Pensions Bill

Compulsory annuitisation was not discussed by the Pensions Commission, essentially because there were so many other issues we had to discuss that we were relieved to be able to leave some things aside. However, we need to address this debate somewhat more rationally than it has been addressed in the past. It is fairly clear that there are two arguments, but two arguments only, for compulsory annuitisation. One is that people should not fall back on the means-tested benefits of the state; the other, which is also a legitimate Treasury argument, is that tax relief is given to pension contributions as they go into the scheme, and it is therefore reasonable that as money comes out of the scheme, those are taxed moneys out. The total tax treatment is not more favourable thanis intended, allowing for the fact that the most favourable element of the tax treatment is the tax-free lump sum that already exists. However, if we took those two principles, we might well end up with a rule establishing a minimum level of annuity that people had to buy, plus an appropriate set of rules as to the tax treatment if people, at any stage, either through inheritance or taking a lump sum, took the lumpsum out. I have found it difficult over the years to understand what the arguments against that approach are. I have some concerns that the amendment in the names of the noble Lords, Lord Skelmersdale and Lord Hunt, is a little complicated. I am not sure why one should not end up with something that says that at the date of compulsory annuitisation one has to buy an annuity equal to some specified amount where that specified amount is enough, assuredly, to keep one out of dependence on the state—end of story, with appropriate tax treatment on top. This is a debate with strange terms. I have never quite understood why that is not what we are trying to work out. However, I have sympathy with the belief of the noble Lord, Lord Oakeshott, that whatever else we do, we should accept the principle that as the state pension age goes up, the point of compulsory annuitisation should go up at least pari passu, and arguably more than that, to reflect the fact that it has not gone up for many years. Whatever is resolved as a result of these amendments, there should at least be an increase in the age. The Treasury, the Government and all parties should think about a provision which goes back to the basic principles of an appropriate Treasury concern about tax treatment and appropriate concern that people are not dependent on means-tested benefits in retirement.