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Postal Services Bill [HL]

I think that the understanding of the noble Lord, Lord De Mauley, on the clause is a little misplaced, but I hope to put something on the record to clarify matters. I think that I followed my noble friend Lord Clarke’s example, but would need to read the record. Certainly, his exposition of lifetime allowances, benefit crystallisation and issues of lump sums was correct. I certainly accept that you could see an anomalous situation arising from the possible reorganisation if the clause were not available to address it, as it is intended to do. The Government have outlined the framework for the pension proposals. However, the specific detail of the proposals for the reorganisation of the pension provision will be set out in secondary legislation and the reorganisation could result in unintended consequences. For example, a tax charge might arise solely as a result of the reorganisation. Clause 22 will allow the Treasury to change how a relevant tax would apply to: the Royal Mail pension plan or its members; changes relating to the Royal Mail plan or its members; a new public scheme or its members; and a fund set up to hold the assets of the Royal Mail pension plan. This clause is necessary so that the Treasury can neutralise any tax disadvantage or advantage that may be caused by changes to the pension arrangements; its purpose is to neutralise the potential impact of tax in these circumstances. So where a reorganisation of the pension arrangements would otherwise create an unintended tax charge, that tax charge can be removed by amending the relevant legislation. For example, Clause 22 will allow regulations to be made to treat the new public scheme as a registered pension scheme. So when members’ rights are transferred from the RMPP to the new scheme, tax charges of up to 70 per cent—equating to the amount of tax relief that will have been received—of the amount transferred will not arise. Clause 22 also provides the power to make provision to remove the tax charge where assets of the RMPP are transferred to a fund in Clause 20(1)(c). If the fund is not a registered pension scheme, the transfer of the assets and the income and gains that arise on the investments would be taxable. This clause would allow regulations to be made so that the investments may attract tax relief as if they had been transferred to a registered pension scheme. To answer the point of the noble Lord, Lord De Mauley, on whether we are looking to tax the fund set up under Clause 20, I say no. The impact of this is to enable the fund that holds the assets to be treated in the same way for tax purposes as though those assets continued to be held by the scheme. Without the power, these amendments could not be made otherwise than by primary legislation at some time down the line. If this clause were removed, tax charges of up to 70 per cent on payments out of the pension savings could arise simply because of the reorganisation of the pension arrangements. This sort of clause to neutralise unintended tax charges is not novel. In 2005, a similar power—Section 102 of the Finance Act 2005—was taken in relation to the Pension Protection Fund, the Fraud Compensation Fund and the board of the Pension Protection Fund. It was taken for similar reasons, essentially as a precautionary measure to ensure that, when the detail was finalised, unintended consequences could be dealt with. Therefore, it is important that this provision is flexible. The tax consequences will depend on the specific detail which will be set out in secondary legislation. Clause 22 provides the power to make regulations to meet any concerns that may arise on the taxation of the pension reorganisation. Amendment 77 would require the Treasury to make regulations ensuring that, for tax purposes, benefits paid out of the Royal Mail pension plan and the new public scheme are treated as if they were paid out of the same pension scheme. This is both unnecessary and could cause difficulties. Current Royal Mail employees will probably receive benefits from both the Royal Mail pension plan and the new public scheme. In previous debates on this matter, I have confirmed that the Government’s aim to protect members is at the core of these pension changes. For tax purposes, the Government aim to treat the members of the RMPP and the new public scheme, as far as is possible, as if the reorganisation had not taken place. That is why we have Clause 22. If inadvertent tax charges arise out of the changes, Clause 22 provides the power for the Treasury to make regulations to vary the tax rules. The clause is included in the Bill to cover precisely this sort of detail. So where unintended tax charges arise from the pension proposals, Clause 22 allows the regulations to neutralise tax disadvantages that may be caused by changes to the pension arrangements. The amendment would oblige the Treasury to make regulations to treat the benefits as payable under a single registered pension scheme whether or not such regulations were an appropriate way to resolve the potential problem. Even more seriously, creating the fiction that the benefits of the two schemes are paid out of the same registered pension scheme for tax purposes would introduce unnecessary confusion over which scheme is responsible for the payment, without providing any additional tax advantage over what is already possible under the existing version of Clause 22. This is because each registered pension scheme has to appoint a person responsible for its tax issues—the scheme administrator. This amendment would create uncertainty over exactly who has that responsibility and may even restrict the ability to make changes which neutralise the tax position. The amendment provides a rigid requirement for the Treasury to make regulations when the tax consequences of the detailed pension proposals, and whether and in what form tax changes will be needed, are still unknown. The Government think that the flexible provision in Clause 22 is the best way of dealing with the tax consequences that may arise out of the pension proposals. My noble friend Lord Clarke asked why we should not treat as one scheme pensions taken two years apart. My note says that the treatment would be the same if £100,000 were taken first and another £100,000 were taken two years later, irrespective of whether the sums were in one or two schemes. The thrust of the point I am seeking to make is that the concerns on which my noble friend has alighted can be dealt with by Clause 22. That is the purpose of that clause. We believe that is a better and more flexible approach than having the rigid approach of treating the two schemes as though they were one for tax purposes, given the difficulties that could generate, as I have explained. I therefore ask that Clause 22 stand part of the Bill and I hope that my noble friend will withdraw the amendment.