Pensions Bill

I thank the noble Lord, Lord Oakeshott, for raising the issue of pensions tax relief, which is always an interesting subject. It was raised in Committee in another place, and as my honourable friend the Minister of State for Pension Reform said, it is a matter for the Chancellor of the Exchequer. Furthermore, the tax structures in this country are matters for the other place not your Lordships’ House. Noble Lords know that the Government already publish estimates of the annual cost of tax relief on private pensions. The Treasury publishes alongside the annual Pre-Budget Report a tax ready-reckoner that provides an estimate of the recorded costs of pension tax relief. It also publishes a table of the estimated costs of the major structural tax relief alongside the Budget. Producing a five-year projection of the annual cost of tax relief on pension savings would require firm assumptions about both tax policy and future savings behaviour, including any changes in savings behaviour, and it would prejudge key annual Budget decisions on tax thresholds and rates. Whoever the Government of the day, such decisions are rightly a matter for the Chancellorof the Exchequer. This amendment would create unnecessary duplication across Whitehall. I can understand the noble Lord’s wish to evaluate the current system. He will know that the Pensions Commission considered this issue and did not recommend changes to the overall system of tax relief. The commission felt that to do so would create huge implementation complexities, and it wouldbe extremely difficult to get rid of any existing inequalities without introducing other new ones. Providing estimates of the cost of tax relief on contributions to approved pension funds by decile and income band would require better information on the income distribution of those contributing to occupational schemes. Such analysis cannot therefore be sufficiently robust to provide detailed distributional information on pension relief. I should stress that tax reform has already taken place. I hesitate to mention the ““A”” word because I know that the noble Lord, Lord Skelmersdale, will chastise me for doing so, but April 2006 witnessed the introduction of a radically simplified tax regime for registered pension schemes. These reforms have resulted in a pensions landscape where individual pension schemes can tailor their benefit packages to suit their sponsors and members, and members will be able to save as much as they wish, when they wish, in order to provide a secure income for themselves in retirement. The pensions industry has broadly welcomed these changes, and I suspect it would be alarmed if further changes were made before the improvements introduced last year had adequately bedded down. I share the aspirations to encourage people to save for a secure retirement, and that is why the Government provide generous tax incentives. The figure that I have for the total value of tax relief for 2006-07 is £16.3 billion. We could have a huge and interesting debate on this, but frankly, at this time of night, that would be difficult. The key point is that it is not appropriate to call for this report. The data would duplicate much of what else is in the system. My noble friend Lord Howarth challenged me on why we allow the current structure of income tax relief for pension contributions. He said that it was inconsistent with our approach for national insurance contributions. The two are not the same: one is dealing with the contributory principle encouraging people to pay as they go along. Tax relief has a different structure which seeks to encourage savings. However, we agree that it is important to ensure that individuals are in a position to make informed choices about working and saving for their retirement. On that, we share common ground with other noble Lords and these measures are likely to have a greater effect on those not saving and not working long enough than reform of the tax incentive structure would have. I therefore urge noble Lords to withdraw the amendment.