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Mrs. Jacqui Lait (Beckenham): I am following my right hon. Friend's argument very closely. Does he agree that part of the reason for the apparent failure of the Government's stakeholder pension policy is that the very group of people who may save £30,000 or £40,000 towards an annuity are precisely those who do not have the disposable income to invest in a stakeholder pension? My right hon. Friend's proposals would be a much better way of dealing with people in the middle income bracket.
The second reason why I believe that those fears are exaggerated is that it would be plain daft for people to over-invest in a pension given the rigorous fiscal regime that I propose to build around it. To use one of the current in-words, it would be counter-intuitive.
Thirdly, even if there is an increase in costs, the tax rules give the Government the eventual clawback on their investment. It is a crucial issue on which economists disagreebut when did economists not disagree? The Institute for Fiscal Studies argues that 75 per cent. of savings is not generated in lieu of consumption but by movement of funds from one investment to another. This is based on the operation of the so-called 401(k) scheme in the United States. So I do not believe that there is a footloose wad of new money waiting to cascade into pensions and claim tax relief.
Mr. John Butterfill (Bournemouth, West): Does my right hon. Friend agree that the statistics show that the existing availability is wholly underused, even by those who have surplus expendable income that would enable them to do that, and that if the rich wished to have vehicles for this purpose, the enterprise investment scheme or venture capital trusts provide a far more tax-efficient vehicle and do not have the long lock-in of pensions?
Mr. Curry: My hon. Friend makes an extremely valuable point and I am grateful to him for that additional information. In any case, it is evident that people are cautious about locking up capital in pension schemes when they may have emergency needs such as unemployment or divorce. To quote a personal example,
If the Government are really kept awake by fears of a new demand for rebate, they have the means to address it. They can simply set limits on the amount of income tax rebate on contributions which are lower than the limit on the contributions themselves, and they will have turned the trick in tax terms.
The Bill seeks to solve a real, growing problem, particularly for people of modest means. Moreover, the changes to the way in which businesses deal with pension entitlement accelerate the urgency of that problem. The Government have a legitimate concern: they have a legitimate demand and a real problem. Pensioners, too, have legitimate expectations and an acknowledged grievance. The Bill invites the Government to engage in a necessary debate and challenges them to adopt this solution or to offer a more effective one.
This is a private Member's Bill, so the Government have the whip hand. They can kill the Bill dramatically or they can engineer death by 1,000 amendments. I urge them to take on the challenge of addressing the issue and working to produce a reform in order to free a growing generation of elderly people from the fear that a civilised old age will descend into a struggle for survival.
Ms Gisela Stuart (Birmingham, Edgbaston): I know that it is customary for me to congratulate the right hon. Member for Skipton and Ripon (Mr. Curry) on winning the opportunity to present a private Member's Bill, but I can assure him that my congratulations are genuine. I congratulate him both on his luck and on choosing a subject that, as he admitted, many people deem to be fiendishly difficult. The danger of making such a choice is that many people do not engage in the debate but switch offa dangerous temptation that we have a duty to resist.
Many hon. Members will not have to make a decision on annuities. Several trustees of the parliamentary pension fund are in the Chamber today. We are some of the few lucky people who participate in schemes with defined benefits, so we do not have to take such decisions. However, some of us have policies from previous occupations and many of us have constituents who have written to us with problems.
The caveat to my congratulations is that I have some reservations about private Members' Bills as a vehicle for legislation on complex issues. I share the view of some hon. Members that the House should not fall into the same trap as other organisations and mistake activity for achievement. We should not assume that the more we legislate, the better we are. I am something of a minimalist on legislation. If legislation is important, the Government should introduce it, and if it is not important, they should not legislate. Private Members' Bills can fulfil an
I have some difficulty with this Bill because it raises an issue of political debate that is also extremely technical. I recall Parliament considering pension splitting on divorce. There was no political disagreement, but we all recognised that getting it right would be complicated, so in 1997 the Labour Government set up a Select Committee to give the matter pre-legislative scrutiny and take advice. Annuities are desperately in need of review and may require a broader vehicle to bring that about. Having said that, the Bill gives us the opportunity to consider what areas to focus on.
Mr. Butterfill: The hon. Lady described the Bill as politically controversial, but I am not sure that she is correct. I am chairman of the all-party group on occupational pensions, which for many years has taken the view that this reform should take place. The difficulty is with the Inland Revenue, not party political groups in the House.
Ms Stuart: The hon. Gentleman is right in some respects, but the right hon. Member for Skipton and Ripon referred to the erroneous assumption that is often made that any reforms to annuities will ultimately help only the better-off. There may be some political difference on priorities rather than on the need for reform.
Mr. Mark Prisk (Hertford and Stortford): This debate is assumed to be primarily of interest to those who are already retired. I have received many letters from constituents who are still in work, but nearing retirement. Only yesterday, Mr. Jeffrey Sharpe, from Sawbridgeworth in my constituency, wrote to say that he would love to retire but cannot afford to. Does the hon. Lady agree that we must recognise that the debate affects a much wider group in our communities?
Ms Stuart: The hon. Gentleman is right. The debate affects everyone because the financial decisions that have to be made on the point of retirement depend on the tracks that have been laid as soon as we start working, or even earlier. We need a longer period for taking advice. Decisions on retirement should not have to be taken at 65 but could be spread over a broader time scale so that advice can be taken, leading to the right decision being made. At present, decisions on annuities are irreversible, whatever changes in circumstances may arise.
In his pre-Budget statement, my right hon. Friend the Chancellor announced a review of annuities. I hope that my hon. Friend the Minister will say when we can expect that. Whether the Government give the Bill a fair wind or condemn it to death by 1,000 amendments, I hope they will take note of the issues that are raised today and include them in the review.
Returning to annuities, it should be simple to provide for one's old age. The theory is straightforward. During a working life of some 40 years, we put aside money for our old age. The state collects taxes to provide a state retirement pension. When the Labour party took office in
Last night, I re-read the report of the pension provision group, "We all need pensions: the prospects for pension provision", published in 1998 under the chairmanship of Tom Ross. It still provides a valuable and comprehensive analysis of the future of pension provision, but I was struck by the fact that the word "annuities" did not even appear in the index. It was not deemed to be an issue of great importance then, but it is. So although I commend Labour's achievements on pensions, I warn my hon. Friend the Minister that, in those famous words, much has been done but much more needs to be done.
Decisions about annuities are often difficult. I offer the House a working definition of "annuity" as a policy purchased, usually from an insurance company, to provide a regular income from a lump sum. Anyone who has paid into a money purchase schemeone in which the benefits are not defined as a percentage of the final salaryconverts the pot of money accumulated into an annuity which then provides the pension. The great virtue of the scheme is that people are in no danger of running out of money simply because they live for too long.
None of us knows in advance for how many years we will have to provide, although actuarial forecasts provide us with an indicator. It is clear that people now tend to live longer, and by pooling the risk with others, we can provide much more reliably for ourselves. It has been mentioned that women live longer, and current evidence supports that. I do not know why that is the case; we could have an interesting debate on that. I wonder whether the size of the gap is sustainable. Our actuarial forecasts assume that, even after 65, that gap will not widen, but the German Government, in a recent life expectancy forecast, have assumed that it will widen increasingly.