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7 Mar 2003 : Column 1069—continued
Mr. Love: Does my hon. Friend accept that a major factor in the shift away from defined benefits to defined contributions pension schemes is the pension holidays instituted under legislation that was introduced by the previous Government?
Mr. Dismore: My hon. Friend makes an important point. I am not entirely sure that the case he sets out is
correct, but I can certainly understand why people might think it is. There would be a great injustice in an employer avoiding his responsibilities if, when times were good and the value of investments was rising, he kept the pension fund topped up but, when their value fell, he said that he could not afford to maintain it, perhaps because of the pension holiday—the point made by my hon. Friend. He might then stop maintaining the defined benefits scheme and switch to defined contributions.As I have said, there is nothing inherently wrong with the defined contributions system. The problem is that employers are using the defined contributions switch as a sneaky way of cutting their wage bill. They often pay only 2 per cent. towards the defined contributions scheme, when they may have been paying 8, 9 or 10 per cent. to the defined benefits scheme. In other words, there is a wages cut behind the scenes, and the Opposition may wish to consider whether they need to talk to their friends in the City about that.
The Library has produced a useful briefing on the issues, including unisex annuities. It says:
- "The Bill required annuities to be provided on a unisex basis, instead of the present rules, under which annuities are calculated separately for men and women. As female life expectancy is longer than men's, the level of income women can expect for a given pension fund is significantly lower. According to the Annuity Bureau, a man aged 65 with a pension fund of £100,000 will be able to get a level annuity of £7,556.40 a year, but a woman would only get £6,948.00. However, as the annuity would on average be paid for longer to the woman, the capitalised value of the annuities is the same."
Lawrie Quinn: I served on the Committee considering the Bill introduced by the right hon. Member for Skipton and Ripon (Mr. Curry), when our hon. Friend the Financial Secretary tabled a relevant amendment. Has my hon. Friend had an opportunity to study the arguments deployed on that occasion? Is it not lamentable that the hon. and learned Member for Harborough (Mr. Garnier) has failed to deal with the key arguments that the Government made then, and should he not have altered the Bill instead of producing a copycat measure?
Mr. Dismore: My hon. Friend is right, and I have with me copies of Hansard recording the Committee stages of the Bill introduced by the right hon. Member for Skipton and Ripon. The hon. and learned Member for Harborough may care to borrow them. He has obviously not read them, otherwise, as my hon. Friend said, he would have altered his Bill. He simply copied his right hon. Friend's Bill without any consideration of the cogent arguments made by my hon. Friend the Financial Secretary, who I am sure will speak about them later.
Returning to the capitalised value of annuities, as has been said, women receive a lower annual sum because of their longer life expectancy. I have briefly referred to the table on page 13 of the Library briefing, and hon. Members may find it a useful illustration of my argument. It demonstrates clearly how the gap has developed and how long it will take for changes to be made. One hundred years ago, the difference in life
expectancy for men and women was much smaller. In 1901, there were 10.6 males to 11.6 females at age 65, showing a difference of only 1. If the hon. and learned Member for Harborough had introduced his Bill 100 years ago, he might have had a case for equalisation, but in 2001, there is a different life expectancy beyond 65 for men and women, with 16 males to 19.1 females—the difference has increased to 3.1. In the next 20 years, that figure is predicted to fall by only 0.3, so the hon. and learned Gentleman's reasons for introducing the Bill simply do not stack up. The differences are not predicted to change dramatically in the medium or long term. In the past 100 years, the differences have grown, as the chart in the Library briefing shows.The key issue is how that translates into pensions. Under the top rates currently available, as shown in the annuity direct rates table for March 2003, a 65-year-old man who purchases an annuity for £100,000 may receive £603 a month. The comparable figure for a female purchaser with £100,000 to invest is £565 a month. For simplicity's sake, I am working with figures for level annuities. To look at the whole range of annuity products would only complicate matters, and would not change my basic argument. Over his expected remaining lifespan of 17 years, the male would receive £123,046, whereas the female over her remaining lifespan of 20 years would receive £135,720 because of the accruing interest on the capital in the investment period. The Library briefing was therefore not quite right. Although the value of annuities is the same for men and women, the net product is better for women even though their annual annuity is slightly lower. Women are quids in at the end of the day.
Ms Shipley: My hon. Friend the Member for Ealing, North (Mr. Pound) is living dangerously.
Mr. Dismore: I shall not intrude on the arguments of my hon. Friends. Having declared my interest as a man, I shall, like most men, avoid that dangerous territory.
Martin Linton (Battersea): Does my hon. Friend accept that sometimes men do very well from annuities? My father bought an annuity for £5,000 and, as he approaches his 96th birthday, has received £102,119.
Mr. Dismore: My hon. Friend makes an interesting point, and I ask him to give my heartfelt felicitations to his father when he reaches his 96th birthday. However, he is not typical, as 96 is not the average male life expectancy. Annuities work on the principle of pooled risk across age, gender and a range of other factors. It is swings and roundabouts—if people die younger, the money goes back into the annuity pot for payouts to people who live longer. I believe that that point has been missed.
Before my hon. Friends entered the battle of the sexes, I was saying that women would receive about £12,500 more than men over their lifetime on an initial investment of £100,000. As I said, that is because of the accruing interest on capital during the investment period, which would be longer for women. Interest and
inflation rates play a large part in assessing the value of those respective amounts, but the figures demonstrate that the value of a woman's annuity is no less than that of a man. Other aspects being equal, although an annuity payable to a woman may be smaller than that payable to a man, on average it will be paid over a longer period, producing a higher figure. The hon. and learned Gentleman's argument is that women get a raw deal because the annuity rates that they receive are lower than the men's. It is not difficult to see that unisex annuities would generally favour women and disadvantage men. On average, a man will not live as long as a woman, so a man's annuity will be paid for a shorter period than a woman's for the same outlay.That is simply demonstrated by looking at the reverse side of the coin. If a unisex annuity paid £580 a month for an outlay of £100,000, a man would receive £118,320 over his expected lifespan, whereas a woman would receive £139,200. In round figures, the man would receive £5,000 less and the woman would receive £4,000 more. The difference is probably explained by the exorbitant charges that those who run annuity schemes sometimes levy. However, the net result is that for the same outlay, through the unisex pension, the man is £5,000 worse off and the woman is £4,000 better off. The Bill would prevent a man from entering into a personal pension annuity contract and buying with his own money a pension that reflected his own life expectancy. Unless and until the hon. and learned Gentleman can introduce a Bill to equalise life expectancy, the Bill before us would rob Peter to pay Pauline. In the end, there is no extra money in the pot.
Mr. Garnier: I am delighted that the hon. Gentleman has studied this issue so closely. During the 35 minutes or so in which we have been listening to him, I am sure that we have all been greatly assisted. Is the short point that he is against choice, whereas I am in favour of choice? The Bill does not require people to buy an annuity except for the purpose of a minimum income guarantee. They can do what they like with the remainder of their finances. The hon. Gentleman seems to be suggesting that people should not be allowed to do what they like with their own money. Is that right?
Mr. Dismore: All that I can say is watch this space. I shall certainly be coming to the issue of compulsion. The Bill would create a new raft of compulsion for the vast bulk of people who are in the position that we are discussing, while providing freedom for a tiny proportion of people, including the hon. and learned Gentleman's rich friends. He has a cheek to raise the issue of compulsion.
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