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PARLIAMENT'S INTENTION HAS become the philosopher's stone in debates about tax. Loughlin Hickey, giving this year's ICAEW Tax Faculty Hardman Memorial Lecture last Thursday, mentioned three examples: Gus O'Donnell, in last year's Hardman lecture, defined the tax gap as 'the difference between the tax actually paid and what Parliament intends to be paid'; Lord Templeman, as long ago as 1997, said at a conference that 'tax avoidance reduces the incidence of tax borne by an individual taxpayer contrary to the intentions of Parliament'; and Lord Hoffmann commented on this in 2004, asking 'how do we know the intention of Parliament? There is only one way to know the intention of Parliament, and that is to read the statute.'
Which is all well and good. But at the CIOT debate in September, Dr Vincent Cable MP said openly what we all know — that many members of the Finance Bill Committee have no great knowledge, and often even less interest, in the technical matters on which they are voting. Indeed, it is not unusual to see them sitting in the committee room replying to their constituency post as the debate goes on between a minister and an opposition spokesperson. If so, in what sense is the Finance Act the product of the 'will of Parliament'?
Save us
Hansard for 28 October 2005 carries a report of the second reading of the 'Rights of Savers Bill'. A glance at the calendar will show that 28 October was a Friday, and therefore this was a Private Member's Bill, introduced by Sir Malcolm Rifkind. Private Members' Bills generally have little hope of becoming law. However, as one of the earlier Bills to be heard in the session, the death of this one is not a foregone conclusion.
Introducing his Bill, Sir Malcolm said it had three parts. The first was designed to offer a new savings scheme with 'the simplicity and flexibility of individual savings accounts but with the security normally available to pension funds'. Since the readers of this magazine are significantly over-represented in the ranks of Equitable Life pension policyholders, I suspect there will be few takers for that one. The third part was designed to 'address the worrying trend of pension proliferation whereby many savers have large numbers of often small private pensions'. The phrase 'all your eggs in one basket' (which was indeed used by Greg Clarke, MP for Tunbridge Wells, in a comment on this part of the Bill) is no doubt also familiar to the Equitable Life policyholders who have not by now already thrown the magazine across the room and gone out to kick the cat.
Can you hear me, mother?
It is, however, the second part of the Bill that I want to concentrate on. Its purpose (and I quote) is to 'end the compulsion that has existed for many years to purchase annuities from a retirement fund.' Sir Malcolm must, of course, be referring to the IHT charge recently signalled by the Government, mustn't he? It appears not. In introducing part 2 of his Bill, Sir Malcolm says:
'This principally covers the reform of the current compulsion to purchase an annuity no later than the age of 75 … I am aware of no country in the western world, or anywhere else for that matter, that imposes such an obligation.'
Including, from 6 April next year, the UK, though Sir Malcolm gives no sign in his speech of knowing this. His Bill inserts a new category of permissible payment after 75 into Rule 6 (FA 2004, s 165), which is 'a withdrawal from a retirement income fund'. This fund, created by the Bill, would allow the funds to be invested by the member and withdrawn at will, up to an annual maximum based on the member's life expectancy. So what is the difference between that and an alternatively secured pension ('ASP'), which allows income withdrawal to continue as it did prior to age 75, but with a reduction to 70% of the 'basis amount' rather than the 120% allowed before 75?
A research paper prepared by the House of Commons library (Paper 05/69) on the Bill quotes the briefing paper that accompanied it as saying that, after the 25% lump sum, under current rules the remainder has to be used at age 75 to buy an annuity, and goes on to fulminate against this. There is one throwaway line saying that from 6 April 2006 the Government has introduced ASPs, but that this does not give:
'individuals flexibility and choice over the investment of their retirement fund and the level of income to be taken from it during retirement.'
I cannot say that I see where the problem is. Both allow for self-investment and both require a maximum to be set so that capital is not depleted too fast. David Laws, for the Liberal Democrats, agreed with Sir Malcolm's proposal to 'do away with the existing, inflexible, rules on annuities.' In case you think that he is referring to the pre-A Day position only, he goes on to say that 'the Government's inclination to stick with the annuity rules is partly, I presume, driven by their concern that people might blow all their money early in their retirement.' (my emphasis).
Oh Brother!
So what did MPs think the ASP rules are about? Nigel Waterson, MP for Eastbourne, gave a clue:
'Why should we retain the absurd notion that at the age of 75, if not before, people are obliged to [buy an annuity], unless they belong to the Plymouth Brethren, whose members can avoid it, and whose numbers, I suspect, are rising dramatically as we speak.'
It was indeed religious groups who lobbied successfully for the introduction of the ASP, but there is of course no requirement to belong to one in order to use it. Yet even the Government gave the impression that the requirement to buy an annuity is still in place, for instance, in replying to the Bill, the Minister for Pensions Reform, Stephen Timms, said:
'My right hon and hon Friends in the Department for Work and Pensions, as well as those in the Treasury, have argued for retaining that obligation [to buy an annuity] on the ground of cost, or on the ground that that proposal goes fundamentally against what a pension is.'
Emperor's new clothes
It was left to a member of the new intake, Barbara Keeley, the MP for Worsley, to get it right. She started her speech by saying that she was not 'any sort of expert on pensions'. She is clearly too new to the House to realise that this is not normally considered a disadvantage. As a result, and even though her main concern was the pension needs of carers, she appears to have done her homework:
'FA 2004 … relaxed the rule concerning taking an annuity at 75. The Act allows people to take an alternatively secured pension. At the heart of the debate … seems to be the issue of whether a pension scheme provides an income stream for a pensioner or whether it is designed to allow build-up of capital, which can be passed on to heirs'.
She won't thank me for this, but I do hope Barbara Keeley (or at least MPs like her) are on the Finance Bill committee next year. With every likelihood of a technical Bill containing a lot of complex anti-avoidance legislation, it is even more important next year that the MPs on the committee subject it to proper scrutiny, not letting it pass until they are satisfied that they understand what it means, so that its provisions genuinely can be said to be the intention of Parliament.
