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Pensions Bill

I am grateful to the noble Baroness for raising this important point. It has prompted us to reflect on where we are. As she said, tax relief on pension savings adds to, and plays an important part in, the overall incentive to save. Individuals who save at the new minimum level will see contributions worth 8 per cent of banded earnings going into pension saving. Of these, 3 per cent will come from the employer, 4 per cent from the jobholder and 1 per cent from the state for basic rate tax payers. That is absolutely right. All UK qualifying schemes will be required to be tax-registered to ensure that their members receive tax relief on their contributions and investment returns. Even non-taxpayers can get tax relief on pension contributions. Individuals may save up to £2,880 in any one tax year and the Government will top that up with another £720, giving total pension savings with tax relief of £3,600 per year. Coincidentally, that is the same as the cap on personal accounts, but it is just a coincidence. An older person aged 65 to 74—obviously one will not automatically enrol people past the age of 65—who had an income just below their personal tax threshold, which is currently £9,030, and who saved at the forthcoming default rate, would receive total pension contributions of around £320 a year, comprising their own, those from their employer and tax relief. That is £9,030 minus the £5,035, so it is 8 per cent on £4,000. Of that £320, around £40 would be provided by the state in the form of tax relief, which is well within the annual savings limit for non-taxpayers. As registered pension schemes for tax purposes, employer-sponsored automatic enrolment schemes may choose—this is important—whether to operate net pay or relief at source as the method for giving relief on the members’ contributions of their workers. However, they must operate the same arrangements for all worker members. A registered pension scheme would not be able both to operate relief at source and to accept contributions under net pay for worker members. That restriction recognises that operating both regimes would be complicated for employers, schemes and HMRC to administer, especially as the interaction between workers’ income and personal tax allowances could mean that the most appropriate way of giving relief could be difficult to determine or even change during the course of a financial year. I say to the noble Baroness that we do not need to take a decision at this point about the method the personal accounts scheme will use to deliver tax relief to its members. More analysis and thinking time is needed. It would be helpful to see the shape of the underlying tax landscape closer to 2012, as that may influence the decision. In addition, the Personal Accounts Delivery Authority will want to work with its employers’ and members’ panels to help establish the most appropriate arrangement for its target group of members, and for the employers who contract with the scheme. To reiterate, for those employers who operate the relief at source approach, there should be no difficulties for anyone, even if they are not subject to income tax in any particular year, because the £3,600 limit should enable them to get their relief. A couple of other points were raised. The noble Lord, Lord Lyell, asked about share fishermen. They are not jobholders for the purpose of the legislation, so they do not fall within the arrangements. The noble Baroness said that she presumed that the bands would increase by prices.