James Jones-Tinsley: Govt Finance Act delay is unacceptable

The Finance Act 2015-16 commenced its passage through Parliament back in July, shortly after the summer Budget. It contains legislation underpinning the contents of that first Conservative only Budget for 19 years, following their unanticipated victory in May’s general election.

From a pensions perspective, the Act includes the tapering of the annual allowance for those Chancellor George Osborne loves to refer to as “high earners”, as well as the transitional amendments to pension input periods to align them all with the tax year with effect from 6 April 2016. Another clause covers the well-trailed change to the taxation of lump-sum death benefits, again with effect from 6 April 2016.

Given the importance for advisers and their clients to both understand and prepare for these far reaching changes, it was vital it attained Royal Assent as quickly as possible. However, it only achieved this status last month. Why did it take so long?

In a non-election year, the Finance Bill is normally introduced to Parliament shortly after that year’s Autumn Statement (that is, early December). It then works its way through the five House of Commons stages and the five House of Lords stages, and typically receives Royal Assent to become an Act in the following July after all the amendments made during its passage have been considered.

This year, however, we have had two Finance Bills as a result of the general election outcome and Osborne’s subsequent “emergency” Budget on 8 July.

The Finance Act 2015-16 had its first reading in the House of Commons over four months ago on 14 July, with its second reading a week later. But then Parliament went into its summer recess, which meant it lay dormant for more than six weeks while the politicians jetted off to various far-flung destinations. It was finally resurrected on 8 September but it was not until 27 October that it had its first reading in the House of Lords.

The Act had its second reading on 10 November and, somewhat worryingly, the Lords crammed in the next three stages on that day too. This suggests a “waving through” of its contents, with a  lack of adequate consideration, despite the far-reaching implications (and complication) of the clauses concerning the pension changes.

But all the time the legislation remained in draft form, it was theoretically liable to change. This “legislative drag” has created a frustrating scenario for advisers and providers when trying to explain the forthcoming changes to their clients over the past few months.

Up until now, clients keen to know how much they could contribute in the current (two-PIP) tax year and if they would be affected by the annual allowance taper have had to base important financial decisions on draft legislation that remained open to change. As a result, advisers and providers have been placed in the invidious position of having to caveat their advice and guidance to their clients.

This has created a wholly unsatisfactory situation and we are told by HM Revenue & Customs  that further legislative drag will occur with next year’s Finance Bill and the ability to apply for fixed protection 2016 and individual protection 2016 (but I will save that one for another time).

The optimum position for all concerned where changes to pensions legislation are involved is for legislation to be on the statute books ahead of financial planning discussions taking place, and decisions made, based on a “foundation of certainty”.

Instead, a freshly unencumbered Conservative party grasped their unanticipated Parliamentary majority with both hands and steamed ahead on their austerity course, while the protracted legislative process struggled to catch up in their wake.

The back-to-front approach will have taken up time for both advisers and providers, which, in turn, means there will have been a real cost in pounds and pence to the end customer. On top of this, they will have experienced greater anxiety as a result of the uncertainty and consequent caveats.

James Jones-Tinsley is the self-invested pensions technical specialist for Barnett Waddingham