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12.2 pm

Mr. Nigel Waterson (Eastbourne): As always, it is a great pleasure to follow my hon. Friend the Member for Tiverton and Honiton (Mrs. Browning), and I, like her, should declare an interest: I have private pension provision, which I suspect is wholly inadequate not only for the lifestyle to which I have grown accustomed but for my own aspirations to life expectancy.

I commend my right hon. Friend the Member for Skipton and Ripon (Mr. Curry) for introducing this important Bill—I know what it is like to come near the top of the private Members' Bill ballot; one is never lonely—and my right hon. Friend has widespread support throughout the House and the country.

I have two reasons for making this brief contribution: many of my constituents in Eastbourne have written to me over recent years about this very problem and I am co-chairman of the all-party group on older people. My hon. Friend the Member for Tiverton and Honiton will be relieved to hear that we now consider anyone over 50 as falling in that category—I thought that she would want me to make that clear—and, like other Members, I pay tribute to the excellent work of the Retirement Income Reform Campaign.

What we are debating, stripped of all the complexities and the impenetrable language, is a betrayal of people who have sought to provide for their retirement—those who do not want to depend on the state. The Bill seeks to address that problem. These are people who want to be independent and who want their financial provision to come from their own efforts.

The past few years have not been a happy time for people of retirement age. Almost the first of the Government's acts after the 1997 general election was to abolish tax relief on private medical insurance premiums for people over retirement age. I secured a debate very early in the last Parliament on that subject because of the

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problems that it caused many of my constituents. There was also the £5 billion smash-and-grab raid by the Chancellor on pension funds early in the last Parliament. We have heard about the demise of final salary schemes. One colleague referred to the fact that today is the last day for members of Equitable Life schemes to vote on the company's proposals. In addition, we continually hear that companies in the business are cutting their bonuses and, therefore, the amount that people will ultimately have in their pension fund.

These have, then, been rather dismal times for pensioners. As my hon. Friend the Member for Croydon, South (Richard Ottaway) made clear, there seems to be an element of the politics of envy in all this—it is claimed that pension arrangements are designed only to help rich people. We have heard about the downward pressure that has for some time been exerted on annuity rates as a result of higher life expectancy and lower returns on investment. The nub of the problem is that people are locked into an annuity rate that applies when the annuity is bought, which may be as long as 50 years after their decision to start putting money by. It is a purely arbitrary cut-off.

Among many examples that have been brought to my attention is that of a constituent, Mr. B. L. Harris, who wrote to me the other day. He made several points, and I shall mention two or three of them. He pointed out that people using ISAs as pension plan substitutes have complete flexibility with their investment proceeds. He says, and I am sure that he is right, that the UK is the only major industrial democracy to insist on this rigid need for annuitisation. He adds that the present annuity system prevents many people such as him from being able to provide for their own long-term care, which is an ever more pressing issue for all of us in the House. Mr. Harris makes it clear that people such as him, who are on lower or middle incomes, are not in the business of investing money in pensions primarily to get tax relief. They do so, and mostly on the basis of only standard tax relief, predominantly to provide

He adds that there has been discrimination against the lower and middle-income groups.

We can all accept the Treasury view on this point at least: if people have received tax relief to help them make contributions in the first place, there should be an obligation on them to ensure that they do not become a burden on the state purse if they take money from their pension funds unwisely. My right hon. Friend the Member for Skipton and Ripon has tackled that danger very successfully in the Bill. As he said, it would require people to buy an annuity at age 65 rather than 75. They would still be able to take the 25 per cent. tax-free lump sum, and the remaining savings could be invested in a retirement income fund.

We have had some debate about the concept of the minimum retirement income, and we will debate that further in Committee if, as I hope, the Bill receives a Second Reading. It is important that the MRI is set at the right level. An attractive level would be that representing income produced by the basic state pension and the state earnings-related pension scheme for someone who had formerly been on national average earnings. That strikes the right balance, as the Library briefing seems to agree, between flexibility and certainty.

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The Bill is not designed to give rich people tax breaks. It is designed to produce fairness and flexibility for people who have been on a whole range of incomes during their working life and who now find that much of their effort to put money by has been reduced to nought by the vagaries of the annuity market. I have one final point on the minimum retirement income. As I understand the Bill, it gives the Chancellor the flexibility to set the MRI on an annual basis, so if the initial amount turns out to be inappropriate, the Government can always change it.

Inaction is not an option for the Government. The Singer case is going to court fairly soon with no less a figure than Cherie Booth QC representing the pensioner. The Bill is cost neutral to the Treasury, so what is the problem with it?

I return to the human aspect—the cases of people such as my constituent Mr. Harris. Why should someone in their 20s or 30s, perhaps 50 years in advance of purchasing an annuity, have to trust themselves to the vagaries of the current annuity system? That is the unfairness. It is a practical, human problem, which the Bill addresses effectively.

12.10 pm

Mr. Barry Gardiner (Brent, North): I congratulate the right hon. Member for Skipton and Ripon (Mr. Curry). I have always found it strange that hon. Members congratulate each other on securing a high place in a ballot, because that does not seem to be a matter for congratulations. However, my right hon. Friend has raised an issue of concern to many of our constituents all over the country and I pay credit to him for the work that he has done and the good-natured way in which he introduced the debate with a good deal of clarity. I am happy to contribute to the debate. I also congratulate the Retirement Income Reform Campaign on continuing to lobby for changes to annuities. I should also declare an interest in that I have modest pension provision that will obviously be subject to the provisions if they become law.

There has been considerable debate about the wider reform of annuities not only in the House but at conferences widely reported in the media. Indeed, the debate has sharpened over time and as the results of the Government's shrewd economic management of the economy have taken hold. Obviously, the economic benefits of low inflation and low interest rates have meant that investing in annuities does not deliver the results that it did under boom and bust.

I quote the Secretary of State for Trade and Industry, who was then Economic Secretary to the Treasury, in her response to an amendment tabled by the then Member for Guildford to the 1999 Finance Bill:

That sets out in crystalline form the problem that the House seeks to address today.

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Of course people want to be confident that annuities are efficient investment vehicles. Naturally, they are concerned at the fall in annuities in the past 10 years, but that decline must be set in context. The most obvious reason for the decline is the fact that increasingly stable and low inflation has driven down interest rates. The second reason is the dramatic increase in life expectancy. Forty years ago, when inflation was last running at its present rate, life expectancy for a man was only a further 12 years after retirement at 65. Today I am happy to say that that figure is 17 years. That, too, has a dramatic effect on reducing the annuity rates that companies are prepared to offer. Companies now have to pay out 40 per cent. more than they did 40 years ago. If the annuities purchased are index-linked, which they increasingly are, the increases are even greater.

The third element that influences the annuity rates on offer is the demand for long-term gilts and bonds. It is those that underwrite the security that annuities provide. The demand for gilts is boosted by the ageing profile of the present population. The yield on long bonds has therefore often been lower than the yield on short and maturing bonds. I mentioned in an intervention that I hoped that the right hon. Member for Skipton and Ripon would address that issue, and perhaps he will in his concluding remarks. He will, of course, appreciate keenly that the measures contained in his Bill that would insist that annuities were purchased at the age of 65 would increase that pressure on bonds and gilts. In and of itself, that provision would tend to drive down annuity rates.

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