|Pension Annuities (Amendment) Bill
Lawrie Quinn: If the amendments were accepted and the Bill enacted, any member of our society could, presumably, elect to go for a retirement failsafe fund. The provision would not be restricted to people who had a specific moral analysis, although I am sympathetic to that position.
Mrs. Browning: I would not oppose that position, but there would have to be caveats. For example, if the Minister accepted that a cash ISA was a suitable vehicle for that purpose, it would need to be a long-term, lock-in ISA. I am not suggesting that the existing vehicle should be accepted because, clearly, the purpose of ISAs is long-term financial security; it is not specifically pension related.
We want more flexibility and encouraging people to put money aside for their retirement is at the heart of pension savings. People must realise that it is worth while doing that, otherwise, they will spend their disposable income on other things. The Minister may accept that a vehicle such as a cash ISA could be an approved pension mechanism. It may be available to others, but it will be locked in and certain caveats will be attached to it.
Lawrie Quinn: I fully understand that, but the hon. Lady is saying that consequential work would be necessary to bring about that modification.
Mrs. Browning: Yes, indeed. The proposal is the result of four years of careful deliberations between the Brethren, the Treasury and the Inland Revenue. As I know from my discussions, notwithstanding the Bill, the Brethren hope that they are close to achieving a solution. The proposal has not been plucked out of the air; it is the achievement of four years' work.
Lawrie Quinn: If the amendments were accepted, there would be a risk of the proposal going through half baked. The members of the Brethren to whom I have spoken in the past few days are principally biscuit manufacturers from Hull and the possibility of a half-baked modification might not be what the hon. Lady wants.
Mrs. Browning: I understand the association. Lateral thinking may have persuaded the hon. Gentleman to use the expression ''half-baked'', but if the provision is baked, it is almost ready to come out of the oven. It seems appropriate to table amendments. Even if we were not discussing the Bill, painstaking work has already been put into such a proposal. The Revenue is anxious to find a solution to the problem as I believe in good faith is the Treasury. The Minister is nodding. Notwithstanding the Bill, it would be helpful if the hon. Lady could explain how near the proposal is to coming out of the oven.
Mr. Howard Flight (Arundel and South Downs): First, may I apologise to you and the Committee, Mr. Stevenson. I could not gain access to the House at 8.45 this morning for reasons that everyone will
Column Number: 11understand. I thank my hon. Friend the Member for Tiverton and Honiton (Mrs. Browning) greatly for introducing the amendments. She has made most of the main points, but I want to stress that the arrangements for the failsafe fund start off in essence with 150 per cent. of what would otherwise be required for the minimum retirement income annuity. The underlying concept is that it would be invested in cash and would deliver as great a surety of income in retirement as the minimum retirement income annuity itself. The fund has been structured to meet that target.
I have written to the Minister on behalf of the Plymouth Brethren. It strikes me forcibly that, even though they may be a small group of people, their religious conscience is such that it is time that the matter was addressed. It is a separate issue from the concept of a pension ISA for the Brethren. The amendment to the Bill is for the Brethren although I accept that, as it stands, it would apply to others. As a civilised society, it is time that we accepted the crafting of something to meet the needs of a religious minority.
David Burnside (South Antrim): I am no expert on the technicalities of the Bill. I come from a part of the United Kingdom that is particularly interested in the protection of religious minorities and, when canvassing in my constituency, I am privileged to have conversations with the Brethren. After winning or losing the argument, I am often informed, ''I don't vote, but thank you for putting forward your point of view.'' It is a privilege to represent an interest that cannot return electoral support to me.
The technicalities have been explained well and the Treasury and the Revenue have tried to accommodate themselves. I hope that the Minister can accept amendments Nos. 1 to 5, as they deal with an important matter of personal conscience.
Mr. Field: There are people here today who are the most assiduous attendees at my surgery and who also politely tell me that they have no intention of ever voting for me or anyone else. As they leave the surgery, I quietly thank God that those constituents who do vote for me do not turn up in such numbers and pursue me with such complicated problems.
As has been said, the amendments offer the Government two models by which we can get out of the annuities trap. Although one of them is less favourable financially, some may wish to follow it as a matter of conscience. The main argument is in the clauses of the Bill. There has been detailed discussion with Treasury Ministers and officials for many years and the Government have encouraged examination of the issue for several years. I look forward with great interest to the Minister's response and wonder whether, even if she felt the need to wreck the rest of the Bill, she would save these amendments.
Ruth Kelly: I am sorry if I shall have to disappoint people, but I absolutely recognise the case made and congratulate the hon. Members who tabled the
Column Number: 12amendments. Real issues are involved, including one of conscience, which are recognised inside the Treasury and the Inland Revenueones on which we have been lobbied for some time. I have received several representations from hon. Members who put the Brethren's case most forcefully on their behalf. Through our consultation process, we hope to explore ways round some of the difficulties that the Brethren have with buying traditional annuity products on the grounds of conscience.
Although we hope to respect particular religious beliefs and minority interests as best we can, we cannot redesign the entire pension scheme for one group of people in a way that would disadvantage the rest.
Mr. Field: If the pension scheme were designed in the way that we have discussed, perhaps most other people would want to go down that route and would therefore not feel disadvantaged.
Ruth Kelly: As my right hon. Friend said earlier, there are clearly Exchequer consequences for some of the actions that we have discussedthey are not neutral. We must examine the pension scheme as a whole. I cannot promise changes that would have implications for the Exchequer. I am, however, committed to explore the issues through the consultation process. I will examine the amendments and explain why they are unworkable and what their implications might be.
The amendments are technically flawed. They would have unacceptable effects that might not have been anticipated when they were tabled. The first amendment treats income invested in a retirement failsafe fund, as we discussed earlier in relation to the retirement income fund, as a benefit to be paid out of the personal pensions scheme, repeating some technical mistakes . There is no proposal to amend section 333 of the 1988 Taxes Act, which defines the scope of benefits that a personal pension scheme can provide, and to include payments into the fund. The status of the retirement failsafe fund is left unclear.
There is also an unresolved conflict with the other clauses. For example, the Bill makes minimum retirement income annuity compulsory at 65. There is no provision to disapply that mandatory requirement where a member elects not to purchase an annuity. A lot more work on the technical drafting would need to be undertaken before we could even consider the amendments.
Then we have the rule that sets the size of the retirement failsafe fund, which has to be 150 per cent. of the fund size needed to generate an annual minimum retirement income. That amount would be whatever is set by the Chancellor for the year in question. It would have to increase each year by reference to increases in the retail price index, capped at 5 per cent. How much of the fund would be necessary to achieve that were an annuity to be purchased on day 1, would depend on the age of the scheme member at that time. For a 65-year-old male needing to secure an index-linked minimum retirement
Column Number: 13income of £70, a fund of some £55,000 would be necessary. That is the figure that the right hon. Member for Skipton and Ripon put forward.
I am sure that most people would elect to take their maximum tax-free lump sums. Realistically, the fund needed would be about £73,000. The amendment requires 150 per cent. of that amount to be put in a retirement failsafe fund. That is way above the size of most people's personal pension funds, the average amount being about £30,000.
Mr. Field: Why is that relevant? We have rules to prevent people doing things or to allow them to do things. The whole argument about getting away from annuities is that people would have to have a sufficient capital sum never to fall back on welfare, which means that those who did not have sufficient capital sums would not be able to operate the scheme. Those who were above it could operate it if they so wished.
Ruth Kelly: As my right hon. Friend will know, we try to design the rules in a way that will benefit the maximum number of people and disadvantage the fewest and, preferably, nobody at all. By giving extra flexibility to those with large funds we would need to lower annuity rates for the majority of people, who would be forced under the Bill to buy an index-linked annuity at the age of 65. The result would be that annuity rates would deteriorate for the majority of people. We have to look at those issues in the round to see whether we can help everyone and not a small minority at the expense of the majority.
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