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Baroness Hollis of Heigham: The amendment may well be technically defective, but that is not where I want to go. The problem is that in all of this, we are dealing with a structure set up that most of us now realise is increasingly less relevant, under which the married woman's pension, the 60 per cent pension, is derived from the husband and the assumption is that his waged work provides for her. There is a world of work that is waged and a world of domestic care that is not and because her domestic work supports his waged work, she is a co-owner of or is entitled to his pension and protection.
Of course there are all sorts of unfairnesses about that that have not even been mentioned today, such as that a single person will pay the same NI rate as a married person but will never be able to draw a 60 per cent dependant's payment from it. Most of the problems that we face today arise because we are dealing with that structure. Given that, the situation has always been that his increments, when he draws them, will benefit her and, if he dies and she goes on to his category A pension, she inherits his increments. Therefore, if his lump sum has already been paid, it is part of his estate and, in the normal course of events, she would inherit that, if that is what he chose. The question is what happens when someone has deferred drawing his basic state pensionhe may be 67 or 68and dies. A potential right has not yet materialised about the woman's position on that. The same
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framework should cover that situation. In the same way as she would inherit incrementsit would be her choiceshe would inherit the lump sum. However, in the same way as the increments would not be a property available to a dependent child or some other person, or would be turned into a lump sum to go into a will, the lump sum would not be either.
In other words, within the framework of the contributory benefits as it is now, it is a long established principle that provision is made for a surviving spouse. While both members of a married couple are still alive, the contributions of one member may entitle the other to a pension if their own contributions are deficient.
The inheritance arrangements that we have produced in the Bill for lump sums are an extension of the current rules governing the provision of survivors' benefits, which explicitly recognises that marriage implies enduring mutual financial support and obligations. The amendment would undo that principle, by requiring a lump sum to be paid to the estate of a deceased deferrer in any case where the conditions of entitlement to it would have been met by the deferrer, regardless of whether they were married or not. As matters and the framework stand, we do not think that the right approach. Obviously, it would treat unmarried couples and single people differently from what is currently the law. It would allow children or any other beneficiary of the deceased, including a neighbour or friend if they saw fit, to benefit.
We do not believe that to be right. It is an extension of our current increment rule. All the provisions may need looking at in a wider context; no doubt we will have the discussion in the next year. However, the noble Lord, Lord Skelmersdale, is right. At the moment, we are trying to treat the lump sum in exactly the same way as we are treating incrementsno more, no less. A woman would inherit the increments and the lump sum, but no one else would. We do not have sufficient basis to go beyond that. If we did so, it would open up the whole issue of whether we turned increments into a lump sum to be inheritable, whether there was a dependant's pension for unmarried partners, and so on. One could not draw the line anywhere, except with the existing framework.
In terms of its value, the lump sum set out is not less than 2 per cent above bank base rate, which we think fair. At the moment, the best current rate would be 6.75 per cent. Today at Abbey, one can get about 7 per cent. Our rate would ensure a returnas and when the changes come through, if noble Lords agree to themof 10.4 per cent. People would do much better under this arrangement, provided that they took the gamble on their own life expectancy. That is the risk. I am sorry that I shall not be able to be more helpful to the noble Baroness but, while the current structure of category A and B pensions remains and increments follow those rules, we will treat lump sums in the same way.
Lord Skelmersdale: Before the noble Baroness, Lady Barker, responds, will the Minister be good enough to answer my question? When does one elect for the lump
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sum? Presumably it is when one finally retires, as I suggested earlier. A second point occurred to me. The weekly accruals will be paid to the widow at 60 per cent, presumably, in the same way as the original pension. Am I right in both cases?
Baroness Hollis of Heigham: On the first point, yes. The choice of whether to go for lump sum or increments would be made by the individual at the point of retirement. However, there is a cooling-off pointI do not know whether we will get to itso that if someone feels that they have made the wrong choice within three months, they can revisit it. That is meant to be a decent way for people who have taken increments and change their mind and want a lump sum, or vice versa, to do so. On the second point, once someone becomes a widow they go on to the husband's category A pensiona 100 per cent basic state pension, in other words, rather than her 60 per cent. At that point, she would also enjoy his increments.
Lord Oakeshott of Seagrove Bay: Am I right in thinking that, if a single pensioner decides to defer a pension for several years, continues working and then dies, his childrenor whoever he wants to leave his money tolose out completely, and that the benefit of the deferral accrues to the Government? That may help to clarify the issue.
Baroness Hollis of Heigham: The position is exactly the same as the current situation when a single person, such as a widower with children, who had earned increments dies. Those increments do not go to the children either. The lump sum, although there are different financial assumptions attached, is meant to be a decent alternative option which so far has not existed for people who would like access to the lump-sum provision. At the moment such a widower would not be able to bequeath his increments, in the same way as he would not be able to bequeath the lump sum if he died before he had joined it. If, for example, he retired at 67 and had two years of enhancement, the lump sum of, say, £15,000 would go into his building society account, meaning that, if he died three years later, the money would become part of his estate. Similarly, if he had saved up his increments and put them into a building society, they would go into his estate. There is no right of inheritance, except to the spouse, if the person entitled to the rolling up, either in the lump sum or in increments, dies before it has been drawn down.
Lord Oakeshott of Seagrove Bay: I understand that. But to me, without such a long background of being stuck within the current framework, that identifies the unfairness of the provision. If you do not take your pension at 65, you are gambling that you will live longer. Would it not in practice be fairer to provide that if someone dies, it should be a sort of deemed election, if I can follow the analysis put by the noble Lord, Lord Skelmersdale? Perhaps the fact that the proposed system might work differently from
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increments tells us that the approach for increments is unfair. It seems that, in practice, it is a gamble that the state wins and the individual's estate loses.
Baroness Hollis of Heigham: One cannot take the issue in isolation from the whole situation of the dependency pension and the like. If we were going down that route, we could not draw the line there rather than anywhere else, in terms of the discrepancy in having the category B provision for married women and nobody else. This is just one way of getting into that issue. It is perfectly proper to raise it, but if we did that, frankly we would create probably twice as many anomalies as we would solve.
Baroness Barker: That was a very helpful debate. I simply cannot see how most people would conclude that it would be right to defer in those circumstances and to leave open the risk that benefits that could have accrued to their estate would not come under their control. Like the noble Lord, Lord Skelmersdale, I think that that calls into question the issue of the lump sum and how it will work. With those clarifications, I beg leave to withdraw the amendment.
"REMOVAL OF RESTRICTION ON PENSION ANNUITIES
There shall be no requirement for a holder of a stakeholder, personal, occupational or other defined contributory pension to take the pension in the form of an annuity by a specified age."
The noble Lord said: This amendment is, in effect, a peg on which to hang a trailer, in the sense that it seemed worthwhile to have a preliminary debate on the issue but we will no doubt wish to return to it on Report. I suspect that the amendment is defective, but the noble Baroness may be assured that I shall seek to deal with that problem by Report. The position of the Conservative Party is clear: we are committed to abolishing the obligation to take an annuity at the age of 75 and wish instead to require people only to ensure that they have sufficient income to avoid relying on means-tested benefits.
The noble Baroness will know that we have debated the issue on several occasions. On at least two occasions your Lordships' House has decided that in essence it is in favour of the position that I have just described, but that decision has then been reversed in another place. We remain strongly of the view that it is right to make such a change, not least because people are forced to take an annuity at a moment when it may be that, if they were to defer taking it, they could gain a better rate of interest. I referred earlier to the immense amount of borrowing that the Chancellor is carrying out at present. He is likely to have to increase interest rates and, in the longer run, annuity rates, as a result of having to fund that requirement. Therefore, those who must take out an annuity today will find that they would have been better off if they had not taken it
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immediately. There are wider issues regarding inheritance and so on, which we can no doubt pursue again on Report.
Although the matter had been debated for a very long time, suddenly in the Finance Act the Chancellor, who hitherto had been remarkably obstinate on the issueI could express it in more forthright terms but "obstinate" will do for the momentcame up with an extraordinarily complex scheme. His passion for means-testing and complexity is one thing, but this was a strange schemeI must confess that I am not sure whether I fully understand it. The reason why he came up with the scheme seems even more bizarre than its complexity. The Chancellor came up with what was known as an alternative secured pensionI will not bore Members of the Committee by explaining exactly what it involvesapparently as a result of representations from the Plymouth Brethren, who felt that, if he did not do something about it, people would be taking a bet or gambling on someone's life. It seems that, if he accepts that argument, he will come out against life insurance altogether. Is that the case? If so, we should all get a little worried, as it would have radical effects on the entire pensions industry, apart from those taking out such insurance.
In any event, the previous Finance Act does not abolish compulsory annuitisation; it merely provides for this very strange animal, the alternative secured pension. It is argued by some that that will enable people to get round the requirement to take an annuity at age 75. I take no view on that at present. Perhaps the noble Baroness can tell us how many people the Treasury expects will take out this form of secured pension. It is not the same as a nice straightforward, very clean break. The only thing is that there is no reason why you should suddenly find that individuals spend all the money and end up on social security benefits.
This is a very important issue, to which we will certainly return on Report. I wanted to give the noble Baroness and the Government notice of our intention. This has been going on far too long. The bizarre solution provided by the Chancellor is absurd. We should make a clean break and take a clear-cut decision on the issue as soon as possible. I beg to move.
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