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In some cases, it would be in the Exchequer's interest to agree to the relaxation. When I introduced my private Member's Bill, I received many letters from all over the country. One chap wrote to me a few months before his 75th birthday. He did not have a wifehe had no dependants at all. He had built up a substantial pension pot over the years and was required to buy an annuity with it. Had he died before his 75th birthday, the Exchequer would have received a significant chunk of his pension pot, but because he had to convert it into an annuity, the Exchequer got a bit of the 25 per cent. that was left, and all the rest of it went to the insurance company that sold him the annuity. As far as the Exchequer is concerned, requiring people with a short life expectancy to convert at 75 is absolute madness, and the Chancellor would be far better off letting such people carry on with their arrangements.
Such an approach would also benefit some people with small pension pots. For example, somebody with a small pension pot who has a wife and family and who knows that he is suffering from a terminal illness may find that annuitising works to his disadvantage, particularly if he has a policy with a guaranteed annuity rate, which he will lose unless he converts. However, if he converts, just over half of his pot will go to his wifeif they bought a joint policy at a reduced rate. Somebody in that position may be able to leave more to a spouse by not annuitising and hoping that he will live long enough to reach the relevant age.
The figure of £30,000 or £40,000 that the Government give is a complete myth, because most people have other savings beyond that. Probably the largest element will be their house, from which they may already derive an income through a home income plan. They may have all sorts of other savings that they have accumulated through personal equity plans, tax-exempt special savings accounts and other vehicles. Yet the Government clearly have no idea, because if one asks them what the average level of total savings for any individual is, they have no statistics on which to give a reply.
It is completely wrong to say that this will apply only to very rich people and not to those with only modest pension funds. In the course of modern life today, many
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people have been through several careers. At some point, they may have been self-employed and paid into a pension fund, while at other times they may have been employed and the beneficiary of a company pension scheme. They may have had small businesses that they have sold and invested the funds in other ways. People have retirement income from all kinds of sources. It is demonstrably wrong to say that this will affect only the very rich, not those with modest pension pots, and completely unreasonable for the state to tell somebody that, when they reach a certain age, 75 per cent. of their savings must be invested in an annuity at a time when annuity rates are at an all-time low and almost any other form of saving will give them a higher return.
Another person who wrote to me was, like me, a chartered surveyor. Being a shrewd chartered surveyor, he had invested cautiously but successfully in commercial property through a self-administered scheme. As a result of his expertise, his fund had built to a very substantial sum and was showing a return of 20 per cent. on the money that he had put in. He told me: "At age 75 I'm going to have to sell this property on which I'm getting a 20 per cent. yield and put that same lump of money into something yielding me about 5 or 6 per cent." Is not that potty? I rest my case.
Mr. Garnier: The example of the chartered surveyor cited by my hon. Friend the Member for Bournemouth, West (Sir John Butterfill) exemplifies the silliness of the Government's antipathy towards the amendment tabled by my noble Friend in the other place, which has two advantages: first, it is written in simple English that anybody could understand; and secondly, it would work. The Government's argument that it would benefit only a very small number of very well-off people is designed to terrorise Labour Back Benchersother than the right hon. Member for Birkenhead (Mr. Field) and the hon. Member for Crewe and Nantwich (Mrs. Dunwoody), who are completely impervious to terrorto dissuade them from supporting it. The Government think that if they can persuade their supporters that this is rich man's racket, they will agree that it must be a jolly good thing to knock it down. I suspect that neither the former Financial Secretary to the Treasury, the hon. Member for Bolton, West (Ruth Kelly), nor the Economic Secretary to the Treasury, the hon. Member for Wentworth (John Healey), who argued against my private Member's Bill from the Front Bench, nor anyone else who has thought about this for more than a moment, could possibly argue against the common sense and good sense of my noble Friend's amendment.
The right hon. Member for Birkenhead is entirely right to identify the main principle and the growing consensus across the Floor of this House with regard to the pensions question. The amendment would provide grown-ups with choice and, as along as they maintained a level of income that did not allow them to resort to means-tested benefits, nobody would lose. The problem is that the Chancellor of the Exchequer does not like any idea that is not his own. The reason why the Department for Work and Pensions, which he no doubt thinks is
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subordinate to his Department, is having to advance a particular argument is that the dead hand of the Treasury is forcing it to take that line.
Mr. Frank Field: I have noticed that my hon. Friend the Minister, who knows his brief as well as anyone, agrees with an argument, hardly ever looks at his notes, but when he knows that he has to deliver a script he reads them closely.
Mr. Garnier: Interestingly, when the right hon. Gentleman intervened on the Minister earlier, the Minister asked to be allowed to finish his script. I do not know who writes the Minister's script, but he certainly read it extremely well.
I want the public to be given a choice that enables them to make provision for their own old age. If they want to choose an annuity, let them do it. If they want to buy equities, let them do it. If, like the chartered surveyor who contacted my hon. Friend the Member for Bournemouth, West, they want to buy a portfolio of properties, let them do it. The amendment, like my Retirement Income Reform Bill, has the advantage of being gender-neutral and would provide an answerif not a complete oneto the growing deficiency in the savings ratio that we have experienced over the past few years.
The Government have a perverse order of priorities. When my Bill achieved its Second Reading by 101 votes, the Government put up a Back-Bench Member, the hon. Member for Hendon (Mr. Dismore), who spoke for about an hour and a halfit seemed longerto try to talk it out. He failed. Yet when a Conservative Front Bencher in the other place tables a short, understandable and sensible amendment, and we are permitted to discuss it here, the debate is truncated by Government diktat. The Government must sort out their intellectual approach to such issues, quite apart from the way in which they manage the business of this House.
Mr. Flook: The private Members' Bills promoted by my hon. and learned Friend the Member for Harborough (Mr. Garnier) and my hon. Friend the Member for Bournemouth, West (Sir John Butterfill) were very much along the lines of a Bill that I promoted, and another similar Bill was promoted by my right hon. Friend the Member for Skipton and Ripon (Mr. Curry). All four Bills were perfectly formed around the idea of removing the annuity age barrier of 75 and introducing a minimum income guarantee. The Government dismissed that suggestion out of hand in the course of several debates. I was therefore pleased to see how neatly my noble Friend Lord Higgins incorporated our private Members' Bills into his amendment in a specific, one-sentence clause.
The removal of the age barrier of 75 receives cross-party support from everywhere bar the Government. For that we have to thank the Retirement Income Reform
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Campaign under the leadership of Dr. Oonagh McDonald, a former Labour Member of Parliament. Whenever we debate this principle, we are inundated by letters from pensioners and those looking towards their retirement who are extremely worried about being compelled to take an annuity. The Minister suggested that only a small number of people are concerned, but there is great demand for such legislation. It is therefore extremely comforting that the Lords voted by a considerable margin for an amendment that would give effect to the private Members' Bills that have been introduced three or four times in this House.
The Minister said that there is not much demand for these provisions, but Lord Higgins pointed out in the other place that 58.8 per cent. of people asked in a survey never wanted to annuitise their pension pots, with 12.1 per cent. wanting to do so later than required at present. That amounts to quite a substantial 70 per cent. who do not agree with the way in which the Bill is formulated. As several of my hon. Friends have pointed out, the Bill does not address the problem, which will only worsen. A number of large blue-chip companies in this country have defined-benefit schemes that can only be described as dying. More are looking to move out of a defined-benefit scheme and into a defined-contribution scheme. If we do not deal with the problem of annuities, their unfairness and the age barrier, the position will get worse.
As a Conservative, I do not believe in compulsion. I believe that the current position does not work at all. As we have heard, it forces pensioners to annuitise three-quarters of their pension at the age of 75, which is old-fashioned and anachronistic. It is not followed anywhere else in the world and I cannot see that the singular benefits of the British system provide any reason to continue it.
The other problem with the current system is that it sets up an unbreakable contract for the remainder of the life of the annuitant. As we heard so eloquently from my hon. Friend the Member for Bournemouth, West, there is usually only a single provider. The Minister, who I am sure wants to spread the risk, must acknowledge that relying on one insurer, such as Equitable Lifewe have seen what has happened there over the past few yearspromotes and imposes a moral hazard on pensioners. The Bill thus appears entirely arbitrary, given that the same size pension fund can buy widely varying incomes, dependingthis is the key pointonly on the date of purchase.
The current position also introduces sex discrimination into retirement income. As the Minister knows, annuitants are forced to take the price that is offered to them, which unfairly varies from male to female. It does not happen with the state pension or with defined-benefit pensions such as those that MPs and civil servants enjoy. It is particularly unfair that women are being discriminated against as a result of the Government's refusal to act.
There is a further problem with the current system, which the Lords amendment is designed to address. Occupationally defined contribution schemes are limited by their index linkingsometimes at about only 3 per cent.which poses the risk of inflation. When it
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comes to inflation, even the Chancellor cannot determine that he has completely rid us of boom and bust.
The virtue of the scheme proposed by the Lords is, as my hon. Friend the Member for Bournemouth, West explained, that it protects the interest of the state while providing much greater freedom. It provides the state with more revenue, as the pension funds remain invested in a range of financial instruments, allowing them to grow. They can then be taxed, as and when. In other countries such as Canada, there is no obligation and retirees can choose to put their pension funds into a retirement income fund managed on their behalf, over which they have control. If it is good enough for Canada, it should be good enough for pensioners in Britain. This is a principled and practical amendment that the House should support.
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