As I understand the section, it says that anybody who has more than 15 per cent of the capital of the company cannot get any benefit for any purpose of the scheme. On the last occasion, the Minister indicated that approval of the scheme was for the purposes of income tax concessions in relation to the calculation of deduction of contributions and he made that case. In fact, I had not checked the section then. Now, I have checked it and the position does not seem to me to be what the Minister said on the last occasion. It says:
(m) that no service of a person in whatever capacity while he is:
(i) a proprietary director,
(ii) a part-time director,
(iii) a proprietary employee, or
(iv) a part-time employee,
may be taken into account for any of the purposes of the scheme.
That means to say that anybody who has more than 15 per cent of the capital of the company cannot get the death benefit under any superannuation scheme because the superannuation scheme is ultra vires that section if the company bring it into operation. The section does not say, as I understood the Minister to say on the last occasion, that approval could not be given to such a scheme.
On the last occasion, the Minister said that approval could be sought for the scheme for income tax purposes but that it did not operate for death benefits. The section, I think, is clear. If it includes a person owning more than 15 per cent of the capital in death benefit, then it is ultra vires the section and the scheme is inoperative, does not come into effect. Therefore section 34 of the Finance Act, 1958, contains its own built-in, shall I say, provision against avoidance. When one considers the matter in that light, it blows skyhigh the whole case the Minister has made for the necessity for this section.
I want, however, to go on, in relation to the section, a bit further. I may say at once now that not merely do I not very clearly understand, with the best bona fide goodwill in the world, the explanation the Minister has given but that I find it extremely difficult to understand the original section and the amendment as introduced. As I understand these provisions now, and as it has been put to me by a person somewhat more skilled in superannuation schemes than I am, the effect of the new amendment the Minister is putting in is more penal than the old one. I want to pursue that because on the last occasion we succeeded in persuading the Minister that section 24 as originally proposed by him would inflict on the dependants of a man of even moderate means some hardship and he agreed to consider raising the exemption limit of £5,000 and to look at the wider implications of the section. He indicated then, and I think correctly, that he wanted to see how the hardship on the dependants of salary or wage-earning employees might be ameliorated, bearing in mind that what he wanted to do was to avoid an anti-avoidance section.
Section 54 of the 1958 Act, page 24 of the long white copy of that Act, makes it clear that, as a means of avoidance, it is really not operative at all. As I understand this now, the section will be even more penal, because what will happen now is that there will be a worse situation for non-contributory schemes than there will be for contributory schemes. I must, with respect, discuss to some extent what arises under section 24 and the amendment to section 25 in order adequately to understand section 24. As I see it, the contributory scheme that will now operate will be that the proportion the last five years' premiums paid bear to the total number of premiums paid will govern the proportion of the total policy moneys that will be taxed.
I think I am right in saying that that will have an effect which I shall deal with in another way and which I tried to cover by amendment No. 13 which has been ruled out of order, partly through my own fault because I placed amendment No. 13 in the wrong place: it is correct but it is in the wrong place on the list of amendments. However, that will have the effect of hitting the young man with the family much more than the older man. Perhaps I might make it clear why I say that. Take a person who, when he is 25, takes out an ordinary policy of life insurance, and therefore a contributory pension scheme, for a period of 30 years. If he lives the whole of the 30 years and dies one day before the policy becomes a payable endowment, then, as I understand it, the last five years' premiums are taken into account and the proportion on which death duties will have to be paid is one-sixth of the policy moneys—in other words, the last five years, in proportion to the total 30 years. Accordingly, he pays duty on only one-sixth of the moneys and, when he is 55, with a bit of luck, his family will be grown up, reared, and able to manage themselves.
However, if an unfortunate man dies at 35, when he has a young family, and when the widow and the young family really need the money, what will happen under the Minister's amendment is that having paid only ten premiums, the last five years will be taken and therefore at least half of the policy moneys will be taken into account for death duty purposes. The effect, therefore, of the Minister's amendment which includes amendment No. 15 which must be taken into account is to penalise the person who dies young. The person who dies young is the very person we want to allow off with a lesser rate of duty because the presumption is that, if he dies young, he will leave a younger family to be looked after. It seems to me therefore that the whole effect of amendment No. 15 is utterly anti-social in that respect. It was because of that that I framed amendment No. 13, but stupidly put it down as an amendment to the section instead of, as I had intended, an amendment to the Minister's amendment.