Clause 1 - Amendment of the Income and Corporation Taxes Act 1988
Pension Annuities (Amendment) Bill
9:00 am
Ms Ruth Kelly (Economic Secretary, HM Treasury; Bolton West, Labour)
As I was saying, we had the opportunity to debate some of the issues at length on Second Reading. However, we did not manage to finish considering the principle, never mind the details, of the Bill. The amendments are highly technical. They refer to the clause and deal with the definition and treatment of the retirement income fund, which the right hon. Member for Skipton and Ripon proposed.
The Bill would ensure that pension scheme members used pension scheme funds for annuity purchase only to the extent necessary to secure a minimum retirement income. The annuity must be index linked and, apart from transitional measures for those in draw-down, must be bought by age 55. The Bill would allow people to withdraw residual funds from a personal pension scheme and the retirement income fund as and when they like, so long as the minimum retirement income is purchased. The amendments will ensure that the retirement income fund is a designated part of the personal pension scheme.
On amendment No. 6, clause 1(2)(a) is technically incorrect, as it treats income invested in a retirement income fund as a benefit to be paid out from the pension scheme. However, the Bill contains no proposal to amend section 633 of the Income and Corporation Taxes Act 1988, which defines the scope of benefits that a personal pension scheme can provide, to include payments into the fund. Even if it did, the provision would not make sense. The only way that it can work is if the benefit that the scheme can provide is amended to include withdrawals from the retirement income fund. The amendment would achieve the results intended by the Bill.
Amendments Nos. 15 and 16 are designed to make the provisions of the Bill workable. As it stands, the retirement income fund appears to stand apart from the personal pension fund, but there is no mechanism that would enable it to do so. The amendments make it clear that any part of the fund that is not used for annuity purchase may be designated a retirement income fund. They also make it clear that the retirement income fund will last only as long as the period permitted by the income withdrawal rule, that is, until age 75. That period would be reinstated by amendment No. 14, which we shall discuss in due course.
It is important that the amendments are accepted to make the Bill workable. We will later discuss whether the retirement income fund is a good idea, whether it is workable, and what effect it will have on most people who draw a pension in their retirement.