Removal of compulsion to take annuities

Orders of the Day — Pensions Bill – in the House of Commons at 4:00 pm on 16th November 2004.

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Lords amendment: No. 359

Photo of Malcolm Wicks Malcolm Wicks Minister for pensions, Department for Work and Pensions

I beg to move, That this House
disagrees with the Lords in the said amendment.

I obviously know all the amendments off by heart, but I had briefly forgotten the significance of Lords amendment No. 359, although it is of considerable interest to the House. Mr. Speaker has brought it to the attention of the House that the amendment involves the question of Commons privilege. It relates to financial matters where it is the role of the Lords to agree not to initiate or to amend.

The effect of the amendment is to alter the taxation arrangements made by the Commons: it allows annuities not to be paid where they might otherwise be paid; it extends tax relief by allowing more people in some circumstances to pass their tax privileged pension pot on to their survivors tax-free; it allows in some circumstances for contributions to be made to pension schemes beyond the age of 75; it reduces the instances when part of the tax relief given to contributions is recouped when an annuity is paid, and so on. The House can waive its privilege but I think that it is inappropriate to do so.

I shall explain the proposed amendment and its background further. It is similar in intent to one that we in this House have previously rejected in Committee. It is also a topic that has been endlessly debated in this House as a result of a number of private Members' Bills and during the progress of this year's Finance Bill.

The present rules on annuities mean that members of personal pensions schemes and small defined contribution occupational schemes must purchase an annuity with their pension fund by the time that they reach the age of 75. Members of occupational pension schemes are required to receive a pension, rather than purchase an annuity at the age of 75.

The intention behind these rules is to ensure that pension pots are used to provide a stream of income in retirement. Personal pension schemes will purchase an annuity and occupational pension schemes usually, but not always, provide a pension from the scheme rather than for the purchase of an annuity. Members of pension schemes benefit from more favourable tax treatment than other savers. Tax relief is provided at the pension scheme member's marginal income tax rate so that, in effect, he saves the gross amount and not the net amount of income into his pension pot.

Photo of Malcolm Wicks Malcolm Wicks Minister for pensions, Department for Work and Pensions

Yes, but I want to make some progress. The House needs to hear the whole story.

Photo of John Butterfill John Butterfill Conservative, Bournemouth West

I am sure that the Minister did not wish in any way to mislead the House. That is why I am grateful that he has taken my intervention. There are other savings schemes that are equally tax privileged. I am thinking about enterprise investment schemes and venture capital trusts. There are a number of other schemes that involve quite significant levels of tax relief in terms of savings schemes that do not have the lock-up that pensions do. I do not think that the Minister would be completely accurate in saying that these reliefs were not available to other savings schemes that are open to the public.

Photo of Malcolm Wicks Malcolm Wicks Minister for pensions, Department for Work and Pensions

Let me make some progress. I think that I will be able to cover some of those issues.

The contributions grow in a tax-favoured environment when invested. There is also the tax-free lump sum on vesting a pension, which adds to the favourable treatment. That can be up to 25 per cent. of the value of the fund and is recognition by the Government that people need encouragement to lock away their money for a considerable period until they are ready to draw retirement benefits.

Those tax reliefs are then only recovered when the pension fund is converted into an income stream either by taking a pension or purchasing the annuity. That can happen as early as age 50 under present rules but must happen once the member reaches the age of 75. I recognise that there will be a debate about the cost-benefit tax analysis of that against other savings vehicles but our argument would be that this is a tax-privileged area for savings for retirement.

Photo of Frank Field Frank Field Labour, Birkenhead

Will my hon. Friend give way now that he has interrupted himself?

Photo of Malcolm Wicks Malcolm Wicks Minister for pensions, Department for Work and Pensions

I welcome my right hon. Friend to our proceedings and I am happy to give way.

Photo of Frank Field Frank Field Labour, Birkenhead

There is probably no one in the House who is arguing that people should be able to unlock their funds before they are retired, and having done so then make a claim on welfare. That is surely the issue that we are addressing in the Lords amendment.

Photo of Malcolm Wicks Malcolm Wicks Minister for pensions, Department for Work and Pensions

Indeed. If I come to the end of my script and give a better balance, I think that my right hon. Friend will be able to stay until the end.

The amendment from another place would remove the requirement on members of personal pension schemes and some occupational schemes to purchase an annuity—and thereby secure an income stream—by the age of 75. However, there is a proviso. That is that only those who can "demonstrate" that their existing resources mean that they can avoid any reliance on means-tested benefits are allowed the privilege of not having to purchase an annuity. At any one time, and for any one individual, it is quite difficult to say what level of resources might be required to avoid entitlement to the income-related benefits. However, I can assure the House that the amounts involved are far in excess of the amounts that most people saving into personal pension schemes have in their pension funds. Furthermore, to ensure that the individual continues to avoid entitlement to the income-related benefits the annuity would have to be index-linked. There are therefore several ironies. First, for the vast majority of annuity purchasers, the Lords amendment would create a far more restrictive environment than currently exists and, secondly, it would undo the liberalisation that we are seeking to achieve on index-linking elsewhere in the Bill. It will benefit the top 3 or 4 per cent. of annuity savers and in particular the 1 per cent. with pension funds in excess of £250,000, should they attain the age of 75 without purchasing an annuity.

Independent research shows that most people buy their annuities when they retire and even those who do not do so still purchase their annuity well before the age of 75. The paper by the Association of British Insurers entitled, "Annuities—The Consumer Experience" shows that, of people who retired in the past two to three years and purchased an annuity, 95 per cent. did so before the age of 70. The ceiling of 75 for annuity purchase is clearly not a major problem for the vast majority of annuitants. It certainly is not for my constituents nor, I suspect, those of my right hon. Friend Mr. Field. The Lords amendment would certainly not benefit the vast majority of pension savers, because 80 per cent of pension pots are worth less than £30,000—a sum significantly and substantially less than the funding needed to be above income-related benefit.

The Government recognise the underlying issues of greater longevity and demographic shifts in this country and, indeed, across the developed world, both of which have profound implications for the way in which our pensions policies are put into effect. The Government are taking action through the Bill and in other ways to meet those and other challenges. We set up the Pensions Commission under Adair Turner to review the regime for UK private pensions and long-term savings. Its first report, published last month, provides a mine of detailed and valuable information on the demographic challenges that we face. It is a singular fact that we are debating whether to preserve one of the few elements of compulsion in our pensions structure, but the Pensions Commission was set up specifically to look at the effectiveness of the voluntary approach to pensions and whether there is a case to move to greater compulsion. The commission is considering whether the level of compulsion within the UK pension system is appropriate. For people investing in a pension, the requirement to purchase an annuity at 75 with tax-privileged saving is a compulsory element in the existing system. Once the commission has reported on the wider issues relating to compulsory saving, the Government will wish to consider key issues, including annuitisation at the age of 75, with particular care and urgency, and decide whether they remain fit for the purpose.

It should be clear by now that the Lords amendment is not appropriate, although we acknowledge the evident interest shown by the other place. The amendment would specifically benefit people who do not need to buy an annuity while requiring the less well-off to subsidise them through income taxation.

Photo of Steve Webb Steve Webb Shadow Secretary of State for Work and Pensions

The Minister has ruled out scrapping the age limit of 75, but does he accept that, since it was introduced, male life expectancy has risen from 65 by more than five years, contrary to what Baroness Hollis said in another place. Is there therefore not a case for raising the limit to at least 80?

Photo of Malcolm Wicks Malcolm Wicks Minister for pensions, Department for Work and Pensions

I can only repeat what I said earlier. The Government will wish to consider key issues, including annuitisation at the age of 75, with particular care and urgency, and decide whether they remain fit for the purpose. That is as far as I can go.

The Lords amendment is not appropriate, but we acknowledge the high level of interest in the issue. We are, as I have just shown, prepared to respond constructively and promptly, including on the specific issue of annuitisation, as a priority once the Pensions Commission has reported.

Photo of Edward Garnier Edward Garnier Conservative, Harborough

The Minister should not allow himself to think that interest in this matter was confined to the other place. He acknowledged that it had been discussed on previous occasions in the Commons, but he seems to have found it inconvenient to remind himself that, on 7 March 2003, the Retirement Income Reform Bill, which I had the honour to introduce in the House, completed its Second Reading with a majority of 101. It is therefore the settled will of the Commons that Lord Higgins's proposal in Lords amendment No. 359 should come into law. The Minister is a great supporter of the supremacy of the House of Commons, so perhaps he could be consistent and argue for it in this case as well.

Photo of Malcolm Wicks Malcolm Wicks Minister for pensions, Department for Work and Pensions

I had better not comment on the hon. and learned Gentleman's judgment that that was the settled will of the House. That may have been the case on a rather quiet day, but there are more than 100 Members in the House, as we will demonstrate later. However, I have said that we will look at the specific issue of annuitisation as a priority once the Pensions Commission has reported. I acknowledge the interest shown by the House, both in this issue and in pension matters that affect the other 99 per cent. of the population.

Photo of David Willetts David Willetts Shadow Secretary of State for Work and Pensions

The Minister has just made a tiny concession, although it required a trained eye to spot it. Indeed, that is why he had to repeat it for the Liberal Democrats. However, it will not quite do the job. It would be helpful if he explained what the Government will look at after Adair Turner reports. Can he give a firmer commitment, particularly on the age limit for buying an annuity? I am afraid that I do not regard what he has said as a significant concession, given the weight of opinion in both Houses. There was a substantial vote in the other place last night, because their lordships feel strongly about the issue. I do not have any expertise on matters of privilege, but there is a strong belief in the other place that privilege does not apply in the way that the Minister suggested.

This is not just a matter for the other place. As my hon. and learned Friend Mr. Garnier said, Members of the Commons feel strongly about it as well. I am grateful to him for reminding the House of the heroic moment when the Government suffered a defeat on Second Reading. We fondly remember that great moment, which was a reminder to the Government of how strongly people feel about annuities. The fact that the vote took place on a Friday shows how much the Opposition care about the subject, because we were all willing to turn up to support our hon. and learned Friend who, like my hon. Friends the Members for Taunton (Mr. Flook) and for Bournemouth, West (Sir John Butterfill), introduced a private Member's Bill on retirement income.

I shall not rehearse all the arguments in favour of the Lords amendment, because a tight programme motion is in operation. I shall therefore comment briefly on some of the things that the Minister said. First, a simple point of principle is at stake. Why should we pass regulations in the House telling adults what they should do with their savings provided that the taxpayer does not have a direct interest in the result? Once we have covered that angle—the Lords do so successfully in their amendment—it is not legitimate for us to tell people what to do. With the greatest respect to my hon. Friends, the proposal inserted in the Bill in the other place achieves that neatly and simply by specifying that there should be no requirement to buy an annuity by the age of 75

"provided that the pensioner can demonstrate that he has resources to ensure that he will not become dependent on means-tested benefits."

Beyond that simple proviso, what right do we have to tell people what to do with their money?

Photo of John Butterfill John Butterfill Conservative, Bournemouth West

I have been listening carefully to my hon. Friend, and I thoroughly agree that, provided that we can demonstrate that there is no call on the state, people should be free to do as they wish? Can he imagine an independent financial adviser telling someone that they should put all the money for their retirement into an annuity? Does he think that the IFA would be performing his duty as a financial adviser if he did so?

Photo of David Willetts David Willetts Shadow Secretary of State for Work and Pensions 4:30 pm, 16th November 2004

That is a very good question. I sometimes fear that, as we get into these pension debates, I may occasionally find myself straying into giving financial advice without being regulated to do so. Given my hon. Friend's expertise on the subject, he makes a powerful point that I hope the Minister will take into account.

The Minister argued that the people who convert into an annuity do so significantly before they reach the age of 75, so the requirement to convert at the age of 75 cannot be a serious obstacle. That is my summary of his argument, but the evidence from a survey by Watson Wyatt rather undermines that argument. The evidence was that there was a group of people who wished to convert into an annuity and they did, it is true, by and large do so before reaching the age of 75. However, there was a large group of people who had no desire to convert into an annuity—59 per cent. of pensioners had no desire to move into an annuity at all, and 12 per cent. said they would do so later. It is not that people are up against a deadline. There is a significant group of people who do not want to convert into an annuity. Another group may wish to do so earlier. It is not for us to tell them.

We have already had one concession from the Government, aimed particularly, as we understand it, at Plymouth Brethren to tackle their ethical objections to annuities as they are currently constructed. If the Government can be flexible for that group, why can they not be flexible for the rest of the population? The Minister needs to address that argument.

Photo of Frank Field Frank Field Labour, Birkenhead

Should the Government not be doubly flexible on the matter? Plymouth Brethren lobbied me, as they no doubt lobbied other Members of Parliament. In representing their views, we knew that they would not be voting for any of us. There are large numbers of other people who are affected and who would vote.

Photo of David Willetts David Willetts Shadow Secretary of State for Work and Pensions

It is perhaps a reflection on the Chancellor of the Exchequer's view of the world that one does not have to be a Plymouth Brother to take advantage of the concession that we are told is for Plymouth Brethren. The concession is potentially rather wider than we were told it was intended to be. Even when the Chancellor makes a concession, he does not want to admit how big it could be. Mr. Field is right. It could extend way beyond the Plymouth Brethren. As far as I know, the Government have not imposed a religious test before people take advantage of it—yet. Who knows? There are still another 24 hours and the Government may well amend the Bill further. They are only up to 950 amendments so far.

I shall touch briefly on the argument that the amendment would affect only a small number of rich people. The point was made in the other place by the Minister there, as the Minister for Pensions has just reported to the House. The Minister in the other place said:

"We estimate that about 1 per cent. of all annuitants . . . would have an annuity worth more than about £250,000 that would therefore float them into being able to take advantage of this amendment".—[Hansard, House of Lords, 15 November 2004; Vol. 666, c. 1233.]

I wonder whether the Minister remembers our exchanges in oral questions just over a year ago. I invited Deborah Cooper of Mercer's to do a calculation on how much money someone needed to build up a sum of capital to pay them an income that would be sufficient to keep them off means-tested benefits throughout their retirement. The figure that she calculated was £180,000. I put that to the Minister, who said:

"The example presented by the shadow Secretary of State was specific, very long-term and assumed that the couple were not owner-occupiers, which would not be typical of elderly households, so I dispute its usefulness."

He went on to say:

"What the figure might be depends on a wide range of assumptions, but bringing forward a figure that is in denial of owner-occupation, which is the common experience of pensioners, is not at all helpful."—[Hansard, 20 October 2003; Vol. 411, c. 358–9.]

We had an estimate of £180,000, which I thought was pretty high and a reminder of how shockingly extensive means-tested benefits have become. The Minister did not accept the figure of £180,000. The Government are now using an even higher figure of £250,000 to stop any movement on annuities by saying that anybody with a saving of less than £250,000 would not benefit from the amendment.

The Minister cannot have it both ways. He cannot reject £180,000, a figure suggested to him in the Chamber only a year ago, and suddenly say for the purposes of annuity reform that the figure is even higher. I paid great attention to what he just said. He seemed to be willing to endorse a figure of £250,000, which I think is a very high figure. Let us assume for a moment that it is right. After the exchanges on annuities over the past few days in another place, I am tempted to say that, from now on, we know from Ministers that means-testing is so extensive that people need not £180,000, but £250,000 as a sum of capital to keep them off means-testing in their retirement.

Let us assume that the £250,000 that the Minister has just endorsed is the correct figure. He thinks that that tells us we should not reform annuities. I think that it tells us that we need to reform the benefits system. It is not an argument against annuity reform. It is an argument in favour of tackling mass means-testing of pensioners. That is why the policies to which we are committed, and which, in a different form, the Liberal Democrats also believe in, are aimed at reversing the number of pensioners who are on means-tested benefits and ensuring that that very large figure starts to fall. That is the best way of tackling the problem.

Photo of Malcolm Wicks Malcolm Wicks Minister for pensions, Department for Work and Pensions

I had better not let the hon. Gentleman get away with that. He is obviously limbering up for the debate on hunting. What he says is misleading. I was not implying that £250,000 is what people need to avoid a means test. He knows that I did not suggest that. Perhaps he could pay more attention to the 80 per cent. of British people with pension pots worth less than £30,000. Whatever the merits of his argument, does he concede that he is speaking—as can happen on certain Benches—about a very small privileged group of well-off people?

Photo of David Willetts David Willetts Shadow Secretary of State for Work and Pensions

I am happy to accept another intervention from the Minister if he has further and better information. We know the size of the individual pot, but we do not know how many pots an individual has. The Minister does not know how much, on average, an individual has. All he is measuring is the size of specific pots. It is perfectly possible for someone to have two or three personal pensions in specific arrangements. Sadly, one of the problems of personal pensions is that they are fragmented. It would therefore be wrong to regard that figure as the total amount of money held, on average, by an individual.

Photo of Mr Adrian Flook Mr Adrian Flook Conservative, Taunton

I may be able to help my hon. Friend. The Minister may not be speaking of the figure of £250,000, but the noble Baroness in another place said precisely that £250,000

"would therefore float them into being able to take advantage of this amendment"—[Hansard, House of Lords, 15 November 2004; Vol. 666, c. 1233.], so the Government have collective responsibility for the figure of £250,000.

Photo of David Willetts David Willetts Shadow Secretary of State for Work and Pensions

My hon. Friend is right. The Minister was trying, in his previous intervention, to escape from the figure of £250,000 but it is clear how the figure has been used in both Houses to justify the Government's position.

Photo of Edward Garnier Edward Garnier Conservative, Harborough

Does my hon. Friend accept that the Government's arguments about large pots being required to bring people into a reasonable income have been put to us time after time? I am sure that we heard them in the context of the Bill introduced by my hon. Friend Sir John Butterfill, and perhaps later in connection with the Bill introduced by my hon. Friend Mr. Flook. One would have thought that, by now, the Government would have provided us with the information from the Treasury or the Department for Work and Pensions, having done the research to find out how many separate pots people had in order to accumulate a sufficiently large pot. Moreover, just because we cannot help everybody, is it the Government's case that we should not help anybody at all?

Photo of David Willetts David Willetts Shadow Secretary of State for Work and Pensions

My hon. and learned Friend is right. I would have wanted the flexibility that we offer in the amendment that the Government are trying to remove to extend to as many people as possible. That is why, as I was arguing, we believe in reforming the benefits system so that there is less means-testing. As we do that and reverse the spread of means-testing, and as the value of the basic pension increases, fewer and fewer people will be excluded from that flexibility by the requirement. Accepting the amendment introduced in the other place, and even accepting at face value the Minister's argument that people need £250,000 to avoid means-testing, confirms to me that we should be energetic in trying to reverse means-testing.

We shall divide the House if the Minister attempts to reverse the amendments made in another place. I do not regard the concession, if concession it be, that he made about the terms of Adair Turner's report as rising to the strength of feeling that has been shown in both Houses on this very important subject.

Photo of Frank Field Frank Field Labour, Birkenhead

May I briefly add three points to the debate, Mr. Deputy Speaker? Although we are debating annuities, we are also debating the nature of government and our belief in it.

First, although my hon. Friend the Minister is right to say that in his view few people in Birkenhead would benefit from the proposal, both he and I might be surprised by the number of people in Birkenhead who would benefit. The Minister and I learn from our constituents, but that is not the only way in which we gain policy ideas. Sometimes we must make policy decisions that do not arise directly from our constituencies, and this is one such case.

Secondly, one of the Labour party's goals is to spread wealth as far as possible, and not to see wealth confiscated. The arguments about the privileges by which people built up their pension pots are difficult, but as Sir John Butterfill quickly told us, people who build up other pots of savings are not required to cash them in at the end of the day. Although the proposals may affect only a few people, the Government have deployed the weak argument that the proposals will affect annuity rates, because there will be a rush out of the annuities market, but that there is no need to worry because almost nobody will be affected.

It is a matter of principle: as far as I am concerned, the principle is that we should, at all times, allow people to keep their wealth rather than deciding what is best for that wealth. Way back at the beginning of my political career, I believed that we should have been the party that introduced the sale of council houses, and that was in favour of spreading wealth. Because we did not drive the policy, the funds were not used to replenish the housing stock—we all know what happened because we did not lead that reform. We must learn that lesson and apply it to this particular reform, which is about giving people freedom over their savings.

Thirdly, the Government and the Opposition parties are feeling their way to a new consensus on pensions. Even 10 years ago—certainly 20 years ago—we had extraordinarily high hopes for what the Government could achieve for everybody on pensions, but now our objectives are much more limited. All the Government's energy should be spent on ensuring that everybody is brought up to a minimum pension provision. What people do above that is not our concern, and we should not try to put our sticky fingers into people's private affairs.

In conclusion, first, although some people in Birkenhead would benefit, that is not the only reason why one should vote on the proposals; secondly, the Labour party should be about spreading wealth, not confiscating it; and thirdly, we must think about what the Government can do well and concentrate on that, rather than meddling in affairs that we continually get wrong.

Photo of Steve Webb Steve Webb Shadow Secretary of State for Work and Pensions

I normally pride myself on speaking for the poor, marginalised and dispossessed, but occasionally I keep in with the well-off, and this is one such occasion.

I accept that we are discussing relatively small numbers of people and relatively large pension pots, but as Mr. Garnier said a moment ago, that is no reason why the regime should not be rational and sensible.

The Minister's arguments are woefully thin. The freedom not to annuitise has always been subject to two caveats: first, that one does not then make a claim on means-tested benefits, which is dealt with explicitly in the amendment; and secondly, that the tax take is eventually obtained. The Minister is worried that people will pick up tax relief when they pay in, tax relief on the fund and a tax-free lump sum. However, one does not get a tax-free lump sum until the money is taken out. It is not the case that when someone picks up a tax-free lump sum the taxpayer does not get their share, because people do not get a tax-free lump sum if they do not annuitise. I cannot see the relevance of the tax-free lump sum. On death, a 35 per cent. tax rate applies to uncashed pension pots, so the taxpayer potentially takes a beneficial stake compared with a tax-free lump sum being taken and the rest of the pot being taxed as income. The taxpayer may make a gain, and it is hard to see the potential loss.

If the Minister will not abandon that principle, in the spirit of new Labour, he surely wants to modernise it. In 1976, the age limit at which that provision bites was raised to 75 for particular sorts of pensions. Yesterday, some discussion occurred in the other place about the relationship between that threshold and life expectancies. Undoubtedly unintentionally, Baroness Hollis gave the other place the misleading impression that the life expectancy in years for a man of 65

"is now about 16, so far as we can tell."—[Hansard, House of Lords, 15 November 2004; Vol. 666, c. 1231.]

However, the Turner report states that the figure is 19 years, which is the most up-to-date estimate. That point is significant because, since the age threshold was raised to 75, male life expectancy has risen not by three and a half years, which is the impression that Baroness Hollis gave to the other place last night, but by six and a half years, which makes the case for raising the age threshold from 75 to 80 compelling.

Today, my noble Friend Lord Oakeshott has written to Baroness Hollis asking her to correct the record, and I hope that she will do so. The substantive point is that freezing the threshold at 75, which the Government want to do, will make the provision bite more and more. When the threshold was first introduced, a good number of men would not have made it to 75. With substantially enhanced life expectancies, more and more people are being covered by the annuity rule.

A moment ago, the Government hinted that next summer, after the election, they might think about the threshold. Surely the electorate deserve better than that—they deserve to know the Government's plans. The amendment does not change any of the arguments of principle. I agree that the restriction is not necessary in principle, and if the framers of the legislation and its amenders in 1976 intended the provision to apply to a particular proportion of the retired population, keeping that threshold up to date with changes in life expectancy would not even undermine the Government's principle.

I know that several other hon. Members have, like me, pursued the issue over a number of years, and I am sure that the House would like to hear from them. However, I share the view taken by my noble Friends that the annuity rule is altogether unnecessary. At the very least, I ask the Government to reflect on whether raising the threshold might go a good way to addressing some of the concerns that have been expressed.

Photo of John Butterfill John Butterfill Conservative, Bournemouth West 4:45 pm, 16th November 2004

I agree with everything that Mr. Webb just said—he made some extremely valuable points.

In some cases, it would be in the Exchequer's interest to agree to the relaxation. When I introduced my private Member's Bill, I received many letters from all over the country. One chap wrote to me a few months before his 75th birthday. He did not have a wife—he had no dependants at all. He had built up a substantial pension pot over the years and was required to buy an annuity with it. Had he died before his 75th birthday, the Exchequer would have received a significant chunk of his pension pot, but because he had to convert it into an annuity, the Exchequer got a bit of the 25 per cent. that was left, and all the rest of it went to the insurance company that sold him the annuity. As far as the Exchequer is concerned, requiring people with a short life expectancy to convert at 75 is absolute madness, and the Chancellor would be far better off letting such people carry on with their arrangements.

Such an approach would also benefit some people with small pension pots. For example, somebody with a small pension pot who has a wife and family and who knows that he is suffering from a terminal illness may find that annuitising works to his disadvantage, particularly if he has a policy with a guaranteed annuity rate, which he will lose unless he converts. However, if he converts, just over half of his pot will go to his wife—if they bought a joint policy at a reduced rate. Somebody in that position may be able to leave more to a spouse by not annuitising and hoping that he will live long enough to reach the relevant age.

The figure of £30,000 or £40,000 that the Government give is a complete myth, because most people have other savings beyond that. Probably the largest element will be their house, from which they may already derive an income through a home income plan. They may have all sorts of other savings that they have accumulated through personal equity plans, tax-exempt special savings accounts and other vehicles. Yet the Government clearly have no idea, because if one asks them what the average level of total savings for any individual is, they have no statistics on which to give a reply.

It is completely wrong to say that this will apply only to very rich people and not to those with only modest pension funds. In the course of modern life today, many people have been through several careers. At some point, they may have been self-employed and paid into a pension fund, while at other times they may have been employed and the beneficiary of a company pension scheme. They may have had small businesses that they have sold and invested the funds in other ways. People have retirement income from all kinds of sources. It is demonstrably wrong to say that this will affect only the very rich, not those with modest pension pots, and completely unreasonable for the state to tell somebody that, when they reach a certain age, 75 per cent. of their savings must be invested in an annuity at a time when annuity rates are at an all-time low and almost any other form of saving will give them a higher return.

Another person who wrote to me was, like me, a chartered surveyor. Being a shrewd chartered surveyor, he had invested cautiously but successfully in commercial property through a self-administered scheme. As a result of his expertise, his fund had built to a very substantial sum and was showing a return of 20 per cent. on the money that he had put in. He told me: "At age 75 I'm going to have to sell this property on which I'm getting a 20 per cent. yield and put that same lump of money into something yielding me about 5 or 6 per cent." Is not that potty? I rest my case.

Photo of Edward Garnier Edward Garnier Conservative, Harborough

The example of the chartered surveyor cited by my hon. Friend Sir John Butterfill exemplifies the silliness of the Government's antipathy towards the amendment tabled by my noble Friend in the other place, which has two advantages: first, it is written in simple English that anybody could understand; and secondly, it would work. The Government's argument that it would benefit only a very small number of very well-off people is designed to terrorise Labour Back Benchers—other than Mr. Field and Mrs. Dunwoody, who are completely impervious to terror—to dissuade them from supporting it. The Government think that if they can persuade their supporters that this is rich man's racket, they will agree that it must be a jolly good thing to knock it down. I suspect that neither the former Financial Secretary to the Treasury, Ruth Kelly, nor the Economic Secretary to the Treasury, John Healey, who argued against my private Member's Bill from the Front Bench, nor anyone else who has thought about this for more than a moment, could possibly argue against the common sense and good sense of my noble Friend's amendment.

The right hon. Member for Birkenhead is entirely right to identify the main principle and the growing consensus across the Floor of this House with regard to the pensions question. The amendment would provide grown-ups with choice and, as along as they maintained a level of income that did not allow them to resort to means-tested benefits, nobody would lose. The problem is that the Chancellor of the Exchequer does not like any idea that is not his own. The reason why the Department for Work and Pensions, which he no doubt thinks is subordinate to his Department, is having to advance a particular argument is that the dead hand of the Treasury is forcing it to take that line.

Photo of Frank Field Frank Field Labour, Birkenhead

I have noticed that my hon. Friend the Minister, who knows his brief as well as anyone, agrees with an argument, hardly ever looks at his notes, but when he knows that he has to deliver a script he reads them closely.

Photo of Edward Garnier Edward Garnier Conservative, Harborough

Interestingly, when the right hon. Gentleman intervened on the Minister earlier, the Minister asked to be allowed to finish his script. I do not know who writes the Minister's script, but he certainly read it extremely well.

Photo of Malcolm Wicks Malcolm Wicks Minister for pensions, Department for Work and Pensions

My analyst will of course write to my right hon. Friend the Member for Birkenhead about that perverse observation.

Photo of Edward Garnier Edward Garnier Conservative, Harborough

I hope that when he has done so the Minister will keep taking the pills.

I want the public to be given a choice that enables them to make provision for their own old age. If they want to choose an annuity, let them do it. If they want to buy equities, let them do it. If, like the chartered surveyor who contacted my hon. Friend the Member for Bournemouth, West, they want to buy a portfolio of properties, let them do it. The amendment, like my Retirement Income Reform Bill, has the advantage of being gender-neutral and would provide an answer—if not a complete one—to the growing deficiency in the savings ratio that we have experienced over the past few years.

The Government have a perverse order of priorities. When my Bill achieved its Second Reading by 101 votes, the Government put up a Back-Bench Member, Mr. Dismore, who spoke for about an hour and a half—it seemed longer—to try to talk it out. He failed. Yet when a Conservative Front Bencher in the other place tables a short, understandable and sensible amendment, and we are permitted to discuss it here, the debate is truncated by Government diktat. The Government must sort out their intellectual approach to such issues, quite apart from the way in which they manage the business of this House.

Photo of Mr Adrian Flook Mr Adrian Flook Conservative, Taunton

The private Members' Bills promoted by my hon. and learned Friend Mr. Garnier and my hon. Friend Sir John Butterfill were very much along the lines of a Bill that I promoted, and another similar Bill was promoted by my right hon. Friend Mr. Curry. All four Bills were perfectly formed around the idea of removing the annuity age barrier of 75 and introducing a minimum income guarantee. The Government dismissed that suggestion out of hand in the course of several debates. I was therefore pleased to see how neatly my noble Friend Lord Higgins incorporated our private Members' Bills into his amendment in a specific, one-sentence clause.

The removal of the age barrier of 75 receives cross-party support from everywhere bar the Government. For that we have to thank the Retirement Income Reform Campaign under the leadership of Dr. Oonagh McDonald, a former Labour Member of Parliament. Whenever we debate this principle, we are inundated by letters from pensioners and those looking towards their retirement who are extremely worried about being compelled to take an annuity. The Minister suggested that only a small number of people are concerned, but there is great demand for such legislation. It is therefore extremely comforting that the Lords voted by a considerable margin for an amendment that would give effect to the private Members' Bills that have been introduced three or four times in this House.

The Minister said that there is not much demand for these provisions, but Lord Higgins pointed out in the other place that 58.8 per cent. of people asked in a survey never wanted to annuitise their pension pots, with 12.1 per cent. wanting to do so later than required at present. That amounts to quite a substantial 70 per cent. who do not agree with the way in which the Bill is formulated. As several of my hon. Friends have pointed out, the Bill does not address the problem, which will only worsen. A number of large blue-chip companies in this country have defined-benefit schemes that can only be described as dying. More are looking to move out of a defined-benefit scheme and into a defined-contribution scheme. If we do not deal with the problem of annuities, their unfairness and the age barrier, the position will get worse.

As a Conservative, I do not believe in compulsion. I believe that the current position does not work at all. As we have heard, it forces pensioners to annuitise three-quarters of their pension at the age of 75, which is old-fashioned and anachronistic. It is not followed anywhere else in the world and I cannot see that the singular benefits of the British system provide any reason to continue it.

The other problem with the current system is that it sets up an unbreakable contract for the remainder of the life of the annuitant. As we heard so eloquently from my hon. Friend the Member for Bournemouth, West, there is usually only a single provider. The Minister, who I am sure wants to spread the risk, must acknowledge that relying on one insurer, such as Equitable Life—we have seen what has happened there over the past few years—promotes and imposes a moral hazard on pensioners. The Bill thus appears entirely arbitrary, given that the same size pension fund can buy widely varying incomes, depending—this is the key point—only on the date of purchase.

The current position also introduces sex discrimination into retirement income. As the Minister knows, annuitants are forced to take the price that is offered to them, which unfairly varies from male to female. It does not happen with the state pension or with defined-benefit pensions such as those that MPs and civil servants enjoy. It is particularly unfair that women are being discriminated against as a result of the Government's refusal to act.

There is a further problem with the current system, which the Lords amendment is designed to address. Occupationally defined contribution schemes are limited by their index linking—sometimes at about only 3 per cent.—which poses the risk of inflation. When it comes to inflation, even the Chancellor cannot determine that he has completely rid us of boom and bust.

The virtue of the scheme proposed by the Lords is, as my hon. Friend the Member for Bournemouth, West explained, that it protects the interest of the state while providing much greater freedom. It provides the state with more revenue, as the pension funds remain invested in a range of financial instruments, allowing them to grow. They can then be taxed, as and when. In other countries such as Canada, there is no obligation and retirees can choose to put their pension funds into a retirement income fund managed on their behalf, over which they have control. If it is good enough for Canada, it should be good enough for pensioners in Britain. This is a principled and practical amendment that the House should support.

Photo of Malcolm Wicks Malcolm Wicks Minister for pensions, Department for Work and Pensions 5:00 pm, 16th November 2004

We have had an interesting debate and a rehearsal of the issues, many of which are familiar to the House. I am feeling quite nervous because my right hon. Friend Mr. Field implied that it is only when I look up that I agree, and that when I am reading I do not. May I say for the record that I agree with every inch of Government policy? That is what it says here in my brief anyway.

I cannot add a great deal to what has been said already. For the record, I note that Mr. Webb made a demographic point about different estimates of longevity. Perhaps he will receive a written reply, but I understand that the difference relates to different measures of life expectancy. My noble Friend in the other place used one measure and Lord Oakeshott used another. I am advised that, on a standardised basis, the difference is about one year, so there is not that much to get excited about, even though the hon. Gentleman did appear to get excited about it.

Photo of David Willetts David Willetts Shadow Secretary of State for Work and Pensions

The wider point is whether there could be a better compromise than the tiny concession made on the Turner commission. It would mean the Minister accepting that, if he wants to retain an age rule, it need not be 75. It could, for example, be 80. Is there no flexibility whatsoever? The inflexibility is what causes frustration among Opposition Members.

Photo of Malcolm Wicks Malcolm Wicks Minister for pensions, Department for Work and Pensions

Let me come back to that point, but I want to deal with another issue mentioned by my right hon. Friend the Member for Birkenhead. He said as a matter of philosophy—I rather agree with him—that where the state has no direct interest, it should not interfere, but we are not talking about savings that have been built up with no impact from the state. I am sure that we would all agree that we are dealing with a tax-privileged situation for those who are building up pension funds. The purpose is that people have a guaranteed income in old age. That is the state's interest in putting tax resources into pensions generally. In that sense, we are not talking about free decisions in a free society.

Photo of Frank Field Frank Field Labour, Birkenhead

Provided people do not go back on to welfare, that part of the bargain has been fulfilled.

Photo of Malcolm Wicks Malcolm Wicks Minister for pensions, Department for Work and Pensions

Yes, but it was not a bargain to use the money in any old way: it was a bargain to produce an annuity for old age. That is the matter for debate.

I want to sum up now because we have covered all the issues; my opening statement anticipated most of them. I repeat that once the Pensions Commission has reported on a range of issues, the Government will want to engage with it again, including annuitisation at the age of 75, about which Mr. Willetts asked. I have already said that we will look further into that with particular care and particular urgency. We will then decide whether the proposals remain fit for purpose. That is as far as we can go on this matter today. This financial matter is one of privilege for the House of Commons and it would be altogether wrong, off the back of a Pensions Bill, to deal with other matters that are not directly concerned with annuitisation with a view to launching a major reform. In our judgment, that would not be appropriate.

Photo of Edward Garnier Edward Garnier Conservative, Harborough

This whole issue has been discussed for some years. It is not new, but the Government always come back to the House, claiming that they are considering the matter and will do this, that and the other. It is rather like pulling teeth. Is there no energy in the Government, whether in the Department for Work and Pensions or the Treasury, to encourage Ministers, special advisers and civil servants to get to grips with the impoverishment of elderly people through the forced annuity? Why do the Government not do something about it? They should do it before the election; if they did, they might even just win it.

Photo of Malcolm Wicks Malcolm Wicks Minister for pensions, Department for Work and Pensions

There is just a chance that we might win it anyway, but we will have to wait to see. I cannot add any more. The hon. and learned Gentleman has made his points forcefully and I have made mine.

Photo of Steve Webb Steve Webb Shadow Secretary of State for Work and Pensions

I know that the Minister would like to clarify a point that he made about the figure of 250,000 people. He implied that he was being misrepresented and that that was not the right number of people who would be clear of means-tested benefits. In that context, will he tell us what is the question to which 250,000 is the answer?

Photo of Mr Chris Pond Mr Chris Pond Parliamentary Under-Secretary, Department for Work and Pensions

The question might be, is 250,000 another way of saying a quarter of a million?

Photo of Malcolm Wicks Malcolm Wicks Minister for pensions, Department for Work and Pensions

Yes. The point is that we are talking about a quarter of a million people who are way above means-tested levels. I recognise that there is a gap in evidence about the accumulation of different pension funds but, as I said, 80 per cent. of people have very tiny pension pots. It would require some very clever arithmetic to show that large numbers of people could be placed in the relatively rich category that we have been discussing.

I accept that we need to consider this matter, and we will do so in due course. With that, I hope that the House will decline to accept the view of the House of Lords on this matter.

Question put, That this House disagrees with the Lords in the said amendment:—

The House divided: Ayes 292, Noes 203.

Division number 323 Orders of the Day — Pensions Bill — Removal of compulsion to take annuities

Aye: 292 MPs

No: 203 MPs

Ayes: A-Z by last name


Nos: A-Z by last name


Question accordingly agreed to.

Lords amendment disagreed to.

It being more than three hours after the commencement of proceedings, Mr Deputy Speaker put the remaining Questions required to be put at that hour, pursuant to Order [this day].

Motion made, and Question put, That this House agrees with the Lords in amendments Nos. 360 to 415.

The House divided: Ayes 348, Noes 148.

Division number 324 Orders of the Day — Pensions Bill — Removal of compulsion to take annuities

Aye: 348 MPs

No: 148 MPs

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Question accordingly agreed to.

Lords amendments agreed to.

Photo of John Butterfill John Butterfill Conservative, Bournemouth West

On a point of order, Mr. Deputy Speaker. It will not have escaped your attention that we have been dealing this afternoon with 97 pages of Lords amendments, which occupied their Lordships for more than 90 hours of debate. This House has been given four hours to debate what the Lords took 90 hours to debate. This subject is of vital importance to citizens all over this country, but debate will be curtailed simply so that the Government can get in their wretched Hunting Bill, which more than 56 per cent. of the population do not want anyway. Is not that an abuse of this House?

Photo of Michael Lord Michael Lord Deputy Speaker (Second Deputy Chairman of Ways and Means)

Order. The hon. Gentleman is an experienced Member of Parliament and he knows that that is not a matter for the Chair. We are also now taking away from what time we have for the next debate.