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8.45 pm
Dr. Lewis Moonie (Kirkcaldy): I did not expect to speak quite so early in the debate, so I am all the more grateful to you for calling me, Mr. Deputy Speaker. I am sure that my hon. Friend the Minister of State will be pleased to know that I do not intend to oppose him on Lords amendment No. 3--I note the look of relief on his face--but I want to speak briefly in favour of the important principle enshrined in the amendment, and I urge him to take careful note of that principle.
My hon. Friend said that the money from a pension scheme must be used to fund a pension. To be exact, in this country the money from a pension scheme must be used to fund a pension by the purchase of an annuity. That is not the case in other countries. There are plenty of examples available, and it is not beyond the wit of this country to devise alternative methods of providing for secure income draw-down so that funds are not dissipated by wasteful excess and people are not a burden on the state in later life. I know that the Minister and his Department are sympathetic to the idea of reform, and in the Inland Revenue there is at least now the will to make that change, however defective amendment No. 3 may be.
I want to draw the Minister's attention in particular to the position of thousands of members of the Christian Brethren in this country who are debarred, by their sincerely held beliefs, from taking out an annuity. What recourse do they have? They cannot receive the tax advantages that everybody else receives by saving for a pension, because they cannot take out an annuity. They do not believe in doing that because it is a gamble on their life. Those people work hard, pay their taxes, and honour their duty to the Government and the country, but they are given rights inferior to those that the rest of us have to provide for old age.
That position is grossly unfair, and the fact that it applies only to a minority of people in this country does not alter the fact that they are being discriminated against. I therefore urge the Minister to consider their case sympathetically and to add his voice to the clamour that is now arising in the press for the annuity system to be made much fairer.
Mr. Michael Trend (Windsor):
If amendment No. 3, which was introduced in the Lords by the Government, is defective, I wonder whether amendment (a) in my name is doubly defective. However, I shall seek to persuade the Minister that the age-75 rule should be abolished for all money purchase pensions, and not only stakeholder pensions, as the Lords amendment suggests.
I was pleased to hear the Minister mention Dr. Oonagh McDonald, because her report agrees with that view. The campaign that has been led in this House by my hon. Friend the Member for Arundel and South Downs (Mr. Flight), which has received considerable press attention, has highlighted the difficult position faced by people who are coming up to age 75, when they will be forced to take out an annuity.
The House knows that our amendment seeks to abolish the rule whereby those with money purchase pension schemes are obliged to convert their savings at age 75, and Lords amendment No. 3 would abolish that rule solely for stakeholder pensions. We have campaigned for some time for the extension of that change to all money purchase schemes. Such a change would not break new ground. In 1995, the previous Government raised from 65 to 75 the age at which an annuity had to be taken out. We believe that the policy should be developed and the age-75 rule abolished.
The Minister made the good point that we would not want pension pots to be whittled down to the point at which people were forced to rely on state assistance, and I am happy for there to remain a requirement to ensure that nobody deliberately spends, spends, spends and becomes a burden on the taxpayer. However, that would be extremely unlikely because the people whom we are discussing are almost by definition some of the most responsible and conscientious in the country and of all levels of wealth. They will have forgone some of the pleasures of life to save for old age, and they are highly unlikely to break the habit of a lifetime in retirement.
Those coming up to the moment in their life when annuities must be purchased face a bleaker prospect than they have for some time. Owing to plummeting annuity rates and to the famine of long-term gilts, a person annuitising a pension scheme in the recent past could expect roughly half the income that would have been commonplace a few years ago. Once one has struck a deal on an annuity, it is for life; and if interest rates change and prospects for annuities get better, people will feel that they have had a very rough deal.
People are living longer. Naturally, those who are today buying into a low income as a reward for lifetime saving feel aggrieved. I have received letters from many constituents on the subject, as, I am sure, have all hon. Members. It seems only just to allow people the prospect of waiting a little longer and seeing whether they can get a slightly better deal later. Yes, we want people to have a secure income in old age. We are saying that they should be given greater flexibility as to the moment when they secure it. I urge the Government to treat the problem with great attention.
The Minister forbore to mention the review that he has up his sleeve--which is the usual response to our arguments in debates on the subject--and to suggest that the matter was being dealt with. However, with every week that passes, more and more people fall into the tough trap that is the 75-year rule. Once they have fallen into it, they have fallen into it for good.
I wonder what effect the current bad publicity about the annuity question might be having on stakeholder pensions. They are money purchase schemes, and the reputation of all money purchase schemes is surely
tarnished to some extent if there are serious problems over the expected returns of annuities, as there are at the moment.
I agree with the Minister on one point. This is not an attack an annuities. They remain popular. They are reliable, and there are now many different ways in which one may take out one's annuity; but the 75-year rule is causing distress, and should go. I know that the Minister is looking at other ways--there are many--in which to increase flexibility, but the 75-year rule is causing more distress than anything else.
Owing to the extraordinary way in which we are doing business tonight, I shall not seek to divide the House on this matter, important though it is; but the Government should be in no doubt that this is a battle to which we shall return again and again.
Mr. Webb:
I shall not detain the House long. I simply support the spirit of Lords amendment No. 3, while accepting what the Minister says about its technical deficiencies. The hon. Member for Windsor (Mr. Trend) is right to cite his hon. Friend the Member for Arundel and South Downs (Mr. Flight), who has pursued the issue doggedly. Some months ago, he took part in an Adjournment debate that I initiated on the subject--a full 90-minute orgy of discussion on annuities. It was a memorable way of spending a morning.
I was interested in the comments of the hon. Member for Kirkcaldy (Dr. Moonie). I, too, have been approached by Christian Brethren who are worried about this issue. Although one might argue with their interpretation of scripture, it is a sincerely held belief, and it would be unfortunate if Government policy forced them into something against their will or precluded them from making sensible pension choices. I echo what the hon. Gentleman said on that point.
The pensions Minister has mentioned several times that he is relatively new in his post. He seems to have acquired the desirable qualities of his previous boss: the Minister of Agriculture, Fisheries and Food has a knack of disarming his critics by agreeing with them. Now that we have got through the fevered atmosphere of the debate leading up to 7 o'clock, the pensions Minister has agreed with us twice in the past hour, much to our surprise and encouragement. We were encouraged by what he said on the state earnings-related pension scheme. I hope that I do not misrepresent him when I say that it is encouraging that he appears so open-minded on the 75-year rule.
There appear to be only two objections to relaxing that rule. One is that people might become a burden on the state. There are plenty of ways to safeguard against that. The other is that such flexibility could be used as a form of tax avoidance. Rules already exist about the taxation of pots of money passed on to dependants, and surely those rules could be tightened. Although the Minister's predecessor argued against my case in an Adjournment debate six months ago, that was necessary because that was the Government line then. I sense that it may not be for much longer, and welcome that development.
Mr. Cousins:
I support the comments of my hon. Friend the Member for Kirkcaldy (Dr. Moonie).
This debate may ultimately prove to be one of the most important and significant in welfare reform. Although I take the point of Opposition Members about the general
nature of money purchase schemes, it is of particular meaning to raise the issue in the context of stakeholder pensions, which will extend the money purchase principle to new categories of savers who might be ill prepared and much more poorly advised than many of those who are currently taking out money purchase schemes over long periods. This is an opportunity to rethink the issue.
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