Finance Bill

I am grateful to the hon. Member for Dundee East (Stewart Hosie) for his questions, and it is probably wise if I take this opportunity to set out to the Committee the background of clause 6 and address the issues that he raised. I am sure that he will be interested in the consultation document that has been launched today on a number of them. The Chancellor announced in the Budget that the Government would end the effective requirement to purchase an annuity by age 75 with effect from April 2011. The reason why we want to do that is that it will provide greater flexibility and choice for the individuals affected. In considering the hon. Gentleman's amendments, it is important for the Committee to understand why we are making that change and how we are going about it. A consultation on the detail of the changes was launched earlier today by my hon. Friend the Financial Secretary, and our intention is to introduce any changes from April 2011. As set out in the consultation document, the Government will be guided by the following principles in implementing the changes: first, that the purpose of tax-relieved pension savings is to provide an income in retirement; secondly, that any changes to the pension tax rules should not incur Exchequer cost or create any opportunities for tax avoidance; thirdly, that individuals should have the flexibility to decide when and how best to turn their pension savings into a retirement income, provided that they have sufficient income to avoid exhausting their savings prematurely and falling back on the state; fourthly, that pension benefits taken during an individual's lifetime should be taxed at income tax rates, with the tax-free pension commencement lump sum continuing to be available; and fifthly, that on death, as the hon. Gentleman mentioned, the pension savings that have been accumulated with tax relief should be taxed at an appropriate rate to recover past relief provided, unless they are used to provide a pension for a dependant. Those principles will ensure that the new rules offer maximum flexibility to pension savers, while avoiding undue complexity or incurring a cost to the Exchequer. The proposals set out in the consultation document will create additional flexibility for anyone saving into a defined contribution pension. That new flexibility means that individuals will be able to decide for themselves whether and when to purchase an annuity. It will also allow them to leave their pension fund invested in an income draw-down arrangement beyond the age of 75, and to take benefits from their pension fund later than that age if they wish. In addition, individuals who can demonstrate that they have secured a minimum income will be free to draw down unlimited lump sums. The changes will also allow the pensions and annuities industry to consider more innovative products, giving consumers greater choice. While the new rules are being finalised, it is important that individuals who are about to turn 75, and who have not yet made a decision about what to do with their pension savings, are not disadvantaged in the meantime. The changes set out in schedule 3 are the minimum necessary to enable those reaching 75 on or after Budget day to defer the decision on what to do with their pension savings. The Bill achieves that by providing for the pension tax rules that previously applied to draw-down arrangements only up to age 75 to continue to apply up to an individual's 77th birthday. That means that the higher inheritance tax charges that apply specifically to pension scheme members aged 75 or over will not apply to individuals who are about to turn 75, and who have not yet made a decision on what to do with their pension. They will not now have to make a decision until they reach 77, and in the meantime we will have worked through the consultation process. Clause 6 and schedule 3 will therefore ensure that they need make no decision until after new rules are finalised next year. To do otherwise would be unfair and confusing, and changing the rules retrospectively would add unnecessary complexity.