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Mr. Darling: At no time did I suggest that independent advisers in general or particular were at fault. The hon. Gentleman must be thinking of another speaker.

Mr. Butterfill: I will read Hansard carefully, but my clear recollection is that the hon. Gentleman said that it was likely to lead to such further mis-selling, by anybody. The IFA Association agrees with the hon. Gentleman. Its chairman wrote to me:

"Why should the personal pension have an advantage over all other schemes? Has the Government not yet learnt the lesson from pension transfers and opt outs? . . . I see restriction of deferred purchase to personal pensions as yet again opening the floodgates for the unscrupulous salesman."

The hon. Gentleman's views are endorsed by the profession itself. It is right to allow deferral, because it is wrong that someone reaching retirement at an

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unpropitious time in the market should be forced to make an investment decision that nobody with the freedom would make at that time.

I urge my hon. Friend the Minister to consider reducing from 70 per cent. to 50 per cent. the minimum amount taken, because although people reaching retirement age are likely to be suffering a substantial diminution in income, and they will probably need more money, if they retire at a time in the market when the yield on their annuity is unusually low, it is unreasonable to expect them to take a substantially increased risk as a result.

I am concerned also about the taxation provisions, and seek my hon. Friend's advice. If, following a member's death, where there is deferral, his widow chooses to take the lump sum, she will be liable at that time to tax at 35 per cent. That seems to breach the general rule that transfers on death between husbands and wives will be free of taxation, and seems unnecessarily harsh.

Of course, the wife might die shortly after her husband. For example, if the husband died immediately in a car crash in which they were both victims, but his wife died some weeks later, there could be double taxation. The estate would pay not only 35 per cent. tax but inheritance tax. I hope that my hon. Friend will consider those points when he responds.

Mr. Geoffrey Hoon (Ashfield): Clause 25 and schedule 11 are clearly designed to alleviate a problem that arises in relation to personal pension schemes--the obligation placed on members to use accumulated funds in pension schemes to purchase an annuity as soon as any benefit is taken from the pension fund. That means that people may be obliged to buy their annuity at a time when market rates are less favourable than they might be. The advantage to everybody of such a rule is that it results in clarity. Everyone knows that, at the point at which a fund matures, the purchase of the annuity has to be made.

This inflexibility, however, can cause problems for someone who has contributed large amounts of income to the fund for many years, at a time when rates may have been significantly higher than they are at the point when the fund is used for annuity purchase. In those circumstances, the Government have sensibly sought ways of avoiding the problems. Their plans were set out clearly in the DSS White Paper, "Security, Equality, Choice: The Future for Pensions".


Published in June 1994, the White Paper states in paragraph 3.9: "The Government is aware of the effect that annuity rates at the time of retirement can have on the size of the pension bought with the contents of a money purchase pension fund. The Government favours greater flexibility in this area."

Certainly, the proposals in the Finance Bill will achieve that flexibility.

The basic proposition will allow personal pension scheme members to purchase an annuity at any stage between the ages of 50 and 75. Secondly, it will allow retired people who have deferred annuity purchase to withdraw income broadly equivalent to the annuity that the fund would have purchased. These proposals for flexibility at least address the basic problem which I have described.

The issue for the Opposition concerns whether the proposals will work in practice and whether they will remedy the harm that we are worried about. Of course I

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accept that the Government's proposals will give members of personal pension schemes a greater range of choice; but in so doing, certain difficulties are likely to arise for members. It is those difficulties that amendment No. 13 is designed to deal with. First comes the risk problem. Although rates may have been falling for some time, there is clearly no guarantee that a policyholder will gain from any decision to defer the purchase of an annuity. There is a risk that, if rates have been falling while contributions have been paid into a fund, they may continue to fall. So deferral will merely serve to achieve the purchase of an annuity at still lower rates. That is a judgment which any holder will have to make.

The difficulty with exercising this judgment is that it requires a fairly sophisticated understanding of markets and how they are going to operate. Thus flexibility does not necessarily bring benefits for the individual concerned.

We should also bear in mind the more substantial consideration at stake-- the costs that policyholders may have to bear in the exercise of this choice. The Inland Revenue has calculated that the one-off cost to personal pension providers of setting up the new system will be about £1.15 billion, together with annual recurring costs of as much as £600.000 a year by the third year of operation. Those figures are contained in the compliance cost assessment of 29 November 1994. The Revenue goes on to state:

"It is expected that personal pension providers will pass on all compliance costs to their members in the form of an administration charge."

That will significantly reduce the money available for the ultimate purchase of the annuity. The cost will fall to the pension holder, in the form of reduced benefits on retirement.

Policyholders who are contemplating making use of the new flexibility and choice will need to understand all the risks involved. I have already mentioned one: the fact that rates may continue to fall, so the fund will purchase still less in the form on an annuity. Hence anyone taking advantage of the new flexibility will need professional advice--which tends to be rather expensive. That is necessarily so, because the advice needs to be as sophisticated as circumstances dictate.

Mr. Butterfill: Surely the advice does not need to be terribly sophisticated? One has only to look at the long-term money rate trend in the market. If the market is discounting a higher rate for the future, it clearly expects interest rates to rise. That is about as far as anyone can predict.

Mr. Hoon: That is right, but the problem is that many people depend on expert advice. When people have paid substantial contributions into their pension funds so as to buy an annuity, we want them to have the best possible advice. The hon. Gentleman makes light of these judgments, but they are of grave concern to people embarking on their retirements. I repeat that this sort of professional advice, especially if it is of the highest quality, can be expensive.

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All this tends to suggest that the proposals in this years's Finance Bill are likely to benefit only the wealthier members of society. As my hon. Friend the Member for Edinburgh, Central (Mr. Darling) has already said, and as the Association of British Insurers reiterates,

"Our present view is that only those with funds at retirement in excess of £100,000 are likely to find this facility economic." That is quite a large fund. Although flexibility obviously benefits people with that much to invest, we would like to ensure that the disadvantages are not so great as to render the exercise uneconomic for other people. There is also a clear risk of poor decisions and judgments about how the new rules should operate being reached. Our amendment seeks at least to provide further information about how the rules would operate. It suggests that the Government report to Parliament on the likely costs of administering personal pension schemes, and provide an assessment of the risks to members of such schemes. We believe that that would provide a context in which to reach a judgment on the operation of the proposals; and on whether, in practice, they benefit not just the wealthy but also the greater number of people who might expect to take advantage of them because they have a fund into which they have paid throughout their working lives. Such people will want to purchase annuities at the most favourable rates.

Generally speaking, while we can see the benefits of the flexibility that these proposals allow for personal pension schemes, we are worried that the flexibility involved may be achieved only at some risk. Amendment No. 13 at least eliminates some of those risks.

The Minister of State, Treasury (Mr. Anthony Nelson): There is one matter on which hon. Members on both sides of the Committee can agree-- pensions are a complicated business. Most people rarely understand the full details of their own pension let alone the range of those offered on the market, the benefits that derive from them and the tax treatment of them. That is a matter for regret. In the search for equity and greater self- provision, it is probably inevitable that there will be complexities in the provision of choice and equity, but at the same time--the complexity of such schemes has been raised by a number of hon. Members--it raises the whole issue of education about financial provision. It is an issue to which I have referred on numerous occasions in the House and I do so again today. One does not want in any way to be too patronising, because, of course, the Government are obliged to frame the law properly and regulators are obliged to supervise the law properly, but at the end of the day there must be an obligation on the individual to look carefully at investment products-- particularly long-term investment products such as pensions--before they enter into them, to seek advice from those who have expert abilities and to ensure as far as possible that the contract that they are entering into meets their needs. We can do the best that we can, and we can seek to refine the legislation, as I will endeavour to show later, and the regulatory system, to give as much support and backing as possible, but we must address a wider issue, perhaps through the education system, perhaps in a variety of publicity ways, by regulators and product providers, to

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ensure that people understand much better the nature of the products that they are offered, their obligations and the benefits that they are likely to receive.

Mr. Gerry Sutcliffe (Bradford, South): I have listened intently to the debate as one of those persons ill-informed on pension provision. I take the point about education, but, practically, how can one provide that with changes being made to the pension provision almost daily, notwithstanding the clause before us? How will the Government be forced to do that?

Mr. Nelson: The principal means of improving awareness about the nature of products, the obligations and benefits that arise under them, is through disclosure, the transparency and the understanding of the nature of the product itself. The disclosure regime, which came into effect from the beginning of this year--not just with regard to life insurance products but the wider application--goes to the heart of the issue and goes a long way towards answering the hon. Gentleman's question.

I suggest that there is a wider obligation, because one can disclose; one can tell people; one can write to people; but unless one is pretty certain that people understand, they can still be mis-sold, or they can enter inadvertently into a disadvantageous contract. I have no wish to use this important debate to give a polemic on the wider issue, but it is relevant and is a matter to which the Committee may wish to return.

A number of reasonable points were made by hon. Members and I shall do my best to comment on them and provide answers where possible. Clause 52 and schedule 11 will give personal pension scheme members greater choice over the timing of the annuity purchase and will enable them to continue to benefit from the further investment growth of their funds while drawing an income in retirement. The amendment proposes that the provisions of schedule 11 should come into effect only after the Government have reported on three issues: the costs to personal pension schemes of administering the new provisions; the risks to personal pension scheme members who take advantage of the provisions; and the extension of the provisions to occupational pension schemes and to retirement annuity contracts.

I sympathise with the concerns raised by a number of hon. Members on those matters. The Government have already taken action to meet those concerns as far as they can. I must say, therefore, that I do not think that the proposed amendment to clause 52 will serve any useful purpose. I shall explain why by providing reassurance, I hope, on each of the issues covered by the amendment.

I deal first with the likely effects of the provisions of schedule 11 on the costs of administering personal pension schemes--a point raised by the hon. Member for Edinburgh, Central (Mr. Darling). As a matter of general Government policy, all Departments are required to prepare a structured appraisal of the likely cost to businesses of complying with new or amended regulations. In that way, compliance costs can be assessed and unnecessary burdens to business identified. In the case of annuity deferral, a full compliance cost assessment--CCA--has been made and has been available, as announced in an Inland Revenue press review from its deregulation unit, since Budget day.

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The CCA broadly examines the likely administrative costs to personal pension providers over and above the costs of administering the present regime, which requires immediate annuity purchase once benefits are taken from a personal pension scheme. Costs are divided into those that are non-recurring, such as the cost of amending computer systems, and recurring ones, such as arranging income withdrawals for people who defer annuity purchase.

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Of course, the costs are likely to rise in future years as more people retire and take advantage of the new flexibility, but we would expect all pension providers to recover those costs by means of an administration charge, such as that already levied in respect of personal pension arrangements.

Mr. Hoon: Does the Minister expect that that administration charge will be spread evenly throughout all personal pension holders, or will it simply be paid by those who are deferring their annuity purchase?

Mr. Nelson: That will be a matter for the individual schemes to determine. It is not a matter for regulation. The costs, in general terms, while inevitably as much a guesstimate as an estimate, are clearly set out. It will be for the industry to determine how to recover those costs. In the case of smaller businesses--a number of hon. Members, including the hon. Member for Edinburgh, Central, raised this point--independent financial advisers already have to give the best advice possible, and we do not see that that necessarily will involve additional net costs, but there will obviously be particular compliance costs for the product providers, as such, rather than the intermediaries. It will be a matter for them broadly to determine how the costs are spread.

The second point covered in the amendment concerns the risks that people will run in deferring annuity purchase. It is an important issue. It must be apparent to all hon. Members that flexibility involves choice, and choice involves risk. It is an interesting paradox that risk can be present both with flexibility and with inflexibility. If any regime is too inflexible, and tethers people down to only one recourse, that can be highly risky and can prejudice them.

Equally, if one introduces flexibility into any regime, as we seek further to do with the amendment and schedule, it opens up a choice, but it opens up the prospect of some risk, or relatively better performance by one who behaves in one way as opposed to another. So although there might not--I hope--be a fundamental risk in terms of the whole stream of income or the value of the security of a fund, there will be a differential result, obviously, for people who behave in different ways.

It is inevitable in providing flexibility or choice that there will be some risk for people that they take a decision, the outcome of which will be less preferential to them than had they chosen otherwise. What I am saying is obviously a truism in one sense, but it raises the point made by hon. Members--that such risk can best be avoided by getting the best possible advice from professionals on how people should proceed, and how they should or should not take advantage of the flexibilities provided under the clause and schedule.

Mr. Butterfill: Does my hon. Friend agree, however, that although there is undoubtedly some risk inherent in

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the choice, the overall risk is reduced by giving that choice? Although some people will make bad choices, overall the element of risk must be reduced by giving that choice.

Mr. Nelson: I hope and believe so. The Government would not have brought the measure forward unless we believed that to be so. Of course, without straying too much from the narrow provision of the clause and schedule, the Government's overall macro-economic policy is there to try to bring about a sustained period of low inflation and interest rates as low as can be sustained to continue to bear down on that level of inflation.

If it were possible--an objective seriously to be desired by all hon. Members--for the country to enjoy a very long period of low inflation and low interest rates, it follows that it might not necessarily be right for people to defer for a long period the purchase of an annuity. Indeed, as the hon. Member for Ashfield (Mr. Hoon) and others pointed out, they might be disadvantaged: the market can move in both directions, and interest rates may fall. People must make their own decisions.

Understandably, over the past couple of years--particularly a year or so ago--there was apprehension about the requirement for the removal of any money from a personal pension immediately to trigger the need to buy an annuity at what were historically low interest rates: no option was available. We hope that the introduction of further flexibility will meet people's needs, although it does not necessarily follow that it is right for them to defer without expert advice.

Mr. Derek Enright (Hemsworth): What advice would the Minister give people today, with the prospect of a rise in interest rates?

Mr. Nelson: The hon. Gentleman tempts me, but I cannot advise people on such matters.

Let me return to the risk involved in the deferral of annuity purchase. I am well aware of the concerns that have been expressed, and assure the House that the Government take them very seriously in the light of past mis -selling of personal pensions. The Securities and Investments Board has already made its recommendations for redress following cases of mis- selling, and the House will recall the statement that I made about the matter on 25 October last year. We should remember that the annuity deferral proposals were made in response to a flaw in the present personal pensions regime. We want above all to free people from the obligation to buy an annuity as soon as they take benefits from their pension scheme, possibly at a time when annuity rates are low. The new flexibility that we are offering has been widely welcomed, but--as my hon. Friend the Member for Carshalton and Wallington (Mr. Forman) pointed out--it is only an option: no one will be forced to defer buying an annuity if they are unhappy about the risks involved. Indeed, we do not expect that many people will wish to do so for more than a few years.

So what are the risks that people may run if they opt for income withdrawals? The main risk is that their income may decrease at some point in the future, either because of falling interest rates which have a direct effect on annuity rates or because of an unexpectedly low investment performance by their fund in the deferral period. There is also the risk, for people with a small fund,

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that administration charges will erode the value of the fund before the annuity is bought--a point raised by more than one hon. Member. Regulatory bodies such as the Personal Investment Authority will therefore have a duty to ensure that personal pension scheme members are made aware of the risks, and the disclosure regime on life products that came into effect on 1 January this year provides an excellent basis for that. Pension providers will be obliged to disclose the potential risks in deferring annuity purchase, and individual scheme members will normally consider seeking expert financial advice before reaching a decision.

The proposed legislation itself provides a further safeguard against the too-rapid depletion of the pension fund: personal pension providers will have to review members' funds every three years to ensure that income withdrawals are in line with the value of the fund. Members will, of course, be able to convert their pension fund to an annuity at any time they choose up to the age of 75. Let me now deal with the third issue covered by the amendment--the possible extension of the proposals to money- purchase occupational pension schemes and retirement annuity contracts. The Government considered that very carefully when formulating the present clause and schedule. In the light of press comments following the Budget day announcement, we examined the matter yet again; and, as has been mentioned, my right hon. Friend the Financial Secretary made a statement that was reported in an Inland Revenue press release issued on4 January.

That statement pointed out that the present tax approval rules for occupational pension schemes did not prevent flexibility in the timing of annuity purchase, although a pension must be taken. The provision of annuities is often part of the structure of the schemes, for reasons unconnected with the tax rules. Following the Budget day announcement about the proposal to amend the personal pension schemes tax rules, we made it clear that we would be happy to discuss the issue with the promoters of occupational pension schemes. As a result, some insurance companies have approached the Inland Revenue to see what changes would be needed in the rules governing tax-approved occupational pension schemes.

At this stage, it is not at all clear that any legislative changes are needed in relation to occupational pension schemes, but if it proves--as a result of discussion with the promoters of the schemes--that some changes are desirable, we shall consider introducing appropriate measures.

Mr. Darling: Does that mean that the Government are agreeable to the principle of extending flexibility to occupational schemes? Have any difficulties been highlighted so far by the approaches made to them?

Mr. Nelson: Yes and no. Yes, we are in favour of the principle of extending flexibility: that is, we believe that flexibility already reasonably exists, but if we were persuaded otherwise we would want to examine the matter carefully. No, our discussions and consultations have not flagged up any problems. Unless compelling reasons are given for us to introduce appropriate measures, we see no need to assert in legislation what is already the case.

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The statement also pointed out that the retirement annuity legislation had been obsolescent and had remained unchanged since 1988, when personal pensions superseded retirement annuity contracts. In any case, it was not necessary to amend the retirement annuity rules, because holders of RACs can already transfer their funds to a personal pension scheme if they want to benefit from the new provisions. Inland Revenue officials have spoken to nine insurance companies, all of which said that they would make no charge for internal transfers--that is, transfers from a retirement annuity contract to a personal pension scheme with the same company. That option therefore need not involve any additional cost.

The hon. Member for Edinburgh, Central raised the question of the principles that should be applied to administrative savings for schemes, and to any annuity changes and transfers that are made. Broadly, amendments to occupational pension schemes should ensure that changes are consistent with the purpose of pension schemes. It is a tax approval condition that the schemes should provide a pension for life. Any proposals should be consistent with that principle, based on actuarial considerations relating to life expectancy and periodic reviews of funds.

My hon. Friend the Member for Bristol, North-West (Mr. Stern) asked whether we were reintroducing a class system into pensions. That is far from being the case; we intend to ensure, by providing greater flexibility and choice, that people are better able to take the course that they consider best for them. The provision of an opportunity that does not currently exist should only break down any class system that may be in the pensions regime.

I hope that I have made it clear that it is easy for people with retirement annuity contracts to transfer to personal pension schemes; certainly, that was suggested by nine insurance companies that we consulted.

Mr. Stern rose --

Mr. Nelson: I will give way in a moment. First, let me make a further point which I think was implicit in what a number of hon. Members said. They asked why we have not in this or in other legislation referred specifically to retirement annuity contracts. I have said that that is essentially obsolescent legislation. A complicated corpus of further clauses in the Bill would be required to address what we believe is not in practice a problem.

There would be no great advantage. It would not offer to those with retirement annuity contracts a choice or an option that is not already there. It could not be done at no or low cost, and in any case we have assurances that it can already be done. It is open to people to change to a personal pension, thereby taking full advantage of the flexibility provided by the clause and the schedule. For the reasons that I have given with regard to occupational pensions and retirement annuity contracts, we do not think that the problem arises.

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Mr. Stern: I am sorry that my hon. Friend the Minister has so clearly misunderstood, failed to comprehend, the genuine fears of people who hold retirement annuities. First, he said that retirement annuities were obsolescent but they cannot be obsolescent because many hundreds of thousands of people continue to pay premiums and will go on doing so for the next 20 to 30 years. They are not obsolescent: they are very much alive.

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Secondly, my hon. Friend said that some insurance companies have agreed not to charge people who wish to transfer and take advantage of the flexibility which retirement annuity holders, and they alone according to the Minister, will be debarred from taking under the existing legislation. He is wrong. First, those costs exist, and if they are not borne by a charge on the policy holder making the change they will be borne by the general fund of policy holders. Secondly, what happens if the personal pension offered by the insurance company with which someone has a retirement annuity is not suitable for that person and he wishes to transfer? Costs will be transferred automatically.

Mr. Nelson rose --

The Second Deputy Chairman of Ways and Means (Dame Janet Fookes): Order. That intervention verged on a speech and I have strong views on that.

Mr. Nelson: With that stricture in mind, I hasten to assure my hon. Friend that I do not wish my remarks about retirement annuity contracts to be taken as derogatory. Far from it. They exist, and people took them out and continue to subscribe to them. For many people they have distinct advantages and they wish to retain those contracts. However, my hon. Friend and I both know that personal pensions legislation superseded them and offers a different set of opportunities and benefits.

In some ways RACs have certain benefits that are not provided under the personal pensions regime. I acknowledge all that and, as I say, I am not in any way being derogatory. We are discussing the issue of taking advantage of deferment flexibility. I am saying only that that can be done without necessarily introducing a whole corpus of law to provide freedom and flexibility for RACs in particular. It can be done easily by filling in a form and transferring from the RAC to a personal pension.

As I have said, there are no direct costs to the prospective pensioner. Of course costs are involved, but how they are absorbed is a matter for the companies. I assume that the Committee is principally concerned about whether there is a cost to those people who exercise their rights for deferment and take advantage of the flexibility. All the evidence, as far as we can assess it, is that there is not.

Mr. Butterfill: I agree with my hon. Friend the Member for Bristol, North-West (Mr. Stern). The reply by my hon. Friend the Minister will not do. He admits that it may not be appropriate for some people to transfer from RACs to personal pensions. How do we relieve their predicament if they are not offered the proposed flexibility? Secondly, the Minister may be surprised to know that what he says may not be widely disseminated outside the confines of the Chamber. I suspect that thousands, if not hundreds of thousands, of personal pension holders will be unaware that they can transfer in this way. They will continue to hold RACs and will suffer as a result. It is incumbent on the Government to amend the legislation, if not in this Finance Bill in the next one.

Mr. Nelson: I hear what my hon. Friend says and take it seriously. I shall reflect upon any shortcomings that he feels are in the current legislation or proposals. I was simply trying to respond to concerns raised at the beginning of the debate which seemed to show that those with retirement annuity contracts did not have this option

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or, if the deferment option did apply, it would involve them in costs. I have tried to show that the opportunity is there. RACs are different from personal pensions, and to provide the deferment regime on top of RACs would be going beyond what is currently proposed. People can exercise their right to defer and can choose to implement at a later date the purchase of their annuity through transfer. That is not unreasonable.

My hon. Friend the Member for Carshalton and Wallington (Mr. Forman) asked about size and scope of personal pensions. The latest figures show that there are about 8 million personal pension holders. That is a considerable number and shows the choice that people have exercised since 1988 to make provision for themselves. Despite the undoubted serious problems relating to the mis-selling of personal pensions, the figures demonstrate that for many people such pensions are popular and will continue to be so for the many who wish to make flexible provision for themselves for retirement.

My hon. Friend said that the arguments for staying put in an occupational pension scheme should be presented as clearly as the arguments for transferring to another one. I entirely agree. That is exactly the purpose of the disclosure regime and the product and advice regimes which we have tried to implement through Securities and Investments Boards rules and the Personal Investment Authority. It is necessary to point out to prospective investors the advantages of the status quo as well as the option for change. It would certainly be inadequate and a serious shortcoming of that advice if a comparison were not made. It is implicit in giving best advice that it is compared with the current range of available benefits. In its executive function the regulatory regime has sought seriously to improve the quality and efficiency with which such information and advice is rendered.

The hon. Member for Southampton, Itchen (Mr. Denham) said that the flexibility in the clause requires good advice. That echoes what he said several times in the past, and I whole-heartedly agree with him. We must constantly support measures to improve the quality of advice and to crack down on bad advice. That means costs for the industry and, of course, at the end of the day for the product buyer, the investor. But if markets are to be free they must also be fair, and if people are to have more confidence in investor protection they must have impartial and good quality investment advice.

The changes which Andrew Large, the chairman of the Securities and Investments Board has instituted, and the shake-up and changes in the self- regulatory organisations will deliver very much better standards of investment advice. Of course, that will always stop short of a guarantee that people will get perfect advice, and even the best advice may not match how events eventually turn out, but there must be a constant quest to improve the quality of advice and in that regard substantial progress has been made.

Mr. Hoon: The Minister spoke about the benefits of extra advice and no one challenges his suggestion. But there will clearly be a cost involved. Perhaps I may use the illustration used earlier in the debate. A company providing a personal pension scheme will have to employ someone for the time that it takes to provide advice on whether it is sensible to defer the purchase of an annuity.

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In those circumstances, and given the extra costs for the company, would it not be sensible to accept at least the spirit of the amendment tabled in the name of my hon. Friend the Member for Oxford, East (Mr. Smith)? There should be some consideration of the extra costs involved in administering personal pension schemes.

Mr. Nelson: I have, of course, read the amendment and I understand its purpose. I am endeavouring to explain to the hon. Gentleman and to the House that the Government have considered these matters carefully, and that we have reported on some of them--I referred to the cost compliance assessment. Eventually, people reach the point where they must make up their minds and decide what to do. One cannot make all policies a matter of constant review. I know of the popularity of that with the Opposition. All policies seem to be put on hold while someone else decides what the outcome should be. With matters as important for people's provisions as pensions, however, people must not make judgments on the basis of the fact that the regime will be revised and reviewed, and that it may be imperfect. They must make long-term personal decisions on the basis of the regime that operates, and of the Government's best judgment of how it should do so. That is the purpose of law in the matter. It is important that it should be certain, even if it is not wholly inflexible. Of course, we revise and consider things with the experience of time, but we have already spent a good deal of time on considering how flexibility can be better extended.

My hon. Friend the Member for Bournemouth, West (Mr. Butterfill) gave a broad welcome to the Personal Investment Authority. He said that it was important to give the PIA a chance, before we engaged in radical reform of the regulatory system. I agree with him. The establishment of the PIA marks a step change in the quality of investment, advice, supervision and regulation in the retail sector. Although, through shortcomings and inadequacies, well-advertised problems and serious consequences have arisen for many individuals in recent years, the changes that have been put into place, if only because of the controversy that has sometimes been aroused by the constituent members of the PIA, demonstrate that they are taking their responsibilities seriously. I reiterate that I give Mr. Palmer and all members of the PIA my full support in seeing through the important changes that they are bringing about and which are improving significantly the quality of the provision of investment services in the retail sector.

My hon. Friend said that it was right to allow deferral. I am grateful for the broad support that, I take it, he was giving to the clause and schedule. He asked, as the hon. Member for Edinburgh, Central did, about the amount of income that would have to be withdrawn during the deferral period, and my hon. Friend asked whether it might be appropriate for the minimum level to be lowered even further.

Perhaps it would be helpful if I explained that the intention is to ensure that, where someone exercises deferral, some income is taken out of the fund that has been built up. The aim is to ensure, in part, that that income, which is then taxed, goes to help refund the reliefs that have been available for contributions to the

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fund during its lifetime. Otherwise, a danger would exist that such funds would become just a money-box that people could dip into from time to time.

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The essence of our personal pension policy and, indeed, our pensions law and provision is that people receive tax relief on their contributions during their working lifetimes to build up or to fund an amount, which can then provide a decent income for them in retirement, which will be subject to tax, and which will equate with the contributions made and the reliefs during the lifetime of contributions. If it were possible for no income to be withdrawn for a long period of time, it would offer a savings opportunity and a non-pensions opportunity, which was not the intention. If a case exists for providing reliefs for long-term savings, we should do that, as the Government have done through schemes such as the personal equity plan. We should consider that sector.

On pensions, the intention broadly should not necessarily be to assist especially high-worth savers to build up a very large sum at the expense of the Inland Revenue, when they have had relief on contributions during the lifetime; it should be to ensure that a relationship exists between the taxation that is recouped and the relief that is given during the period of contributions.

On the amount of withdrawal during the deferment period, the Government considered carefully the single annuity to ensure that some flexibility was built in for people who might have purchased different sorts of annuity-- one providing benefits for a spouse and one providing for staged increases in benefit entitlement. That is why there was a difference between the minimum and maximum. However, partly as a result of some of the comments made outside the House as well as within it, we accept that a case may exist for reconsidering the matter.

I listened carefully to what my hon. Friend the Member for Bournemouth, West said. In particular, he made a case for a reduction from 70 per cent. to 50 per cent. The Government might want to consider that further. The hon. Member for Edinburgh, Central raised that point at the end of his remarks.

The Government's proposals for enabling annuity purchase to be deferred have been widely welcomed, but some people have said that a minimum deferral of 70 per cent. is too high. The Government now accept that, and we are discussing the right figure with interested parties. When that consultation has been completed, we will propose an appropriate amendment on Report. I hope that the House will accept that that is a sensible way to proceed.

My hon. Friend the Member for Bournemouth, West raised a point about taxation on death. There might be taxation on a spouse receiving the cash sum from a pension fund, and were she or he to die subsequently, they might also be liable to further tax, such as inheritance tax, if it formed part of the estate. That has always been the case.

It is also the case with other savings funds that are built up. If the widow or spouse decided to continue with the deferment and to purchase the annuity, they would be able to do that; there would be no tax charged, other than on the income that subsequently arose under the annuity. I know, however, that comments have been made about the tax level, were the surviving spouse to take the whole of

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the lump sum, instead of continuing with the deferment. I hope that that has explained the position to my hon. Friend.

The hon. Member for Ashfield (Mr. Hoon) asked about flexibility. He said that it could work against a person if market rates declined. I understand the point, which I think I have dealt with adequately. The issues about the regulatory system, while perhaps going somewhat wider than the clause and schedule allow, are nevertheless relevant. The House is right to seek assurances that our legislative system, both in the statute book and in practice, delivers the sort of public confidence that people are entitled to receive. Any system or structure that one devises and implements by law does not necessarily deliver the human judgments that result in high- quality investor protection.

Sometimes, there is a quest for reform. I make no complaint about people testing arguments, especially if they can come up with better systems, but massive and costly uncertainty and change do not necessarily result in cowboys being put out of business, or in the prevention of fraudsters. I believe that the course that we have adopted, which is to make the system work significantly better, is the right course to deliver greater confidence to investors and depositors.

Many of the problems that have been uncovered in recent years and which are being redressed demonstrate that the system is working. We may not like some of the consequences in that some firms have gone bust or some people lose out but the fact that problems are being detected and redressed, and the fact that there is an investors' compensation scheme that provides relatively high recompense to those who have lost out and that it has worked out in practice, is an endorsement of a good success record. The fact that we have built in the many changes that Andrew Large and others have instituted means that we are not complacent--far from it--but that we are determined to ensure that the system works better.

However, revolution in the structure of regulation of the City is no answer for those who seek more certainty. It is an answer for those who want ever more centralist control of the financial resources in our economic system but we will have no part in that. It is not our intention to embark on a blighted period of cost and uncertainty for the financial services industry. That would merely deliver more opportunity for, rather than detection of, the worst sort of practices.

Mr. Butterfill: May I press the Minister on one other point? Talking about the position of those in occupational schemes which are money- purchase schemes, he said that he did not think that there would be any difficulty in the trustees of such schemes allowing deferral and that there was no legislative barrier to that taking place. What could he do to overcome the difficulty that might arise if individual employees wished to choose deferral but the trustees said no because it was an extra cost that they were not prepared to load on to the scheme? In the case of personal pensions, the initiative or option rests with the policy holder himself but, in the case that he has described, the decision lies with the pension trustees. Does he regard that as satisfactory?

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