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Mr. David Rendel (Newbury): Does the hon. Gentleman agree that, given what happened with the mis-selling of private pensions, the introduction of a compensation scheme such as has been described would leave the Government morally bound to write to everyone who could possibly be affected to advise them that they might be eligible for compensation? In that case, the Government might not be able to restrict the numbers of people who took it up.
Mr. O'Hara: That is a helpful remark, but I would not go so far: my hope is that I will convince my hon. Friend to consider introducing a scheme that might be fairer to the people involved.
In conclusion, I do not believe that a scheme of compensation can be fair. It can only make sense to the bean counters of the Treasury. Deferment may not be
perfect, but it would be far better. I suggest that any costs incurred in a deferment would compare favourably with the costs of a scheme of compensation, in terms both of the total amount and of how well the money would be spent.
Mr. Desmond Swayne (New Forest, West):
On a point of order, Mr. Deputy Speaker. The focus so far has been almost exclusively on amendment No. 1. Would I be in order if I moved the debate on to amendment No. 33?
Mr. Deputy Speaker:
We are not dealing with that amendment at the moment.
Mr. Rooker:
I was under the impression that we were still dealing with amendment No. 1. The debate involves a big issue but is narrow in that sense.
I am grateful to all the hon. Members who have contributed. There is a general understanding of how difficult it is to achieve a solution to this problem, and I understand how important it is to resolve the matter as quickly as possible.
Naturally, I have a preferred approach to this matter, which I have discussed with colleagues in the Government. However, I hope that I have not given the House a clue about my preferred approach: my intention is to support the Government's solution, given that one day my right hon. Friend the Secretary of State and I might have to present it to the House in detail.
A balance has to be struck in these matters. My hon. Friend the Member for Knowsley, South (Mr. O'Hara) summed up exactly the problems that could be encountered with a compensation scheme. He asked whether all the people involved would be caught, or whether too much public money would be spent on lawyers and accountants and administration, rather than being used for the greatest good. On the other hand, of course, there would be similar pitfalls with a scheme of deferment.
The hon. Member for Brentwood and Ongar (Mr. Pickles) asked about the Benefits Agency guide. It is not training material, and it would not be used to advise staff. The hon. Member for Sutton and Cheam (Mr. Burstow) highlighted the key point that misinformation was provided to the public for 10 years. I do not equivocate about that.
When I spoke about £5.5 billion, I was using shorthand; the figure for 10 years would be £5.5 billion with some add-ons, and the figure is not net but cumulative over the first 10 years. The figures bandied about for a protected rights scheme are much more diffuse, and that is one reason why reaching a conclusion is difficult. We are not short-changing people. That would be totally wrong. We will identify a solution as soon as possible.
Points were made about the national insurance fund surplus, although, frankly, hon. Members who have spoken tonight have spent it about five times over. We cannot use a projected surplus for the current year or for any short-term period to make very long-term expenditure decisions. If the decision is delayed for 10 years, or if we create a protected rights scheme, there will be enormous consequences for years to come. The national insurance fund surplus could not be used in that way. That is not to say, however, that it will not be used. Current taxpayers will have to fund whatever decision we make. There is a hole in the finances from next year. The Treasury works years ahead and the legislative framework is there. Whatever solution we come up with will have to be paid for.
Mr. Rooker:
If the hon. Gentleman wants to ask what I think he wants to ask, I probably do not have the answer.
Mr. Pickles:
It might not be that. I asked specifically about proof. The Minister's predecessor made some promises about compensation for those who had suffered a loss, and made some progress on what standard of proof would be expected. What is the state of the Minister's thinking on that?
As my question is clearly not the question he feared, would he also answer whatever it was he thought I was going to ask?
Mr. Rooker:
That was not the question that I was expecting, so I shall not answer the hypothetical one.
I cannot go further on proof. If and when we produce regulations, we shall have to cover proof, but how can one prove that someone made a phone inquiry to the Benefits Agency eight or nine years ago? What record would there be? In addition, the massive interest of the mass media in these matters might lead the press to publish a quick checklist of what a claimant would have to say about what he had or had not done or asked when he made his phone call all those years ago. I am not saying that the mass media would encourage people to tell fibs, but one can work out what might happen. I cannot go further at present, but we will do so when regulations are introduced.
The House should give the message tonight that Parliament and the Government are working together to get things right. We apologise for leaving people in the situation in which they find themselves today.
Lords amendment disagreed to.
Government amendment in lieu of the Lords amendment and consequential Government amendment agreed to.
Mr. Rooker:
I beg to move, That this House agrees with the Lords in the said amendment.
Mr. Deputy Speaker:
With this, it will be convenient to discuss Lords amendments Nos. 3 to 16, 83, 89 and 97 to 101.
Mr. Rooker:
The Government disagree with Lords amendment No. 3. We agree with the others.
I am not sure what issues the House may wish me to discuss in relation to these amendments. The key issue is probably the purchase of annuities before the age of 75, a matter on which the other place spent some time. I shall concentrate on that matter, but, given the constraints of the guillotine, I shall be happy to deal with any points to do with the other amendments, some of which are technical. I hope that the House will be able to make quick progress so that we may move on to deal with bankruptcy, war widows, pension sharing and bereavement allowances before the guillotine comes down.
Lords amendment No. 3 removed the need for annuity purchase under a stakeholder pension scheme. I hate to say so, because when in opposition I always used to think that it was a lame excuse, but we disagree with the amendment because it is technically flawed. Tax legislation requiring annuity purchase before 75 is unaffected by Lords amendment No. 3. There is no mechanism by which a member can draw benefits beyond the age of 75 from a tax-approved pension scheme or stakeholder scheme other than through an annuity purchased before he or she has reached that age. The amendment refers to the wrong area of the law. Nevertheless, I sense the mood of the House. During one of my brief visits to the House of Lords during the passage of the Bill, the noble Lords were discussing this very point.
The primary purpose of a pension scheme is to provide a secure income in retirement. Valuable tax privileges are accorded to pension arrangements. The grand total oftax relief--which is essentially the Government's contribution to pension schemes in this country--stands at £11 billion a year. That is the Government's contribution to the pension scheme kitty and it makes the general public value saving for a pension. [Interruption.] I do not agree with the hon. Member for Havant (Mr. Willetts), who can make his point from the Opposition Front Bench. These valuable tax privileges are not available to people who are not contributing to pension schemes.
Mr. Willetts:
The Minister refers to "valuable tax privileges". Contributions to people's pensions are, admittedly, tax exempt as they come from pre-tax income. However, that income is taxed on receipt--the right point at which to tax it, since any other arrangement would lead to double taxation. The regime is perfectly fair and symmetrical; it is not a special tax break.
Mr. Rooker:
One reason why it is tax free is that the income stream is taxed. I do not seek to hide the fact that a balance is struck during a person's lifetime. However, the tax reliefs are conditional on the fund being used for pensions. That is the key issue.
Annuities provide a reliable lifelong income. There have been many debates about annuities, and I will share with the House an article about annuities that I read the other day--I have read a considerable amount about annuities in the past three months. I refer hon. Members to an excellent report from the Association of Unit Trusts and Investment Funds written by my friend and one-time colleague in this place, Dr Oonagh McDonald. I have met Oonagh to discuss the matter--I know that she has also talked to the Treasury--and she makes a valuable contribution to the debate. One paragraph caught my eye recently. It states:
You will be pleased to know that I am not about to launch into a general debate about annuities, Mr. Deputy Speaker. However, many questions must be asked about that system. The fact remains that there is an age limit of 75. When I first came to the Department, I asked naively, "If a person finishes work at 65, what does he or she live on until age 75?" I was told that such people would have capital or other investments. I do not claim that it is about fat cats and the rich only; this is a serious issue about people's future pension provision and I intend to consider it seriously during my time with the Department. In the meantime, I ask the House to assist me in reversing the Lords amendment regarding stakeholder pension schemes.
I have read--and people have argued--that annuities are a bad deal. That is what the paragraph I quoted implies, but it is not necessarily always the case. Current annuity rates are somewhat less than their previous levels. However, if we can assure the public that we are entering a period of long-term low inflation, the purchasing power of annuities will be maintained far better than occurred during the 1970s and 1980s when there was fairly high inflation under Governments of both political persuasions. Inflation reached 16 per cent. or so under the previous Government and--before anyone corrects me--25 per cent. under the previous Labour Government. It is best to get such matters out of the way at the start. If there is a period of long-term, reliable, low inflation, annuities will maintain their purchasing power far better.
The income draw-down facility provides some flexibility for those who wish to defer annuity purchases. The danger is--this is not a nanny state--that, if income draw-down increases with age, the pot might be dissipated, leaving no money and recourse to state funds. That is why there is an age limit of 75: people are forced to acquire a secure income for the rest of their lives.
Lords amendment: No. 2, in page 1, line 20, leave out
("or section 176 of the Pension Schemes (Northern Ireland) Act 1993")
"Imagine the scene: a man in a sharp suit asks you to save regular amounts for 30 years so that you can build up a nice big pot of money for your retirement. It sounds hugely sensible, so you follow his advice. But when you retire he insists that you give him all of the lump sum you have saved. You get back a very small part of your savings, he pockets the rest and pays you a pitifully low income to compensate. When you die, he keeps the pot of money for himself and your family gets nothing."
That quote comes from the first paragraph on page 49 of the September 1999 edition of Sainsbury's magazine. The article is headlined "Twilight Robbery", and it was drawn to my attention by a family member who said, "You've been talking about annuities and reading up about them, so you had better read this".
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