Pensions Bill

My Lords, I shall live to regret having made that remark. I shall blame it on officials because I religiously read the notes that they put in front of me. Tax relief on pension savings forms a valuable part of the incentive to save. Individuals who save at the new minimum level will see contributions worth 8 per cent of the banded earnings going into pension savings. Of these contributions, only 4 per cent will come from the jobholder’s pay; 3 per cent will come from employers, with 1 per cent being provided by the state for basic rate taxpayers. All UK qualifying schemes will have to be tax registered to ensure that members receive tax relief. As registered pension schemes for tax purposes, employer-sponsored schemes may choose, as we have heard, whether to operate either the net pay or relief at source method for delivering tax relief. The Government have decided that personal accounts will use the relief at source method for delivering tax relief to members, which is the crucial point on which the noble Baroness seeks our position. Under this method of paying tax relief, the individual saves up to £2,880 in any one tax year and the Government add another £720, giving a total pension savings with tax relief, irrespective of whether the individual is otherwise subject to tax, of £3,600. This method of delivery of tax relief for personal accounts will be set out in the detailed provisions of the scheme. We intend to consult on the draft scheme orders and rules next spring. As I said, delivery of tax relief for other schemes is dependent on the mechanism chosen by the sponsoring employer. However, tax rules are clear that the same method must be used for all workers in that scheme. I accept that in certain limited circumstances those on low incomes who have a high personal allowance will not receive additional tax relief on their pension if their employer chooses to operate net pay arrangements. However, with the personal accounts scheme giving relief at source, the numbers of low earners with high personal allowances who would not receive tax relief are likely to be quite small. We believe that, if we were to change the basis for those operating the net pay arrangements, the administrative cost of delivering tax relief to such a small number of people would outweigh the benefits of creating a system to deliver that relief. I am grateful for the opportunity to put that explanation on the record and hope that it will enable the noble Baroness to withdraw the amendment.