When I was re-elected to the House, I made three serious, early mistakes. The first was to apply for a private Member's Bill, the second was to be successful, and the third was to choose probably the most complicated subject on offer. I regret that burst of intellectual vanity which led me to decide to choose a measure about which I knew nothing but which I thought would represent an intellectual challenge. At least I was not disappointed in the challenge that it represented, but the lesson to be learned is not to try to accommodate the Whips, because that leads to an enormous amount of additional work and effort.
I have also had to learn not merely a new language, but a new science. Not being a mathematician, I have encountered the science of stochastics. Hon. Members may not be immediately familiar with the word stochastics, but I am told that it means the assessment of probability against standard deviations, which ought to be a mandatory discipline for anyone aspiring to serve in any Whips Office or to be Leader of the House.
I acknowledge the enormous support of the Retirement Income Reform Campaign, in particular Mr. Stephen Lock, who must have wondered what he had got stuck with when the first question he received from me was, "What is an annuity?".
Many hon. Members will have received an enormous amount of mail on this subject. Some people are seriously concerned and I could easily spend an hour relating hardship cases and the anxieties of individuals, but I shall not do so because we need to get to the substance of this business. I could have brought a series of bulging ring binders into the Chamber, all of which would have provided evidence of the urgency of the matter that I wish to address.
It is not a startling insight to say that the pensions industry is in flux. Employers are retreating from final salary schemes, partly because of the impact of the new accounting requirement FRS 17, which requires companies to state their pensions assets and liabilities.
The Government are attempting to create accessible private pensions for people on modest earnings, but there is evidence that they are having only faltering success. Nicholas Timmins in Wednesday's Financial Timesthat excellent newspaper for which I worked for 10 yearswrote an article with the headline "Compulsory pensions draw closer." We all know that the structure of pensions provision is in flux and is likely to move towards greater obligations on people to make provision to give them security in their old age.
Today, we have the final vote on what may bring to a close the Equitable Life debacle, which has affected the confidence of and faith in the insurance industry. On top of that, there is recognition of the fast-approaching crisis in private pension provision, because of the impact of changing circumstances on the annuity rules.
Richard Ottaway (Croydon, South): My right hon. Friend mentions Equitable Life. Does he agree that, if he is successful with his Bill, a crisis such as has occurred with Equitable Life could not happen?
Mr. Curry: I agree with my hon. Friend. I would also assert that, if the Bill is successful, the crises that would have descended upon us in future years will not happennot merely the crises that individuals will have to face, but those with which the Government will have to deal.
Mr. Andrew Dismore (Hendon): I am interested in what the right hon. Gentleman said about Equitable Life. I declare an interest as an Equitable Life policyholderin many ways I wish I was notand I know that many other hon. Members are also policyholders. The right hon. Gentleman has just asserted that his Bill would prevent a repeat of the problems that have occurred in Equitable Life. Will he expand on the reasons why?
Mr. Curry: I am sure that the hon. Gentleman will listen attentively to the two and a half hours that remain of my speech, during the course of which he will receive a full explanation. If he is not satisfied then, the obvious answer is to take the Bill into Committee, where we will have a much greater opportunity to debate those issues.
The annuities crisis is commonly acknowledged. There have been parliamentary attempts to reform the rules, court action on human rights grounds, and the promise of a Government consultation paper on reform, which we are always told will turn up next week. I think that this time it may be next week, and we will wait with interest to see what it says.
There is a choice. We can try to squeeze a bit more performance out of the old banger. We can put in a new set of plugs, tighten the fan belt, put some new tyres on it, replace the cassette player with a CD player, and hope we can get another 10,000 miles on a wing and a prayer; or we can seek thoroughgoing reform.
I have doubts about how much more performance we can squeeze out of the existing system: because the difference between the best and worst annuities is 0.5 per cent. of yield, the extent to which achieving a better performance would deliver the long-term benefits that people are concerned about remains to be seen, so my Bill sets out a radical reform and I make no apologies for that. However, I emphasise equally that it does so in a deliberate spirit of seeking co-operation with the
I have no ideological fixationthat has often been one of the accusations levelled against meand my interest is in achieving reform that will work. If better and more achievable ideas emerge, I shall recognise them, but I am offering the Government a partnership in Parliament to secure the reform that we all know is necessary.
Why does the current crisis exist? Because people are locked in a one-off no-escape mechanism that no longer serves the purpose for which it was devised. People buy private pensions and receive tax relief on those contributions before the age of 75, but, with the exception of the tax-free lump sum of 25 per cent., they must then commit the whole fund to annuities. The purpose is to secure income in old age to keep the pensioner free of state benefits or welfare.
I agree with that proposition. I do not dispute that it should be central to the legislation. I reject completely the notion that, having benefited from support from the public purse, the pensioner should be acquitted of any obligation to make provident provision for old age, so let the first accusation not be that I am merely seeking to exploit a tax break without repaying the benefit of it.
The problem is not theory or principle, but practice. There is only one source of absolutely secure investmentGovernment stock. The vast majority of pensioners invest in an annuity that provides a flat-rate return, which cannot be inherited by a spouse, and is ravaged by inflation. Even in the benign environment of 3 per cent. annual inflation, an annuity's value halves over 20 years.
Mr. George Osborne (Tatton): Is my right hon. Friend aware that many hon. Members have received letters from constituents urging them to support his Bill, which is one reason for so many of us being present? I have received a letter from my constituent Mr. Desmond Williams, who says:
If annuities yield about 12 per cent., the problem is manageable. Such rates were available when the rule was devised following the introduction of the Income and Corporation Taxes Act 1988, but the situation has changed dramatically. The House of Commons Library points out that gilt yields have fallen sharply over the past decade with nominal yields on 10-year gilts falling from 10 per cent. throughout the 1990s to 7.5 per cent. in 1996 and 4.5 per cent. in 2000.
The reason for that is obvious. First, the structure of Government debt has changed. I remember the debates when the Chancellor decided that the revenue from the so-called 3G mobile phone auction should go towards eliminating debt. People said, "Is this wise? What will it do to liquidity in the gilts market?" The Government chose to reduce their debt, however, which means that there is less debt to purchase and the supply has shrunk.
Secondly, demand has grown. The Treasury estimates that 4 million people are in personal pension schemes, with 1.4 million in occupational money purchase schemes. The size of the annuities market stood at £8.5 billion in 2001, but it is estimated that it will hit £12 billion in 2005 and £35 billion plus in 2035. People are living longer, both men and women. However, from a starting point of 60 years of age rather than birth, life expectancy is much closer between the two sexes, which means that annuities become more expensive as dependence on them as life support schemes increases.