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Mr. Webb: That is true, although it would apply only to a subsection of the saving population. Many of those who receive the highest tax relief would probably find saving mechanisms that would ensure that they did not fall on the state. Only some of the amount spent on tax relief saves the Exchequer money. If those things are true
Mr. Butterfill: The hon. Gentleman says that it is all right as long as the Government get the money eventually. The problem is that under the present system, they do not always get the money eventually. If annuity purchase is deferred to age 75 and the person approaching 75 has three or six months to live because they have terminal cancer, the insurance company gets the money eventually, not the Government.
Mr. Dismore: I question whether the previous intervention was accurate. I have read a little about the subject in the Library briefing and elsewhere. The Library's view is that while the view of the hon. Member for Bournemouth, West (Mr. Butterfill) might be the perception, it is not the reality, because the insurance industry pools the risk across the board, which takes into account the fact that some people live longer than they are expected to and others do not. The net result is a pooling across the risk. The winners-and-losers, swings-and-roundabouts arrangement means that the money does not go to the insurance company but is redistributed among other annuity holders.
Mr. Webb: Perhaps I should ask the hon. Members for Bournemouth, West (Mr. Butterfill) and for Hendon (Mr. Dismore) to continue the discussion between themselves. I suspect that we are talking about a relatively small group, but the key is that pooling is taking place, so that if the insurance company gets a greater return because a person dies early, that money is available to be paid out in annuities to other people, on which they would be paying tax, and that is reflected in the annuity rate. That is my understanding of the latest intervention, but perhaps I should move on.
Provided that we ensure that the Exchequer gets its tax, and that the Department for Work and Pensions is not burdened, there is a positive argument for reform. If it is possible to make a reform whereby no one loses but
For those reasons I am sympathetic to what the right hon. Member for Skipton and Ripon is trying to achieve. However, I have several concerns, which might be worth voicing briefly but which could be explored at greater length in Committee if the Bill should reach that stage.
The specific tax proposals are not yet in the Bill but it is envisaged that they will be brought in at a later stage. It is envisaged that, on the death of the person with the pension pot, bequeathment to a spouse would be entirely tax free. I wonder whether that provision would deviate from what the right hon. Gentleman called fiscal neutrality, by which he meant no net loss to the Exchequer. If we allow people to save with tax relief, to have tax relief as the fund rolls up and to spend only part of that fund on the annuity, and if we allow the whole of the balance of that tax-free fund to be passed on tax free
Mr. Webb: If we allow the whole of the balance of that tax-free fund to be passed on tax free, I am not sure that the Exchequer has had its share at any point. The individual has had tax relief on the way in and tax relief in the fund. The part that has gone out as annuity is obviously taxed, but the balance of the fund, if bequeathed to a spouse, also goes tax free, if I understand it correctly.
Mr. Webb: But if the spouse goes on the world cruise, no tax is ever paid, unless I misunderstand the point. Normal bequests between spouses out of taxed income should of course be tax free. However, something that has been tax-privileged on the way in and all the way through, and is then passed on tax free and can be spent without any payment of tax, with the result that the Exchequer never gets anywhere near it, goes too far.
Mrs. Browning: But is it not the case that if the fund was substantial in the first place, it would not be £100,000 to £150,000 sitting in a building society account earning 4 per cent.? It might have been invested in property, and the Exchequer could receive tax on rental income.
Mr. Webb: I accept that point, but I am not certain of the number of people affected and the amount of money involved. It is true that the balance of the fund could be invested in a tax-efficient manner. One would imagine that the folk whom we are talking about might have access to advice, and there are plenty of tax-efficient ways of using the fund that would ensure that little tax was paid. It seems to me that the incentive would be to blow the lot. We are talking about an elderly widow who has just
On the benefits issue, the hon. Member for Hendon raised a crucial questionhow should one define the amount that must be bought to bring the individual up to the minimum retirement income? My understanding is that that is a residual amount, so it is not necessary to provide the whole £140 a week; it takes account of the person's basic pension and other pensions. A person who had a decent occupational pension and another pension pot might already have £140 a week and be free to do what they liked with the fund. That seems fine to me. That seems the sort of flexibility that we would want.
The difficulty is how to specify that level. Discussions about that issue and about not having recourse to the taxpayer appear to show a mental amnesia about housing and council tax benefits. The sort of people whom we are talking about are probably not renters, so housing benefit may not be relevant, although it will be to some; but millions of pensioners are entitled to or receive help with their council tax. The span of income over which that help is available goes beyond even the reach of the pension credit. In fact, by introducing the pension credit, the Government have bumped up the thresholds for housing and council tax benefit so that even further up the income scale people are still getting means-tested help. Although we are talking modest sumsperhaps £200 or £300 a year of council tax benefitthere remains an issue in principle about relying on the taxpayer. The higher that threshold is raised, the fewer people benefit from it, so there is a trade-off, but I remind the House that millions of pensioners are entitled to help with council tax.
Mr. Dismore: The hon. Gentleman is talking about relatively modest sums, but in London, the sums involved with those benefits are substantial. I refer again to the Library briefing. To produce the sums that one would need to ensure that that minimum was covered would require a substantial lump sum of investment in the first placeway beyond what most people seem to have available at the moment.
Mr. Webb: I do not wholly accept that. First, the predominant tenure of the people we are talking about is outright ownership or ownership with a mortgage, so housing benefit is not an issue. For those who rent, I would imagine that they would on average tend to be better-off renters. London is an issue, because of high rents and so on. I am trying to say that we should be aware that a significant number of pensioners draw means-tested benefits other than the minimum income guarantee and the pension credit; I put it no more strongly.
The hon. Member for Arundel and South Downs drew attention to the Plymouth Brethren's concerns about compulsory annuity purchase and private pension provision generally. I am not convinced that the Bill helps them at all. It takes a compulsory annuity purchase approach so I do not see that it addresses that concern. As it is a conscience issue, I hope that the Minister might tell us whether the Government have had any other thoughts about how their concerns might be addressed.
Essentially, the argument about whether the gap between the sexes might be closing is a red herring because if it is closing, there would be no need for such provision in the Bill because the market would equalise. Such provision is needed only when there is a differential. There is likely to be a difference in the foreseeable future, so what should we do about it? The pure free-market argument is that women live longer so they should get less.
The redistributionist in me says that women get an awfully bad deal in pensionsa lifetime of injustice in many ways, which manifests itself in their income in old age. If the dear old state can step in and do a bit of meddling at the end, it is a good idea, but that is not the motivation of the right hon. Member for Skipton and Ripon.