Pensions Bill

I, too, have a lot of sympathy with these amendments. I am not sure that I support them in the form in which they are currently drafted. I worry about their complexity, and in the remarks of the noble Lord, Lord Hunt, I did not notice any mention of the fiscal adjustment that the noble Lord, Lord Turner, identified, which would need to be made. This is not about rights—it is about incentivising savings. What is increasingly happening is that annuity pots are no longer the prerogative of the rich—the upper 5 per cent or 10 per cent—and therefore nothing to do with the rest of us. As more of us go on to DC schemes, more of us will find that our pension is in the form of a pension pot rather than a lifetime annuity through a final salary scheme. I have figures here that my noble friend was kind enough to give me in January, and they are quite remarkable. A man on median-average earnings over 40 years contributing 4 per cent plus 4 per cent—in other words, the level of the personal account, which is the lowest conceivable level that will exist—in a contracted-in scheme underpinned by a basic state pension and a state second pension would generate £240,000. A rate of 5 per cent plus 5 per cent, which is widespread in the voluntary sector, would generate a pot for that person of nearly £300,000 and, for a woman on median earnings, about £233,000. Those would be conventionally sized pots for people on median earnings in relatively low-contribution DC schemes—in other words, in 10 or 20 years down the line, most people. The question then is how we encourage people to save. My criticism of the amendment is not only that it does not address the tax relief issue but that it is not bold enough. I very much liked the amendments tabled, perhaps to the 2004 Bill, that proposed a lifetime savings account. The two reasons why people are unwilling to pay into pension schemes are, first, because they would be gambling on their life expectancy and, secondly, particularly for women, if a catastrophe happens to them such as divorce or disability, they cannot get access to the money. It is tied up for 40 years. In the original Conservative proposals for a lifetime savings account, you could top-slice a fraction of it, as in Singapore and Chile, for possibly defined purposes, and rebuild that sum up again, so you would have an emergency savings fund embedded in your pensions scheme. That was an even more attractive proposition than the one proposed here today. The amendment leaves out part of what it should address and fails to be as bold on the savings issue as it might be. I agree with the basic thrust of the argument made by the noble Lord, Lord Turner. The state’s public policy, while encouraging savings, is to ensure that no one should have recourse to public funds. Those funds take two forms: recourse to benefits and recourse to unreasonable tax privileges. Let us go back to our person on median-average earnings, with his £240,000 at 4 per cent plus 4 per cent—as I say, a personal account. He will have a BSP and a state second pension, which would together generate £7,000 or £8,000 in today’s terms. With £100,000 of that annuitised, it would produce a further £7,000and an income of around £15,000, which by my calculations would float him off any conceivable recourse to benefits. Now add in a deduction for taxed extra gains—30 per cent or whatever—and that person would still be left with a very useful pot of some £100,000 or more. What does it matter to the state what that person does with that money? There is no recourse to benefits and you have neutralised for the fiscal privileges, so why does it matter? I have tried to suggest to the Minister before, although I am not sure that I persuaded him, that the state would make a profit. That sum of money would go into an account—a conservative building society account, perhaps, which would pay interest, the tax on which would go to the Treasury. If some of the money was left in the person’s estate, it would go to his children, on which they would pay IHT. So why is there a loser? It is win-win, surely. It is a win for the person who wants to save, a win for public policy for us taxpayers, and a win for the Treasury, which could under certain circumstances actually make a modest profit. Surely everyone is happy. I am baffled about why there should be resistance. I could understand it if this was regarded as a perk for the ““over-privileged rich”” who are ““already heavily subsidised”” through higher rate tax relief on their pensions, but we are talking about people who are on median earnings or even on the basic personal accounts of the noble Lord, Lord Turner, and who will end up with pots of £239,000 or £240,000 and are contracted in, which means that they are unlikely to have recourse to public benefits. So why should we not do this with those provisos? As I say, I cannot support the amendment in this form as it is much too complicated. I also wish that it was bolder by trying to introduce the element of a lifetime savings account. I do not know whether the right Bill to do that is this one or the Bill to be introduced next year, but we need finally to lay this shibboleth to bed.