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The clause is the first of part 2 and relates to the proposed retirement income funds. The provision is a response to remarks made about previous private Members’ Bills and previous attempts to remove the compulsory annuitisation provisions.
In the past, the Government have made their objections clear, and we have sought to endorse at least one aspect of their concerns. The concern expressed has been that in trying to meet the wishes and to provide flexibility for those who do not wish to take out annuities up to the age of 75, we might be introducing new obligations for the higher number of people who have happily taken annuities and are likely to be willing to wish to continue to do so over the years to come. It is no part of the Bill’s purpose to impose obligations on anyone. We seek maximum flexibility, and the retirement income fund is a way of meeting that need.
The provision once again draws on north American experience. That is important, because when introducing a new provision in a complex area, it is reassuring to know that the proposal has worked satisfactorily for a good number of years in another western, highly developed country with a developed pension structure. The Committee can be confident that the proposals would meet the need.
Clause 9 would amend the Finance Act 2004 to allow the creation of retirement income funds. They could be operated only by or on behalf of the person authorised to operate a registered pension scheme, and only investments approved by the Inland Revenue could be made by such a fund. It would have to meet certain conditions. The funds held should be invested and withdrawn when the scheme member so requests, and an authorised provider must set an annual maximum and minimum withdrawal allowance for each member, based on an assessment of each member’s life expectancy. A member’s withdrawals from the fund in any one year should not exceed that maximum allowance.
Other additional conditions have been included to prevent someone who has a fund from falling back on means-tested benefits at any point in the future, which has been one of the Government’s prime concerns in recent times. The annual maximum withdrawal allowance must be set so that no member’s total future income falls below the minimum retirement income level and so that each person’s total income is at least equivalent to the MRI. If a member chooses not declare his total annual income, he must withdraw funds equivalent to the MRI level or his annual minimum withdrawal allowance, whichever is lower.
Finally, additional conditions provide for situations in which individuals have small retirement income funds, which means that they will need to claim means-tested benefits in the future if they live as long as expected. It should be noted that some people with small annuities can also find themselves in need of means-tested benefits, either when there are insufficient funds to enable the annual minimum withdrawal allowance to be set so that a member’s total income is at least equivalent to the MRI level, in which case the allowance should be set at the highest level consistent with the member’s assessed life expectancy, or if a member’s total annual income, including his maximum withdrawal allowance, is lower than the MRI level, in which case the maximum and minimum level allowances must be identical.
The provisions meet the Government’s concern about avoiding any unnecessary dependence on state benefits. In response to a point made by the Minister on Second Reading, I emphasise that he cannot argue that the existing compulsory annuitisation always prevents dependency on benefits. There are circumstances in which, even with an annuity, some benefits are required and persons entitled to them. In the same way, that would be the consequence of these proposals. However, they would provide the flexibility that is an important objective.
I hope that the Minister, who is part of a Government who have consistently opposed such measures, will take account of the Turner commission’s views on this important area. The commission has recommended first that the age for first possible and last possible annuitisation should rise over time in line with life expectancy. In other words, the Government should not be committed to the 75-year requirement. Turner also urges a review of the case for a cash limit on the amount that individuals are required to annuitise at any age, so that a wider market for drawdown products can develop.
Turner is, I think, recognising that the Government’s position is increasingly unsustainable. The clause is a constructive way of providing an alternative, and I commend it to the Committee.