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Mr. Speaker has brought to the attention of the House the fact that Lords amendment 359A—like its predecessor, which we debated yesterday evening—involves the question of Commons privilege; and, like its predecessor, it relates to financial matters in regard to which it is the role of the Lords to agree not to initiate or to amend.
Taxation arrangements made by this House would be altered if the amendment were to be brought into effect. The amendment 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 funds on to their survivors tax-free; it allows, in some circumstances, for contributions to be made to pension schemes by people up to the age of 85; and it reduces the number of instances in which part of the tax relief given on contributions is recouped when the annuity is paid.
As I said yesterday—
Indeed. If I mis-spoke—as I think certain American Presidents occasionally do—I apologise.
As I said yesterday, the Government recognise the underlying and serious issues relating to greater longevity and demographic shifts in this country, and indeed throughout the developed world. They have profound implications for the way in which our pensions policies should be implemented. 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.
The Pensions Commission is considering whether the level of compulsion in the UK pensions system is appropriate. For those investing in a pension, the requirement to purchase an annuity at 75 with tax-privileged savings is one compulsory element of the existing system. As I have already said, once the commission has reported on the wider issues relating to compulsory saving, the Government will want to consider with care and urgency key issues, including annuitisation at the age of 75, and decide whether they remain fit for purpose.
We have recognised the high level of interest and are prepared to respond constructively and promptly, including on the specific issue of annuitisation as a priority action, once the Pensions Commission has reported.
Would my hon. Friend speculate on whether, this weekend, we can expect "Focus" leaflets to say how the Liberals conspired to try to scuttle the pension protection fund, the financial assistance scheme and all the other good things in the Bill?
My hon. Friend reminds us that the Bill is not about annuities and the privileges enjoyed by the better-off and the very rich in society; it is about pension security for large numbers of people in final salary schemes, many of whom have been urging the House to take action. As the Minister responsible for the Bill, I have to say that, given the so-called ping-pong that is taking place, I am worried about the measure. We want to see it become an Act of Parliament so that the pension protection fund will be in place to protect workers from April this year. I am sure that common sense will prevail, whatever honest disagreements there may be on this issue, and that the other place will want the legislation to come into force as soon as possible.
Does the Minister accept that the annuity regime was enacted in wholly different circumstances? Life expectancy has increased considerably since the legislation was enacted, and interest rates are far lower than the average that prevailed at that time. In the current circumstances, people have no incentive whatever to take out a private pension, so does not he accept that the whole matter must be looked into urgently?
That intervention went rather far in an unhelpful direction, but when the hon. Gentleman began I was reminded of what I have just said: that the Government will want to consider key issues, including annuitisation at 75, with particular urgency, and decide whether they remain fit for purpose. I should have thought that any reasonable party and reasonable people in this or the other House would take that as a serious pledge to look into the issue—as it is.
The issue is complex and important, and has been debated many times in the House. There are powerful arguments on both sides, which is why we will look at the matter with particular care and urgency. I repeat that reasonable people will realise that we are making a key pledge, and if the many people campaigning on the issue want to regard that as a victory, they may do so. But I want to see a victory for the Pensions Bill, to bring security to British workers and existing pensioners. I should have thought that anyone considering what I said yesterday and am saying today would conclude that the nonsense has to end and that the other place should agree to what we are saying so that we can start the work of setting up the PPF and the regulator, getting on with the financial assistance scheme and bringing security and confidence back into the British pensions system. No sensible party would stand in the way of that; the people would judge it badly if it delayed the legislation.
I ask the House to disagree with the Lords amendment.
The Opposition also hope that common sense will prevail. It is an exercise in machismo for the Government to talk about losing the entire Bill on the basis of this issue. Why are the Government so obsessed with what they perceive as unfairness towards other groups of pensioners, but are prepared to dismiss this substantial group as just rich people and only better-off pensioners? Is that old Labour rearing its ugly head again?
The more that the democratic process grinds on, the more tired and stale the Government's arguments become, in this House and in the other place, whereas our arguments are as fresh and relevant as when we first made them. Is not it instructive that yet again the Government seek to hide behind the doctrine of financial privilege to defeat this amendment? Is not it amazing how the Turner report has rapidly become a catch-all excuse for this Government not to do anything on pensions? It is not a case of "Waiting for Godot", but of waiting for Turner.
I think that Mr. Field was the first to suggest that the Government should get the Turner commission to bring forward its final report to, say, February, so that we would all know of the Government's proposals for pensions by the time of the general election campaign. The Government dismissed that suggestion out of hand. Turner has given the Government a wonderful excuse to put the whole issue in the box marked "Too difficult". That includes dealing with the ancient and obvious unfairness of compulsory annuitisation.
The arguments have been well rehearsed, but I shall make a few simple points. There has been a long and consistent campaign by the Opposition to try to right that wrong. We have had private Members' Bills from my right hon. Friend Mr. Curry, my hon. and learned Friend Mr. Garnier, who memorably scored a significant victory on Second Reading so that it is the settled will of this House to address this issue, and my hon. Friends the Members for Taunton (Mr. Flook) and for Bournemouth, West (Sir John Butterfill).
The somewhat technical issues arising out of the earlier amendments in the Lords have been replaced by a much simpler, more straightforward amendment that would simply raise the age to 85. No one seems to know when the initial rule of compulsory annuitisation was first introduced, but it is clear that since then much has changed, including life expectancy. In fact, their lordships appear to have had a minor spat about exactly how long people will live, but that is separate from the central issue, which is that many more people now live beyond 75 than ever before. The whole rule is completely out of date.
The rule does not only affect rich, well-off people. I can testify from my knowledge of my constituents that many people have done the right thing—and what the Government claim to want them to do—and made provision during their working lives for their retirement so that they do not need to fall back on the benefit system. As my hon. Friend Mr. Willetts argued only yesterday, what business is that of the Treasury, provided those people do not fall back on the benefit system?
Other advanced countries, such as Australia, Canada, the USA and the Republic of Ireland do not have compulsory annuitisation. Why should we still have that outmoded concept in this country?
The rule is wholly at odds with the Government's professed policy of trying to incentivise savings. We all know that the marketplace for annuities is difficult, to put it mildly, and that the return on annuities has fallen sharply over a long period. We know that the savings ratio has halved since 1997. We clearly need incentives to save, and even the interim report from the Turner commission makes that clear.
We just want flexibility in the system, and we have campaigned long to deliver it. The Government have slowly begun to move in that direction. There was a minor concession in the last Budget, but, typically of the Chancellor, it was grudging and complicated, and it seems people have to be Plymouth Brethren, or something like that, to benefit from it. When Lord Fowler said in the other place yesterday that the Government were simply being stubborn, he got it absolutely right. It is time to give in on this issue.
My hon. Friend is absolutely right, and I am sure that, like me, he can point to any number of his constituents who feel unfairly treated by the current system.
The Government must show us that they are serious about restoring the savings culture and encouraging defined benefit schemes—one of the central tenets of the Bill. This is a proposal whose time has definitely come. The logic of the Lords amendment is clear: to take the pressure off those who might be approaching the age of 75 and to allow a breathing space for the next Conservative Government to scrap the rule altogether.
Let me try to help the Minister in his negotiations with the Treasury. It might help if he at least pretended to listen to what I am saying—he might find that helpful over the next few hours. If we are unsuccessful this evening in supporting the Lords in their amendment, the Conservative party would expect to table an amendment tomorrow in the Lords along the same lines but substituting the age of 80, rather than 85, and it would be our intention to press that amendment to a Division in the Lords tomorrow.
So let us have none of this nonsense about the Bill not getting through. If the Bill were to fall, it would be entirely the Government's fault for two reasons: first, their stubbornness on this issue in the face of the evidence and the patent unfairness of compulsory annuitisation at the age of 75; and, secondly, their crass incompetence and ineptitude from start to finish on the Bill, which was poorly drafted, badly argued, changed, with whole chunks taken out and put back again, and hundreds and thousands of amendments in the House and the Lords.
The Government only have themselves to blame, but now is the time to cut out the machismo and bite the bullet, make a decision on annuities and free hundreds of thousands, if not millions, of people from the obligation, without putting at risk the Bill, flawed though it is in many respects. I urge my hon. Friends to support the Lords in their amendment.
I spent a happy hour earlier this evening listening to their lordships as they debated this amendment. Given that the Government have rejected an outright abolition of the annuity rule, the Liberal Democrats also warmly welcome the Lords' attempt substantially to relax it by raising the compulsory age for annuitisation from 75 to 85. It was intriguing to compare and contrast the approaches adopted by the two Ministers: Baroness Hollis gave detailed, careful and thorough arguments, none of which stood up, but they were at least comprehensive; the Minister for Pensions simply said that privilege applied.
Even if privilege applies, we do not necessarily need to refuse to accept the Lords amendment. We can say that, although privilege applies, we will none the less accept it. In other words, if we think that it is good, we can say, "Fine. Privilege may or may not apply, but we will take it anyway." So I am afraid that the Minister has let down the House by not responding to the substance of the Lords amendment this evening. Indeed, he did not even refer to its content at all, as far as I could tell, other than by referring to privilege.
Surely the key point is that we are dealing with a different way of approaching the issue from the one we took yesterday. Yesterday, we said that annuitisation would be allowed in all circumstances except when means-tested benefits were brought into play; today we have the different approach of raising the age from 75 to 85. A different approach warrants a different response from the Minister, but we did not get one.
Life expectancy at 65 has been discussed at both ends of the Palace, but Baroness Hollis was still unclear in her response. She seemed to say that life expectancy at the age of 65 had risen by 16.3 years, but she then said that the typical 65-year-old would live to 82. The two statements do not appear to be consistent, so I am not quite sure what was going on there.
The issue is significant. If a typical 65-year-old now lives to 82 or 84, as the Turner commission figures on a different definition suggest, the key point is that, since the annuity age was last raised from 70 to 75, life expectancy has risen by three or four years or by perhaps as many as six or seven. I was interested to hear what Mr. Waterson said. If the age became 80 instead of 85, as we are considering now, the case would be overwhelming. That would simply return us to the status quo.
I am struggling to think who passed the 1974 legislation, but the key point is that the annuitisation age was raised from 70 to 75 over a 20-year period—it was first set at 70 about 20 years previously—to keep up with changing life expectancies. As life expectancies move on, unless we want the annuitisation rule to bite harder and harder year after year, we need to raise the age from 75 even if we accept the principle of compulsory annuitisation. It is self-evident that even to maintain the status quo of the original policy intention when the age of 75 was brought in, we must raise it at the very least to 80. The age of 85 goes further in the direction that we want, but the Government should seriously consider 80 as a gracious concession.
I intervened on the Minister and asked whether this was an issue of principle. He declined to say that it was. Indeed, it is extraordinary that Baroness Hollis is saying that we cannot possibly make the change for all sorts of reasons. For example, when people take out a pension, they know it has to be annuitised so she says that it would be wrong to change the rules at the end. That is an issue of principle. She then says that those people have had what she described as tremendously generous tax relief. Because they have all that tax relief, it would be wrong not to force them to annuitise. She gave several other examples that also appeared to be arguments of principle. However, she then said, "Ah, but next year when Adair Turner has reported, we might change our minds."
Is this an issue of principle, or is it not? Patently it is not an issue of principle. If it were, the fact that Adair Turner might come up with a recommendation next year would not change the principle. It is therefore a pragmatic issue and, given the importance that the Liberal Democrats attach to the Bill—unlike the Conservative Opposition we did not vote to decline to give it a Second Reading; we have supported it throughout—we think that the Government need to recognise that it is not an issue of principle. If it were, they would not be saying that they might change their minds next year. Given that is not an issue of principle, why risk the Bill? Why not make a substantive movement in the direction of recognising that, even on a pragmatic basis, the age threshold should be raised.
Important contributions were made in their lordships' House about why the argument about tax, which is obviously important, does not hold water. I fully accept that if people have had some tax relief on the fund, the Exchequer should at some point receive a fair share of tax. I accept that principle. We have already pointed out, however, that if people defer annuitisation but start to draw down and then die, 35 per cent. will go in tax. In fact, although Baroness Hollis implied that if the fund were not touched it would be passed on tax free, Lord MacGregor pointed out that if that added to the value of an estate, a tax rate of 40 per cent. could easily apply to the many people who have houses at or above the value of the inheritance tax threshold. That is the higher rate of income tax.
If we force people to annuitise, the best that we will get is 40 per cent., which is the higher rate of income tax, and we might get less than that. If people do not annuitise and they become liable to inheritance tax, the whole thing will be taxed at 40 per cent. The Exchequer could benefit from not requiring compulsory annuitisation. I accept that the Exchequer has the right to the tax, but it is far from obvious that, by relaxing the rule on compulsory annuitisation, it loses out at all. Therefore, why not give people a choice? What would be lost by giving people a choice? No one would lose because the Exchequer would get its share, and possibly eventually more. If people annuitised, they would get a 25 per cent. tax-free lump sum, but if they did not do so, the whole value of what was left could be liable to 40 per cent. inheritance tax, and thus the Exchequer might receive more tax.
The Government should give people freedom of choice. No one would suffer under the proposal and we are discussing only a minority of people, albeit a growing number, because more people hold direct contribution schemes and life expectancies will continue to improve. Although such people form a minority now, even minorities have the right to fair treatment, as one might say in a different context. If the proposal would mean that no one would lose and that people would get additional choices, I do not understand why the Government will not accept it.
It is regrettable that the Government are simply arguing about privilege and that they will use their force in numbers to win the vote. We are discussing a matter of substance, but the Minister has admitted that it is not an issue of principle, so the Government should be willing to offer concessions. The Minister should respond positively to a pragmatic matter relating to a Bill that I support. I shall consult my colleagues in the House of Lords on the attitude that they will take tomorrow, but I hope that the Minister will sleep on what has been said and realise that we are willing to be reasonable. If he were to offer us the serious prospect of revisiting the matter, I would be happy to talk to my noble Friends to decide how to take things forward.
I did not think it useful to detain the House with a long speech because these issues have been aired many times in the Chamber and we had a proper discussion on them only yesterday. There is a difference between being serious and being verbose.
The Government take such matters seriously, and that is evidenced by the fact that we set up the Pensions Commission. Its three distinguished members have already produced what I judge to be the best evidenced report on the pensions question this century—certainly for the past 60 years.
It is sometimes a struggle to be serious when facing the sixth-form humour of someone who might not yet be old enough to be in the sixth form. I want to take the matter seriously.
The Turner report, which is a key evidence-based document, has given us a good basis on which to discuss such matters. I know that the comment made by Mr. Osborne was not meant entirely seriously and that he made it to serve a political purpose, but if he reads the report—I recommend that he does—he will note that Turner says that such problems have been building up since the 1980s.
Not yet, because I am trying to be serious.
I have told the House seriously that we do not want to consider these key issues in such an environment, but that we want to examine all of them, including annuitisation at the age of 75, with care and urgency to determine whether the existing arrangements remain fit. I wish that hon. Members would take my pledge seriously.
Surely the Minister must accept that one of the central conclusions of the Turner interim report—Turner is unlikely to retreat from this in his final report—is that there is a crying need to reincentivise savings in this country. Does he not accept the argument that by scrapping, or changing significantly, the compulsory annuitisation rule, he might well achieve that objective?
To accuse any hon. Member of being serious or not is unworthy of the Minister. Will the Minister make a serious commitment tonight? If the full Turner report recommends changes to how the Bill deals with annuities once it is enacted, will he accept those recommendations and introduce them in the House as soon as possible?
I am never complacent about such things, but I, too, suspect that there will be a Labour Government later next year.
We said that we will take the Turner commission seriously. Of course we will. The Prime Minister established the report and we will take all its recommendations seriously. We will judge them when we see them. We will also give serious consideration to the annuity issue.
When I said that the House faces the difficulty of whether the Bill will become law, I was making the point that although there are serious issues at stake, most of those who would gain—this cannot be questioned—would be at the wealthier end of our community. We shall take those issues seriously. However, 80 per cent. of the people—just to give one statistic—with defined contribution schemes end up with a pension fund of less than £30,000. I hope that that puts in context the number of people who have a particular interest in the Bill.
It is interesting that the amendment is not to the Bill per se, but is an attempt to bounce the Government at the end of its consideration. The key point is that the Bill is concerned not with just a few people—either the poorer few or the richer few—but with bringing security and confidence to more than 10 million scheme members in final salary schemes, who are looking to Parliament to pass it. Frankly, they will judge badly indeed any parliamentarian, whether serious or not, of any political party who stands in the way of this becoming the Pensions Act later this week.
Question accordingly agreed to.
Lords amendment disagreed to.
Committee appointed to draw up Reasons to be assigned to the Lords for disagreeing to their amendment No. 359B; David Cairns, Margaret Moran, Mr. Waterson, Mr. Webb and Malcolm Wicks; Malcolm Wicks to be the Chairman of the Committee; Three to be the quorum of the Committee.—[Margaret Moran.]
To withdraw immediately.
Reasons for disagreeing to the Lords amendment reported, and agreed to; to be communicated to the Lords.
On a point of order, Mr. Deputy Speaker. Because of your duties in the House today, you may not be aware that the Prime Minister earlier this evening briefed the leader of the Democratic Unionist party, Rev. Ian Paisley, on proposals to restore a power-sharing Executive in Stormont, and at the same time in Dublin the Prime Minister of the Irish Republic briefed the leader of Sinn Fein/IRA, Gerry Adams, on plans to achieve the objective of total decommissioning. Will you find time for the Prime Minister to come to the House tomorrow on this important matter for the future governance of Northern Ireland, to inform the House of what is in these proposals so that we can question him on what was proposed to the leader of the Democratic Unionist party and to the leader of Sinn Fein/IRA in Dublin earlier this evening?
The hon. Gentleman is right. I have no knowledge of the matters that he is raising before the House this evening, nor do I have any knowledge of statements that are being planned at this time. No doubt the whole House and those on the Government Front Bench will have heard the points that he made, and they are now on the record.