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Shona McIsaac (Cleethorpes): I am intrigued by the hon. Gentleman's point about the average annuity. Could he tell us what the average is? I appreciate that he has said that people may have more than one policy, but how many of those who would be affected does he estimate have more than one policy? I am concerned that the average purchase seems quite low and possibly would not achieve what the right hon. Member for Skipton and Ripon (Mr. Curry) wishes to achieve. People would have to make a substantial annuity purchase to obtain the minimum pension guarantee that he mentioned.
Mr. Greenway: The hon. Lady seizes on a technical aspect of the Bill that we shall have to consider in Committee. It is no use addressing the issue by arguing that a person with a pension policy is in the same position as Members of this House who are fortunate enough to belong to the occupational pension scheme for parliamentarians.
At the last count, I probably had about 10 or 11 policies. Collectively, I would guess that, when I am 60 or 65, the combined value of my policies, many of which pre-date my coming to the House, would probably be about £250,000. However, I suspect that the most valuable is the one that has been in force for the longest time. It is with the National Provident Institution and is probably worth no more than £70,000 or £80,000. Therefore, the requirement for people to make sufficient purchase of annuities to avoid falling on the state would have to apply to all the policies that they have. That is the thrust of my argument.
One cannot argue that people would not benefit from the Bill because their policies are not large enough. Collectively, they would, but we must examine the interface between the value of their policies and their not relying on the state.
My right hon. Friend the Member for Skipton and Ripon set out the arguments extremely well, and I congratulate him on his grasp of his brief. I agree wholeheartedly that a reform of the present arrangements is both justified and overdue. When my hon. Friend the Member for Arundel and South Downs said that he was not in favour of flexibility, I think he meant that he did not simply want yet more flexibility about when one took an annuity. Overall, I believe that people need more flexibility beyond the age of 75, not least because of the issue of long-term care that may affect the widow rather than the main annuitant who had the pension plan.
I wish to concentrate on a couple of important points. The House should address the issue not by means of adversarial argumentwe have not entirely had onebut from the point of view of the public interest. We should determine where that lies, and that involves examining what is best in the long run for the public purse.
In two fundamental respects, the Bill is advantageous for the public purse. In the first instance, there is a growing crisis in pension provision that will get worse unless the Government recognise the shortcomings of more and more pension products being funded for cash rather than for defined benefit. They include not just the old retirement annuities or personal pensions, but the money-purchase occupational pensions that are becoming much more the vogue and, of course, the new stakeholder pensions.
The problem is not that people are saving too much but that they are not saving enough. In my experience, tax relief on contributions is no longer on its own a sufficient incentive for personal pension investment. It is a crucial element, but policyholders and investors are increasingly interested in the final resulta point that my hon. Friend the Member for Bournemouth, West (Mr. Butterfill) made in a telling intervention on my right hon. Friend the Member for Skipton and Ripon.
Pensions are infinitely less flexible than other types of investmentsnot just TESSAs and ISAs, but the venture capital trusts that are available to many. This relates to the point about Equitable Life that was made earlier. Problems have arisen because of the requirement to convert the funds into annuities at such low rates when others have the guaranteed rate.
Resolving the annuity issue, as the Bill attempts to do, would greatly assist the Government in their efforts to persuade more people to provide adequately for their old age. Let us remember that the money that goes into pension funds is locked into those policies until retirement age. It is therefore important that it is available at that time. We are not talking about people getting tax relief from contracts that allow them to remove the money and go on a world cruise before they retire.
My second point is that there is great advantage in the Government ensuring that annuitants arrange their affairs in a way that reduces or, better still, if possible eliminates the risk that someone with a reasonable pension fund at 65 ends up needing state benefits in later life, which might be 30 or 35 years or more ahead. Low interest rates are forcing annuitants to opt for the biggest annuity at the start, an issue that has arisen frequently in the debate. The value of level annuities erodes over time with inflation, while the newly introduced minimum income guarantee rises in line with inflation. Pensioner credit and housing and council tax benefit entitlements are also relevant.
Eventually, the MIG entitlement will pass the level of the annuitant's income because he opted for the level annuity. That cannot make sense in public policy terms, and I believe that that is the key trade-off in reaching a
In conclusion, the Government have sought the help of the insurance financial services industry to find solutions to a range of issues that affect it, from regulation to product type. They have encouraged, by consultation, the development of products such as stakeholder pensions and ISAs. They have not always got it right, but their approach should be acknowledged.
As is clear from the debate, the Bill is very much an industry response to the intractable problem of annuities. It has been thought through for several years. It may not be a perfect solution, but the problem will not go away and has to be addressed. The Bill is an excellent opportunity for the Government to demonstrate their determination to do something about it. Their response today is eagerly awaited by many annuitants, who I hope will not be disappointed.
Richard Ottaway (Croydon, South): I congratulate my right hon. Friend the Member for Skipton and Ripon (Mr. Curry). He said that he thought he had made a mistake when he applied to promote the Bill. If so, it was a fortuitous mistake that is to the benefit of us all. The way in which he presented it and its technical implications is much appreciated by the House. I have no hesitation in giving him my full support.
The fact that the Bill is needed is illustrated not only by the number of hon. Members present, but by the growing concern among constituents and people in the financial services sector that although the world has moved on, financial services products have not. May I pay tribute to the Retirement Income Reform Campaign and the energetic chairmanship of Dr. Oonagh McDonald who, as the driving force behind the debate, has made such an important contribution?
It is important that we do not knock annuities too much. They are unique to this country and have provided long-term stability to a generation of elderly and retired people. However, there is a definite need to adapt to changing circumstances. Those of us who were here a few weeks ago to hear the debate on ageism are in no doubt about the fact that working patterns are changing. We have ageing populations. The ratio of people in work to those out of work is shifting and, as a result, in a few years' time we will have skill shortages. People will work beyond the age of 65, which affects the whole dynamic of when people take their pension and how they use it. The Treasury and the Inland Revenue have been a bit slow off the mark. The marketplace and lifestyle patterns are changing, but the products are not.