Pensions Bill

I welcome the debate, although I feel a little lonely. I missed out on the debate in 2004—I had just arrived in the House during the final stages of that Bill. I will respond in particular on the Government’s view on practicalities and on principle. The Annuities Market, published with the Pre-Budget Report 2006, restated government policy on turning tax-privileged pension saving into retirement income by purchasing an annuity by the age of 75.It also responded to the views of the Pensions Commission. I reiterate our belief that pension saving is about giving individuals an income in retirement and nothing else. The Government provide tax incentives to encourage people to save for retirement. In 2006-07 those were in total some £16.3 billion. When an individual takes their pension benefits they can take up to 25 per cent of the pension fund as a tax-free lump sum, which is a not inconsiderable benefit. In return for those generous incentives, the Government have required, as part of the deal, that the remainder of the pension fund is, by the age of 75, converted into a secure retirement income for life, or is used to provide for dependants’ benefits. The Government believe that the most efficient way of doing this is by purchasing an annuity. As we know, annuities provide the peace of mind of an income for life regardless of how long that may be. While they provide ““simplicity””, ““security””, ““a guaranteed income”” and ““little risk””, some feel that they are inflexible and represent poor value for money or prevent them passing on their pension to heirs on death. The Annuities Market responded to these issues. In terms of bequests, more than half of a pension fund might consist of tax relief. There is no rationale for the taxpayer subsidising bequests. Individuals wishing to pass on assets at death have a number of non-pension vehicles to choose from. Individuals have flexibility to annuitise between the ages of 50—or 55 from 2010—and 75 to suit their circumstances. The noble Lord, Lord Higgins, referred to people being forced into an annuity at the wrong time, but there is a fair spread of years within which to make your choice. Consumers can now choose from an increasing range of annuities, including those that facilitate a flexible retirement or take on investment risk. The noble Lord, Lord Turner, referred to pressures on the annuities market. In recent years, despitewhat I think is a threefold increase in the level of investment in annuities, the market has coped and innovated. The Government are keen to work with the market to see further innovation. The most comprehensive UK pricing survey, published in 2006, showed that annuities are priced fairly. Today's annuity rates need to be seen in the context of the low inflationary environment and the fact that people are living longer. The Government welcomed what we perceived to be the Pensions Commission’s endorsement of this broad policy. It stated: "““Since the whole objective of either compelling or encouraging people to save, and of providing tax relief as an incentive is to ensure people make adequate provision, it is reasonable to require that pensions savings is turned into regular pension income at some time””." Let me turn to the proposed new clause which would establish a ““retirement income fund”” as an alternative to annuities to deliver an income stream in retirement. The RIF has appeared in various guises in the past, but I would like to restate that it is incompatible with government policy. The RIF would remain invested and withdrawals between a minimum and maximum would be permitted. An ““annual maximum withdrawal”” allowance would be set by the provider for each member, based on an assessment of their life expectancy. A member's withdrawals from the fund could not, in a year, exceed that allowance. An ““annual minimum withdrawal”” allowance would also be set by the provider, and we presume that a member must withdraw at least this each year. In setting this, the provider would have to ensure that the member's total income was at least equivalent to a ““minimum retirement income””, as that is defined in the proposed new clause. Nothing in the proposed new clause appears to stop the minimum allowance being set at zero. Provided that the member's income from other sources for future years is greater than an MRI, it appears that there is effectively no maximum withdrawal from the RIF—in which case the member can draw any income. Additionally, in such a situation, an individual might choose not to draw any pension income at all from the RIF in order to pass the fund on to heirs. Like previous amendments, this proposal is silent on how RIF withdrawals will be taxed and what will happen on a member’s death. I listened with great interest to the noble Lord, Lord Hunt, to see what he was going to say about that. My noble friend Lady Hollis picked up on that point. In a sense, I thought that the game was given away by the noble Lords, Lord Fowler and Lord Blackwell, who said that it is right that people should be able to pass something on to their children. Of course it is. However, to use pension tax privilege schemes of this nature to do so is not what the scheme is about. I presume that the intention is that RIF withdrawals would be taxed. RIF savings would be tax-advantaged compared with other forms of savings. Given the apparent ability to extract RIF savings below the annual maximum allowance, there is a danger that it would become a vehicle into which other savings are recycled for tax advantage rather than encourage new retirement savings. Several noble Lords referred to the alternative secure pensions regime. Does not history prove that, where you create special arrangements and change the rules, people pile in and try to abuse the purpose for which the arrangements were created? One couldsee exactly that situation flowing from these arrangements, if we were to accept them. As such, I fear that the proposed new clause is designed to allow a small group of individuals to pass on their pension funds to their heirs on death and not, as intended, to secure a retirement income. Perhaps I may reiteratein a little more detail the deal on pension tax andwhy the RIF amendment clearly violates it. The Government provide—