between different cohorts and age groups of scheme lenders was made clear, and it was made clear that the regulations would cover that. That will be required by law, and it will fall not to HMRC or the Government, but to the independent Pensions Regulator to adjudicate on the effectiveness of the scheme. Question put and agreed to. Clause 29 accordingly ordered to stand part of the Bill. Schedule 5 Pension schemes: collective money purchase benefits Amendments made: 17, to schedule 5, page 116, line 25, after “36(7)(b)” insert “or 87(7)(b)”. This amendment ensures that the new paragraph 2(9) of Schedule 28 to the Finance Act 2004 (inserted by paragraph 20 of Schedule 5 to the Bill), which deals with benefits payable by a collective money purchase scheme in the event of its being wound up, operates correctly in relation to a scheme governed by the law of Northern Ireland. Amendment 18, to schedule 5, page 116, line 32, after “36(7)(b)” insert “or 87(7)(b)”.—(Jesse Norman.) This amendment ensures that the new paragraph 2(10) of Schedule 28 to the Finance Act 2004 (inserted by paragraph 20 of Schedule 5 to the Bill), which deals with benefits payable by a collective money purchase scheme in the event of its being wound up, operates correctly in relation to a scheme governed by the law of Northern Ireland. Schedule 5, as amended, agreed to. |