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Malcolm Wicks: That intervention went rather far in an unhelpful direction, but when the hon. Gentleman began I was reminded of what I have just said: that the Government will want to consider key issues, including annuitisation at 75, with particular urgency, and decide whether they remain fit for purpose. I should have thought that any reasonable party and reasonable people in this or the other House would take that as a serious pledge to look into the issueas it is.
The issue is complex and important, and has been debated many times in the House. There
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are powerful arguments on both sides, which is why we will look at the matter with particular care and urgency. I repeat that reasonable people will realise that we are making a key pledge, and if the many people campaigning on the issue want to regard that as a victory, they may do so. But I want to see a victory for the Pensions Bill, to bring security to British workers and existing pensioners. I should have thought that anyone considering what I said yesterday and am saying today would conclude that the nonsense has to end and that the other place should agree to what we are saying so that we can start the work of setting up the PPF and the regulator, getting on with the financial assistance scheme and bringing security and confidence back into the British pensions system. No sensible party would stand in the way of that; the people would judge it badly if it delayed the legislation.
Mr. Nigel Waterson (Eastbourne) (Con): The Opposition also hope that common sense will prevail. It is an exercise in machismo for the Government to talk about losing the entire Bill on the basis of this issue. Why are the Government so obsessed with what they perceive as unfairness towards other groups of pensioners, but are prepared to dismiss this substantial group as just rich people and only better-off pensioners? Is that old Labour rearing its ugly head again?
The more that the democratic process grinds on, the more tired and stale the Government's arguments become, in this House and in the other place, whereas our arguments are as fresh and relevant as when we first made them. Is not it instructive that yet again the Government seek to hide behind the doctrine of financial privilege to defeat this amendment? Is not it amazing how the Turner report has rapidly become a catch-all excuse for this Government not to do anything on pensions? It is not a case of "Waiting for Godot", but of waiting for Turner.
I think that the right hon. Member for Birkenhead (Mr. Field) was the first to suggest that the Government should get the Turner commission to bring forward its final report to, say, February, so that we would all know of the Government's proposals for pensions by the time of the general election campaign. The Government dismissed that suggestion out of hand. Turner has given the Government a wonderful excuse to put the whole issue in the box marked "Too difficult". That includes dealing with the ancient and obvious unfairness of compulsory annuitisation.
The arguments have been well rehearsed, but I shall make a few simple points. There has been a long and consistent campaign by the Opposition to try to right that wrong. We have had private Members' Bills from my right hon. Friend the Member for Skipton and Ripon (Mr. Curry), my hon. and learned Friend the Member for Harborough (Mr. Garnier), who memorably scored a significant victory on Second Reading so that it is the settled will of this House to address this issue, and my hon. Friends the Members for Taunton (Mr. Flook) and for Bournemouth, West (Sir John Butterfill).
The somewhat technical issues arising out of the earlier amendments in the Lords have been replaced by a much simpler, more straightforward amendment that
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would simply raise the age to 85. No one seems to know when the initial rule of compulsory annuitisation was first introduced, but it is clear that since then much has changed, including life expectancy. In fact, their lordships appear to have had a minor spat about exactly how long people will live, but that is separate from the central issue, which is that many more people now live beyond 75 than ever before. The whole rule is completely out of date.
The rule does not only affect rich, well-off people. I can testify from my knowledge of my constituents that many people have done the right thingand what the Government claim to want them to doand made provision during their working lives for their retirement so that they do not need to fall back on the benefit system. As my hon. Friend the Member for Havant (Mr. Willetts) argued only yesterday, what business is that of the Treasury, provided those people do not fall back on the benefit system?
The rule is wholly at odds with the Government's professed policy of trying to incentivise savings. We all know that the marketplace for annuities is difficult, to put it mildly, and that the return on annuities has fallen sharply over a long period. We know that the savings ratio has halved since 1997. We clearly need incentives to save, and even the interim report from the Turner commission makes that clear.
We just want flexibility in the system, and we have campaigned long to deliver it. The Government have slowly begun to move in that direction. There was a minor concession in the last Budget, but, typically of the Chancellor, it was grudging and complicated, and it seems people have to be Plymouth Brethren, or something like that, to benefit from it. When Lord Fowler said in the other place yesterday that the Government were simply being stubborn, he got it absolutely right. It is time to give in on this issue.
The Government must show us that they are serious about restoring the savings culture and encouraging defined benefit schemesone of the central tenets of the Bill. This is a proposal whose time has definitely come. The logic of the Lords amendment is clear: to take the pressure off those who might be approaching the age of 75 and to allow a breathing space for the next Conservative Government to scrap the rule altogether.
Let me try to help the Minister in his negotiations with the Treasury. It might help if he at least pretended to listen to what I am sayinghe might find that helpful
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over the next few hours. If we are unsuccessful this evening in supporting the Lords in their amendment, the Conservative party would expect to table an amendment tomorrow in the Lords along the same lines but substituting the age of 80, rather than 85, and it would be our intention to press that amendment to a Division in the Lords tomorrow.
So let us have none of this nonsense about the Bill not getting through. If the Bill were to fall, it would be entirely the Government's fault for two reasons: first, their stubbornness on this issue in the face of the evidence and the patent unfairness of compulsory annuitisation at the age of 75; and, secondly, their crass incompetence and ineptitude from start to finish on the Bill, which was poorly drafted, badly argued, changed, with whole chunks taken out and put back again, and hundreds and thousands of amendments in the House and the Lords.
The Government only have themselves to blame, but now is the time to cut out the machismo and bite the bullet, make a decision on annuities and free hundreds of thousands, if not millions, of people from the obligation, without putting at risk the Bill, flawed though it is in many respects. I urge my hon. Friends to support the Lords in their amendment.
Mr. Webb : I spent a happy hour earlier this evening listening to their lordships as they debated this amendment. Given that the Government have rejected an outright abolition of the annuity rule, the Liberal Democrats also warmly welcome the Lords' attempt substantially to relax it by raising the compulsory age for annuitisation from 75 to 85. It was intriguing to compare and contrast the approaches adopted by the two Ministers: Baroness Hollis gave detailed, careful and thorough arguments, none of which stood up, but they were at least comprehensive; the Minister for Pensions simply said that privilege applied.
Even if privilege applies, we do not necessarily need to refuse to accept the Lords amendment. We can say that, although privilege applies, we will none the less accept it. In other words, if we think that it is good, we can say, "Fine. Privilege may or may not apply, but we will take it anyway." So I am afraid that the Minister has let down the House by not responding to the substance of the Lords amendment this evening. Indeed, he did not even refer to its content at all, as far as I could tell, other than by referring to privilege.
Surely the key point is that we are dealing with a different way of approaching the issue from the one we took yesterday. Yesterday, we said that annuitisation would be allowed in all circumstances except when means-tested benefits were brought into play; today we have the different approach of raising the age from 75 to 85. A different approach warrants a different response from the Minister, but we did not get one.
Life expectancy at 65 has been discussed at both ends of the Palace, but Baroness Hollis was still unclear in her response. She seemed to say that life expectancy at the age of 65 had risen by 16.3 years, but she then said that the typical 65-year-old would live to 82. The two statements do not appear to be consistent, so I am not quite sure what was going on there.
The issue is significant. If a typical 65-year-old now lives to 82 or 84, as the Turner commission figures on a different definition suggest, the key point is that, since
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the annuity age was last raised from 70 to 75, life expectancy has risen by three or four years or by perhaps as many as six or seven. I was interested to hear what the hon. Member for Eastbourne (Mr. Waterson) said. If the age became 80 instead of 85, as we are considering now, the case would be overwhelming. That would simply return us to the status quo.
I am struggling to think who passed the 1974 legislation, but the key point is that the annuitisation age was raised from 70 to 75 over a 20-year periodit was first set at 70 about 20 years previouslyto keep up with changing life expectancies. As life expectancies move on, unless we want the annuitisation rule to bite harder and harder year after year, we need to raise the age from 75 even if we accept the principle of compulsory annuitisation. It is self-evident that even to maintain the status quo of the original policy intention when the age of 75 was brought in, we must raise it at the very least to 80. The age of 85 goes further in the direction that we want, but the Government should seriously consider 80 as a gracious concession.
I intervened on the Minister and asked whether this was an issue of principle. He declined to say that it was. Indeed, it is extraordinary that Baroness Hollis is saying that we cannot possibly make the change for all sorts of reasons. For example, when people take out a pension, they know it has to be annuitised so she says that it would be wrong to change the rules at the end. That is an issue of principle. She then says that those people have had what she described as tremendously generous tax relief. Because they have all that tax relief, it would be wrong not to force them to annuitise. She gave several other examples that also appeared to be arguments of principle. However, she then said, "Ah, but next year when Adair Turner has reported, we might change our minds."
Is this an issue of principle, or is it not? Patently it is not an issue of principle. If it were, the fact that Adair Turner might come up with a recommendation next year would not change the principle. It is therefore a pragmatic issue and, given the importance that the Liberal Democrats attach to the Billunlike the Conservative Opposition we did not vote to decline to give it a Second Reading; we have supported it throughoutwe think that the Government need to recognise that it is not an issue of principle. If it were, they would not be saying that they might change their minds next year. Given that is not an issue of principle, why risk the Bill? Why not make a substantive movement in the direction of recognising that, even on a pragmatic basis, the age threshold should be raised.
Important contributions were made in their lordships' House about why the argument about tax, which is obviously important, does not hold water. I fully accept that if people have had some tax relief on the fund, the Exchequer should at some point receive a fair share of tax. I accept that principle. We have already pointed out, however, that if people defer annuitisation but start to draw down and then die, 35 per cent. will go in tax. In fact, although Baroness Hollis implied that if the fund were not touched it would be passed on tax free, Lord MacGregor pointed out that if that added to the value of an estate, a tax rate of 40 per cent. could easily apply to the many people who have houses at or above the value of the inheritance tax threshold. That is the higher rate of income tax.
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If we force people to annuitise, the best that we will get is 40 per cent., which is the higher rate of income tax, and we might get less than that. If people do not annuitise and they become liable to inheritance tax, the whole thing will be taxed at 40 per cent. The Exchequer could benefit from not requiring compulsory annuitisation. I accept that the Exchequer has the right to the tax, but it is far from obvious that, by relaxing the rule on compulsory annuitisation, it loses out at all. Therefore, why not give people a choice? What would be lost by giving people a choice? No one would lose because the Exchequer would get its share, and possibly eventually more. If people annuitised, they would get a 25 per cent. tax-free lump sum, but if they did not do so, the whole value of what was left could be liable to 40 per cent. inheritance tax, and thus the Exchequer might receive more tax.
The Government should give people freedom of choice. No one would suffer under the proposal and we are discussing only a minority of people, albeit a growing number, because more people hold direct contribution schemes and life expectancies will continue to improve. Although such people form a minority now, even minorities have the right to fair treatment, as one might say in a different context. If the proposal would mean that no one would lose and that people would get additional choices, I do not understand why the Government will not accept it.
It is regrettable that the Government are simply arguing about privilege and that they will use their force in numbers to win the vote. We are discussing a matter of substance, but the Minister has admitted that it is not an issue of principle, so the Government should be willing to offer concessions. The Minister should respond positively to a pragmatic matter relating to a Bill that I support. I shall consult my colleagues in the House of Lords on the attitude that they will take tomorrow, but I hope that the Minister will sleep on what has been said and realise that we are willing to be reasonable. If he were to offer us the serious prospect of revisiting the matter, I would be happy to talk to my noble Friends to decide how to take things forward.
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