Clause 1 - Amendment of the Income and Corporation Taxes Act 1988
Retirement Income Reform Bill
2:45 pm
Mr John Healey (Economic Secretary, HM Treasury; Wentworth, Labour)
I thank the hon. Gentleman for his comment, which is a helpful contribution to the discussion. If he checks the record, he will see that I pose this as a supposition in the absence of a clear definition from the proposer and proponents of the Bill of what would constitute the appropriate level. Some may argue that that should be the basic state pension, rather than the minimum income guarantee. I will come to that in a moment.
If the annuity were index-linked, as the Bill would require, a fund would be needed of some £134,000 before deduction of the tax-free lump sum. That makes no allowance for those who would like the minimum retirement annuity to continue to be paid to their survivor after their death. The cost of such an annuity would therefore be significantly more.
Hon. Members will be well aware that most of those retiring have pension funds of far less than these amounts. The average is around £30,000. About a quarter of that is taken as a tax-free lump sum, which leaves even less available for annuity purchase.