Pensions Bill

This has been a brief but fascinating debate, and I thank everyone who has participated. I shall touch on some of the points that were made earlier about annuity policies. I shall not dwell on those too much but shall focus on the specifics of the amendment. Perhaps I should congratulate the noble Lord, Lord Skelmersdale, on becoming, or being about to become, a grandfather. That is good news. We share concerns about the need to bolster people’s income in retirement and, in particular, to address the position of women, who currently often do less well than men. The Government have introduced a number of measures to help to tackle this, many of which we have already debated. The Bill includes measures to improve women’s state pension coverage by reducing the number of years needed to qualify for the full basic state pension from 39 to 30 years. The new weekly credits for relevant carers will make the scheme fair and more transparent and will significantly improve state pension outcomes for women. The new credit will reward parenting and caring equally with paid contributions. The new scheme of personal accounts will provide a straightforward opportunity to contribute to a high-quality, low-cost saving vehicle, making private savings truly accessible. These portable, flexible accounts will be available to people active in the labour market. People with caring responsibilities who take a break from the labour market will be able to continue to make their own payments into their personal account. Together with changes in society, which mean that more women now work and have more opportunity to build up both state and private pensions in their own right, these changes will help to improve women’s income in retirement. As we discussed, annuities provide a regular and secure income for life, no matter how long that life turns out to be. Although not always well understood, annuities are at heart an insurance product. Like all insurance products, they work by pooling risk—that is the nature of the product that we are dealing with here—and risk is taken account of in setting the premium. The older you are when you annuitise, the higher the rate you will get in exchange for your pension pot. That reflects the fact that the older you are, the fewer years the insurance company will expect to have to pay for your annuity, so it can afford to pay you more per year. Similarly, it is an actuarial fact that currently, on average, women live longer than men—the time span might be narrowing—so women can expect to be paid an annuity for longer than men of the same age. Over their lifetimes they will, on average, receive equivalent value in exchange for the same-sized pension pot. I do not see that as discrimination. If one looks at the net present values of those two situations, one would expect them to come to the same amount. This amendment would change that to a situation in which women are given a more actuarially fair rate subsidised by men who would get a less actuarially fair rate. Such a move would also undermine the price-per-risk principle behind insurance products. Motor insurance has already been mentioned. The noble Lord, Lord Turner, raised interesting points, as did my noble friend Lady Hollis about the size of the cohort and whether one further segments the market there. We see that happening already with impaired life annuities. We have also seen some of those developments in the annuities market. Indeed, the Government encourage that. How fast it might go down the route to which the noble Lord, Lord Turner, referred remains to be seen. The EOC has recognised many of those difficulties and in 2004 it commissioned some research from the PPI on that issue. The PPI concluded that the introduction of unisex annuities was unlikely to be of widespread and significant benefit. The PPI work informed the EOC’s input into the EU draft directive on equal treatment between women and men in access to goods and services, when that was considered by the House of Lords Select Committee on the European Union in the spring of 2004. The EOC has said that the Sex Discrimination Act currently allows insurers to set different rates for women and men. However, a draft directive being debated in Europe originally included a proposal to change that by banning insurers from using data based on gender when calculating insurance and annuity rates. The EOC has called for the draft directive instead to be amended so that insurers can still set different rates for women and men, but with strict limits on how data based on gender could be used.