Pensions Bill

moved Amendment No. 4: 4: After Clause 3, insert the following new Clause— ““Tax effect of automatic enrolment (1) The Secretary of State shall ensure that every jobholder who— (a) becomes an active member of an automatic enrolment scheme under section 3, and (b) has not opted out under section 7, receives value equivalent to the contributions made by him multiplied by the basic rate of tax applicable at the time of the payment of the contributions. (2) The value referred to in subsection (1) shall be delivered in accordance with regulations made by the Secretary of State and may include— (a) tax relief to the jobholder if that jobholder would otherwise pay tax at the basic rate an amount of income equivalent to the amount of his contributions, and (b) direct payment by Her Majesty’s Commissioners of Revenue and Customs to the relevant automatic enrolment scheme.”” The noble Baroness said: My Lords, this amendment concerns the delivery of tax relief in respect of pension contributions under auto-enrolment. Noble Lords will recall that the Government portrayed the personal accounts scheme as 4+3+1; that is, 4 per cent from the employee, 3 per cent from the employer and 1 per cent in tax relief from the Government. The Bill, however, refers to 3 per cent from the employer and 8 per cent in total, with no reference whatever to tax. I moved this amendment in Committee in order to ascertain from the Government how tax relief was to be delivered, especially when the individuals concerned were not paying income tax. The matter arises principally where personal tax allowances are in excess of the qualifying earnings threshold and will depend in part on whether the lower threshold is the same as the personal allowance when the scheme is implemented. But even if they are aligned, which they are not at present, other factors, such as additional allowances and employment for only part of the tax year, could create problems. In Committee, the Minister described the current possibilities in relation to UK qualifying schemes. If I understood him correctly, where the employer chooses to operate relief at source, tax relief will be delivered regardless of the employee’s tax status. If the employer chooses to use the net pay method, tax relief will be dependent on the employee’s status. Employers can choose one or the other but cannot use both. But the Minister said in relation to personal accounts that a decision was not necessary until 2012, when it would be made on something called ““the underlying tax landscape””, which he did not explain. So we left the Committee stage with clarity as to company schemes but with no clarity in relation to the millions of people who are likely to be enrolled in personal accounts. Accordingly, I have tabled my amendment again in order to give the Minister an opportunity to provide further and better particulars on how the 1 per cent will be delivered to all in the personal accounts scheme. The amendment is drafted in relation to auto-enrolment rather than solely for personal accounts. As I mentioned, in Committee the Minister explained how tax relief was delivered for existing pension schemes. In addition to explaining how tax relief will work for personal accounts, will the Minister say what proportion of pension schemes currently use either the net pay method or the tax relief at source method? Can he extrapolate from that the number of employees in company schemes who might be at risk of not getting the full amount of tax relief because of the choices that their employers have made? I beg to move.