Finance Bill

Thank you for your guidance, Sir Alan. It is a great pleasure and honour for me to serve for the first time under your chairmanship in a Committee of the whole House. Clause 67 relates to changes to the relief available to individuals for their pension contributions that are used to fund personal term assurance policies, and it also introduces schedule 18 of the Bill. In summary, clause 67 and schedule 18 are a response to a process of consultation with industry, announced at the time of the pre-Budget report, on the application of tax relief to personal term assurance. Throughout that process, and indeed throughout the whole consultation period when developing the new pensions tax regime in the period up to A-day on 6 April 2006, the Government have consistently applied the PBR’s principles for providing tax relief—namely that such relief should support saving for an income in retirement. Indeed, the Government stated in the 2002 consultation document issued before A-day that"““to encourage people to save in a pension, the Government awards favourable tax treatment...which people must use to provide a secure income in retirement. Most of the savings built up in this way must be used to generate a taxable income in retirement.””" The tax reforms that came into effect last April removed the complexity that had led over many years to different tax rules applying across numerous types of pension scheme. The long-term benefit is a streamlined regime that is easier to understand and cheaper to administer and which was at the time, as it is now, broadly welcomed by the pensions and savings industry. As we announced at the time of the pre-Budget report, we became aware in the summer and autumn of last year that a problem was occurring due to the rapid growth of pension term assurance—a life insurance death benefit that in most cases was providing no income in retirement. It was leading to rising costs and was clearly at odds with the principles we had set out. To deal with the problem, we announced in the pre-Budget report that we would work with the pensions industry to explore, in time for the Budget, how our principle that pensions should be tax-advantaged to provide an income in retirement could be applied to pension term assurance contracts. We announced that any changes we decided to make would not affect either personal arrangements entered into before 6 December 2006 or existing types of employer arrangements. Following detailed discussions with industry representative bodies, such as the Association of British Insurers, it became clear that a meaningful link could not be provided between those policies and pension saving without making the products commercially unviable or leading to high compliance and tax costs to Her Majesty’s Revenue and Customs and the Treasury. That is why the Budget announced the changes before us today. In making the changes, we have worked with the industry to protect the position of consumers who had taken out policies before the pre-Budget report announcement in 2006 and, as I will set out in more detail later—either in the debate on the amendments or in the wind-up—we have tabled amendments to the transitional arrangements in schedule 18 to ensure that they work in the best interests of the consumer. On that basis, given the amendments we shall propose to the schedule, I commend the clause to the Committee.