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Mr. Gardiner: I am grateful to my hon. Friend for giving way again. Have she or her officials done any research into the intended effect of the proposals? If they encouraged more and more people to take annuities later in life, how would the annuities market be affected? Might not rates automatically be depressed by the very phenomenon that the proposals seek to achieve?

Ruth Kelly: I thank my hon. Friend for his very interesting remarks. Clearly, substantial changes of the sort that hon. Members opposite propose would have a very significant impact on the annuity market in terms of rates, availability and types, and so forth. I intend to return to some of those issues when we discuss other amendments, and especially in relation to the effect of the proposal of the right hon. Member for Skipton and Ripon (Mr. Curry) to ask people to buy a compulsory annuity at 65. Presumably, that applies to people who describe themselves as non-Christian Brethren, although that is not clearly set out in the Bill. The proposal would also have a substantial impact on the gilt market—an issue to which I shall return, along with other matters; especially the affordability of the proposals.

Mortality drag is one of the factors that must be taken into account when income withdrawal or draw-down, as it is also known, is considered under the existing rules. However, the period of draw-down is limited to attaining the age of 75—after which the increased investment returns begin to look unsustainable. In that context, the proposal is that an annuity would never be purchased, possibly with dire consequences for the pension scheme member as they get older. I hope that I have at least shown that there is no quick and easy alternative to annuity purchase that would meet the Government's requirement that tax-relieved pension fund moneys should provide a secure income that is guaranteed to last for the whole of the pensioner's retirement, no matter how long they live.

I should also like to remind the House of some of the other elements of the retirement failsafe fund that would have taken effect under proposals previously tabled by hon. Members. Anyone whose fund size was more than

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that needed to meet the 150 per cent. condition would have the freedom to withdraw as much as they liked from the remaining personal pension fund before they reach 80, when all the remaining funds would be merged. Then and for every year afterwards, the fund would be divided by the number of years remaining to age 100, and that amount would be paid out as income.

There was nothing to stop the whole of the fund that remained after the failsafe fund has been set up from being withdrawn before age 80. Clearly, it would be the choice of many wealthy people to extract the maximum amount possible just before reaching 80 so that it was not subject to the rules that came into play at that age. The lack of any compulsion to annuitise and the provision of full access to the funds before age 80 would, like the Bill's main proposals, be an enormous encouragement to wealthy people to save much more of their income or transfer savings from elsewhere into tax-relieved pension funds.

The Exchequer costs of the extra tax reliefs that would be claimed as a result are estimated to run into hundreds of millions of pounds a year. I shall not explain the matter further at this stage, but I propose to return to it later in the debate. The point is that the reliefs would be given other than for their intended pension purpose. The proposals would have enabled those with large funds built up with the benefit of very generous tax reliefs to set aside only a small proportion for the provision of retirement income and use the rest for any purpose they wished. That is not an acceptable use of tax relief. The proposals considered in Committee also left unaddressed the critical question of what would happen if the scheme member lived to 100. Even if the fund had not run out beforehand, it was designed to do so at that age.

Mr. David Curry (Skipton and Ripon): His life expectancy would be 130 by then.

Ruth Kelly: The right hon. Gentleman points out that if people reach the age of 100, they may have a significant further period to live.

The hon. Members who tabled the amendments have argued in the past—they may do so again today—that it is precisely because of the need to address the difficulties that I have mentioned that they now propose that all that should be sorted out by regulations. I hope that I have made it clear that it is not that easy to solve some of these very difficult problems and that it cannot be done merely through regulation. I think that that shows that the proposals have not been thought through coherently.

Mr. Leigh: I think that we can take it as read that, for the technical reasons that the Minister has outlined, she and her officials are opposed to the retirement failsafe fund. That is fair enough; she is entitled to her point of view. However, the House is entitled to get an explanation before she sits down. Given that she holds those views, how does she intend to address the conscientious objection that people have registered?

Ruth Kelly: I thank the hon. Gentleman for his comments, which I know are genuine; indeed, I share those concerns. It would be beneficial if we could think

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of some way of meeting the concerns of the Christian Brethren while maintaining our basic principles for the use of tax relief, as has been clearly set out in our consultation document. Of course, we are still considering the results of the consultation, which is not designed to fit in neatly to the timetable of the Bill. We will consider those results and we take the issues extremely seriously.

Even if the principle behind the amendments were acceptable—I have pointed out that there are serious concerns even about the principle that they involve—they are still technically flawed. For example, amendment No. 1 still treats income invested in a retirement failsafe fund as benefit to be paid out of the personal pension scheme. However, there is no proposal to amend section 633 of the Income and Corporation Taxes Act 1988, which defines the scope of benefits that a personal pension scheme can provide to include payments into such a fund. So the status of the retirement failsafe fund is again left unclear and uncertain. Regulations could not sort out that problem because they could not override section 633 of the Income and Corporation Taxes Act.

There is also still the unresolved conflict with the Bill's other clauses. For example, the Bill makes a minimum retirement income annuity compulsory at 65. Although amendment No. 4 states that a member

it is insufficient to disapply the Bill's mandatory annuity purchase requirement. Even if the member could transfer funds into a retirement failsafe fund, it is not clear what would happen if the proposed regulations had not been made at that time. The amendments make no provision as to time scales.

I am afraid the amendments that we have are completely unworkable on technical grounds and could not be put right by regulations. As I said, the previous proposals did not resolve the difficulties and were costly. Now the aim of the hon. Members who tabled the amendments is for the Government to accept the failsafe fund in principle and to sort out the problems at a later date by way of regulations.

I do not believe that this Bill is the right way to take the issues forward and to meet the Brethren's concerns. I believe that the better course is to examine the issues as part of our ongoing consultation exercise. The consultation document "Modernising Annuities", which was published on 5 February, is intended to stimulate discussion on annuity issues. I shall certainly commit myself to studying the response of the Christian Brethren very carefully. As I said in the House on 14 February, I shall be happy to go on exploring the issues with those involved if we cannot make an immediate response to their demands.

I do not think that the Bill is the right way to take those particular concerns forward, so to say the least, I am not comfortable with the amendments that have been tabled by hon. Members opposite.

Mr. Howard Flight (Arundel and South Downs): The Minister presented the proceedings in Committee the wrong way round. A clear vote was cast by a cross-party majority in favour of the principle of the failsafe fund. The votes were not in favour of the specific detailed proposals. It is therefore logical that on Report we should follow that principle: the concept is accepted, but we all

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know that there are difficulties in working out precisely how the provisions would operate. Given that there have been four years of discussions with the Revenue, it is entirely logical to speak in support of our main amendment in the group. In essence, that amendment leaves the meeting of the objectives to be sorted out with the Revenue in regulations.

The Minister's remarks were disingenuous, as the issue has been around for four years. The Brethren have been in detailed discussions with the Revenue to sort out an arrangement that can provide retirement income for them without their having to go against their religious principles by purchasing an annuity. The point at issue is that an annuity is an insurance policy, which, for the Brethren, represents gambling with death, and that is against their religious principles. It is simply not good enough for the Government to go on mumbling about commitments to go on talking for another four years to solve the problem: it is time that it was solved.

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