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Mr. Frank Field (Birkenhead): I also wish to speak to amendments Nos. 145 and 146. It was in the last Parliament that the first letters came from my constituents asking why they were forced into a financial arrangement that they thought was not the most beneficial that they could undertake to protect their retirement and possibly, as the hon. Member for Bournemouth, West (Mr. Butterfill) said, hand on wealth when they died. Although there has been a very important change since then--the election of our Government--I do not find it easier to answer that question when it comes from my constituents.
Therefore, I make a plea to the Economic Secretary to address specifically, in replying to the debate, what is the defence of the status quo and to what extent the Government are thinking and moving and in what direction.
The simple point that my constituents put to me, which I happen to agree with, and on which I have not been able to obtain a more sensible view from either the previous Government or the present one, is as follows. They accept that they have built up pension arrangements which have been supported by fellow taxpayers, and that therefore some restraints can be put on the way in which they spend the income, so that they do not receive a second injection of public funds to underpin their livelihood. In other words, they do not believe that they should be able to blow their capital and become dependent on welfare. But
what they ask is this: if they make sure that they are in no way a responsibility on the state, why should the state lay down how they should behave with the capital that they have built up?In a sense my constituents' questions preceded the questions posed in the report that a previous Member of the House, Dr. Oonagh McDonald, recently successfully steered to publication. I am anxious to learn from the Government what their defence of the status quo is. All of us, on both sides of the House, can see that people should not be paid twice for doing the same thing, but if they are careful enough, or enter into specific arrangements, to ensure that some of their capital is put aside so that they in no sense become dependent on welfare, why should they not be able to spend the remainder, which probably, as the decades pass, will become a larger and larger proportion, in a way that suits them?
My constituents' final point is that they have built up their capital, have been pleased to do so and believe that it is their duty to do so. They believe that they were advantaged in being able to do that. They are not being cocky and understand that other people have not been as advantaged and may not have been able to do so. They also believe that, if at all possible, it is a good idea to hand on capital to children and grandchildren. I must ask the Government whether that is the view that we hold. Do we believe that wealth is not something to be gobbled up by companies or Governments but, as far as possible, should be spread as widely as possible, through the entire community? If that is so, should we not be thinking--this has been debated by those on both sides of the House--along the lines of reforming the strict rules that govern the purchase of annuities?
9.15 pm
The hon. Member for Bournemouth, West gave us a macro-debate on what is happening in the gilts market. He explained why it is a bad buy to purchase annuities now. Many of my constituents understand that argument. They are distressed by it and are fully aware of what is going on in the money markets in that respect. They believe that the debate involves a question of fairness in that they have done everything required of them as good citizens and wonder why the Government stop them from being even better citizens by not letting them become dependent on welfare. They want the freedom to choose how they spend their capital and, if possible, they want to pass it on to members of their extended family.
After hearing my hon. Friend the Economic Secretary's reply, I hope that I will be able to write letters to my constituents that are different from those I have had to write since they began writing to me on this topic about five or six years ago.
Mr. Webb: Had I been asked a few years ago how I wanted to spend the evening of my 35th birthday, discussing the finer points of annuities might not have been at the top of the list. However, it is a privilege to contribute to the debate.
I want to touch on Government amendment No. 83 and the associated amendments and amendment No. 146. On the concurrency amendment, like the Conservative party, the Liberal Democrats welcome the concessions that the Government have made. It would be churlish to describe
this as a victory for the Department of Social Security over the Treasury--I am sure that it was a partnership--but as such victories are rare, one could describe it as such anyway.I have some questions about the detail of what is proposed in Government amendment No. 83, specifically the £30,000 threshold. It may be that I have missed it, but I wonder whether there has been a specific explanation for why £30,000 was chosen. Will the Economic Secretary clarify why that was chosen. Is it because it is something akin to the higher-rate threshold and that, therefore, higher-rate taxpayers are more likely to try to abuse concurrent membership of two pension schemes, or was the figure plucked from the air?
I notice that the £30,000 figure is in the primary legislation. Does that imply that it will be capped? There is no suggestion that it is to be prescribed in regulations and then to be indexed. What is the thinking behind that? Given that earnings are rising each year, is there an attempt to clamp down? It is not clear why that figure has been chosen.
My abiding impression of the concurrency issue is the recollection that, when I pressed the Financial Secretary at Social Security questions, in his halcyon days as the Minister responsible for pensions, as to whether he regarded simplicity in pensions as a virtue, he answered with a confident yes. Now that he is at the Treasury, I do not know whether he still holds that view.
It is clear that we have a dog's breakfast, and concurrency with thresholds is just another aspect of that dog's breakfast. We have completely different tax regimes for personal pensions, occupational pensions and stakeholder pensions and we have different regimes for additional contributions. Far from getting simpler under the present Government, the options have got wider and the complications have increased. I fear that people will continue making the wrong choices. Concurrent membership certainly helps to prevent one wrong choice, and to that extent we welcome the amendment.
I wonder sometimes whether the Government have lost the big picture. They probably came into office believing in simplicity, and it may be that the realities of office mean that simplicity will never be delivered. I hope to find that out for myself at some point, but in the interim I would be interested to learn whether the Economic Secretary still holds to the goal of simplicity. I wonder whether, with hand on heart, she can say that the strategy that the Government have adopted has created a simpler pension regime for the investor who, in the world envisaged by the Government, will receive less advice, not more. The stakeholder pension purchaser will probably have to get by, at best, with a decision tree, but often it is suggested that the person seek advice. Government amendment No. 83 moves in the right direction of clearing up a mess that the Government have created, but I wonder whether the big picture has been lost.
On amendment No. 146, the hon. Member for Arundel and South Downs (Mr. Flight) has become associated with this issue in this Parliament and I praise his efforts and persistence in keeping it before the House. The Liberal Democrats broadly sympathise with his concerns, but I had an informative conversation this morning with Evergreen Retirement Assurance, a company which has
written to several hon. Members and met some of them. It raised some significant issues that are germane to amendment No. 146.The first is the issue of the compulsory purchase of annuity, but the question is whose annuity is purchased. Is it the annuity provided by the company with which a person has saved or is it the best annuity on the market? The point that the company, and others, make is that choosing the wrong annuity can cost one 10 per cent. of one's income for the rest of one's life. That could be hundreds, if not thousands, of pounds a year and potentially tens of thousands of pounds over a lifetime. However, the issue appears to have received almost no attention.
I asked the company what was needed to resolve the problem, because it appears that too many people, out of inertia, condemn themselves to too low an income for the rest of their lives and, potentially, cost the taxpayer money by ending up on the minimum income guarantee or housing benefit. The answer I was given was that the problem could be addressed if the Financial Services Authority were to say that the letter to those who had accumulated a pension pot and were about to purchase an annuity had to include the statement in great big bold capitals, "You have a choice and it may be that your provider does not provide the best product," before any mention of the product of the company that had provided the pension. Or perhaps companies could be obliged to include a freephone number for an Inland Revenue helpline that would provide the telephone numbers of five annuity bureaus. That could make a big difference to the incomes in retirement of many people.
I asked why those solutions had not been tried and the answer was that the FSA would be keen to do so, but it has not been pushed by the Treasury. I hope that that is wrong and the Economic Secretary will tell us that she has taken a stick to the FSA and it will act. If that is not the case, I hope that she will assure us in her response to the debate that those people who have taken out annuities are getting better value for them. One of the legitimate concerns expressed by the hon. Member for Arundel and South Downs was that the annuities are bad enough value as it is for many people and if they buy one that is not the best available, it is a double whammy.
I do not wish to go too deeply into the question of how important the issue is and to how many people, but I wonder whether its importance to the general public is overstated.
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