Pensions Bill

My Lords, I shall not vote on this amendment if the noble Lord, Lord Fowler, proposes to put it to a Division, but it is a sensible proposal, and I should like to say why. I have supported it on previous occasions. Perhaps I may start where I suspect my noble friend will be coming from—this has been alluded to by other speakers. The argument is that it will affect only a tiny percentage of people; the 3 to 5 per cent of the well-to-do who, if they can postpone taking an annuity until they are 75, must have other resources on which they can live and therefore this is relatively marginal to their financial well-being. In any case, it is argued, their savings pot has been protected and wrapped around with generous financial subsidy because it is meant to be exclusively a retirement income and not available for other purposes. While I hope that I am wrong, the argument I suspect my noble friend will adduce is that, first, it is a matter only for the well-to-do who are cushioned by other resources; and, secondly, that it goes against public policy for which the tax privileges of pensions were designed. Let us take a moment to unpick those two arguments because I do not think they are valid, and have not been so for some time. The first government argument is that it affects only a tiny percentage of people. It may well be true that the people now coming up to their 75th birthday who have resources sufficient that they have been able to avoid annuitising so far are the well-to-do. However, that is because that generation has moved out of a DB world in which very often the pot has been accumulated through a change of life savings or in some other way. Now the predominant form of pensions in the private sector will be the DC scheme. I made a rough, 10 year-old-type maths calculation that someone on average earnings over 40 years, with real growth of 3 per cent, if that is not unrealistic, is now likely to build up a DC pot of around £300,000 to £400,000. That means that over the next 10, 15, 20, 30, 40 years what will matter to people is not what the current rule is for someone now approaching 75, but what they see themselves, in an almost aspirational way, as reaching. Why would someone seek to increase their contribution to a DC scheme if in addition to the investment risk in, the disinvestment risk out and the longevity risk they are taking also have the additional risk imposed on them by government of the timetable, the guillotine? As the noble Lord, Lord Fowler, said, any wise Government wishing to encourage savings would seek to abate, as far as they can, some of the risk associated with a DC scheme, one of which is the arbitrariness of the 75 rule. It is a form of risk unlike conditional indexation and some of the other matters we have discussed. In a DC scheme, you do not have the protection of the PPF—although you do have the protection of the TPR—and there are many areas in which people are exposed, but this is an additional area of risk that is man-made, government made, and could be done away with. The Government’s second argument is that this is heavily protected by fiscal privileges; it is designed for retirement and therefore it should not be available as a lifetime income but should be turned into an annuity. That is all very well, but let us suppose that at the point you suspend it you extend that suspension and insist that at 75 you take an annuity from that pot of, if you are in a DC scheme, £300,000 or £400,000 which is sufficient to cover your need to draw down on benefits, and that that would take perhaps £120,000 at 75 or £150,000 earlier. Let us also suppose that you make a fiscal adjustment to remove the tax privileges, which might be 30, 35, 40 per cent, leaving you out of your pot of £300,000 to £400,000 with perhaps £100,000 clear. If that were the case, what on earth would it have to do with the Government what you did with the rest of the pot, provided you had paid back your dues? If you do not fall back on benefits and you have an annuity to protect you against that, and if you have had the fiscal addition removed from you, then the rest of your money is, frankly, nothing to do with government. On the contrary, the Treasury would make a profit. Not only would the fiscal protection be returned back to the Treasury but those moneys as income would generate income tax and possibly eventually IHT returns. There would be an impact on cash flow but the Treasury would not be out of pocket. What would happen is that the additional revenues would be going back not to other members in the pot but to taxpayers as a whole. For those reasons, the case that the Government have run in the past—that it affects only the well-to-do who are not at risk and that these were privileged savings which should be taken only in the form of an annuity—should no longer apply. Like the noble Lord, Lord Fowler, I would like to see this rule removed subject to those two conditions: an annuity so that you never have future recourse on to public funds and the removal of the tax privileges. In the present tsunami, it is even more vital. What are we saying to pensioners? Here we are, seeking to increase the basic state pension from 2012 by linking it to earnings and, with the help of your Lordships, seeking to help women improve their basic state pension. We are, however, saying as a Government, ““Fine, but if you have a pension that you’re going to annuitise, we are willing to see it fall by between 30 per cent and 40 per cent from what it would have got six months or a year ago””. Why? We do not need to do that. We can put in the protections to make sure that this is not an unreasonable and advantageous thing for the well-to-do. Why add to the risk and penalise people at a difficult time in their life when the Treasury has nothing to lose by protecting them and everything to gain? It would be a win-win for all of us.