Pensions Bill

My Lords, it is interesting if that is implicit, or perhaps now explicit, in the Opposition’s proposal. It certainly was not so in relation to the RRIF, which is one variation of achieving what the noble Lords want. More specifically on the amendments, I will go over the issues around tax relief, because pension savings receive significant tax relief—some £18.9 billion in 2007-08. By the time an individual retires, it is very possible that well over half their fund may be made up of tax relief. In exchange for this, it is not unreasonable that pension savings are used to provide an income in retirement. Tax relief is given so that people do not have to fall back on means-tested benefits and to encourage pensioners to save for a reasonable income in later life. Increasing the age at which income must be paid would mean that a minority of people would be able to use tax-relief pension savings to benefit their heirs, at a cost to the Exchequer. That would devalue the reason for which tax relief is given. Amendments Nos. 77 and 77A would increase the age at which an individual must begin to receive a retirement income. I stress that that is not compulsory annuitisation. I can appreciate that having an age-related requirement raises questions about its continuing applicability over time. However, I assure the House that the Government are committed to monitoring the available evidence around this requirement. While it is an undeniable fact that general longevity has been increasing, the latest evidence available shows that at present only 5 per cent of people have taken a retirement income after the age of 70. For 19 out of 20 people, taking a secure income from pension savings happens by the age of 70; they do not even wait until 75. Moreover, despite increasing longevity, evidence shows there has been little change to the age of retirement. In fact, figures from the Office for National Statistics show that the average retirement age has increased by about only one year since 1984. Therefore there is no ““cliff edge”” at 75 for the majority of people. They generally take the income from their pension savings when they need it—when they retire in their early or mid-60s. On the question of why the age of 75 continues to be appropriate, there is the issue of the age at which most people retire. The average retirement age is 63.8 years. Before the age of 70, most people have already started to take an income from their pension savings. There is also the impact of the effects of mortality pooling, which means that the return required for other investments to match the return on annuities becomes unrealistic when one reaches the age of about 75. Overall, the evidence suggests that raising the age would be of no benefit to the vast majority of people who use their pension savings for the intended purpose—providing an income in retirement. Those with other sources of income who wish to leave their pension invested can do so through an alternatively secured pension. Therefore it would seem that such changes would benefit only those who seek to delay securing an income in an attempt to avoid tax charges on death. This is neither the purpose nor the intention of pension savings, and that would be of benefit only to those who had no need of their pension savings to provide an income in retirement. As I said, we are committed to monitoring the available evidence and will consider a review of the age limit if that appears justified. That is the commitment I can give, but I cannot go beyond that. On that basis, I hope that noble Lords will not press their amendments.