Finance Bill

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Rob Marris: On a point of order, Mr. McWilliam. The Official Report will show that I made no direct mention of the hon. Gentleman's family. I just pointed out the generality of Victorian detective novel plots.

The Chairman: Order. That is not a point of order. If the hon. Gentleman has a conscience, that is his problem.

Mr. Osborne: I am looking forward to putting those Victorian detective novels on my summer reading list.

The point is that ASI allows the pension pot to be passed from one generation to another, although the Government are doing what they can to make that option unattractive. We disagree with that. It is worth noting that some of the people to whom I have talked since last week, having read the Committee Hansard, disagree with what the Financial Secretary says about the attractiveness of the ASI option. They think that the industry will take it up, and that many people will go for that option. We shall see.

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However, we are arguing as to whether there is some great principle that pension pots cannot pass from one generation to another. As I have said, that principle does not apply if one happens to die before the age of 75, if one is a member of the Christian Brethren or if has taken out an ASI for other reasons. The Government seem to be sticking their head in the sand and refusing to budge on the age limit of 75. In effect, they have created a creeping stealth tax because, as life expectancy increases, more people are living beyond 75. I made the point last week that a man now aged 50 has a life expectancy of about 78 years. By 2011, he will have a life expectancy of about 80. According to the Government's own figures, that age will continue to rise.

The Chairman: Order. The hon. Gentleman cheered me up with that argument last week. He does not need to do it again this week.

10 am

Mr. Osborne: I will not continue with that point.

The point about rising life expectancy is that more and more people will be caught by this invidious rule and, even when they are prepared to take a much-reduced income during their lifetime, they will be prevented from passing on their pension fund. That undermines what the Government are trying to achieve with this package of reforms.

Rob Marris: The hon. Gentleman referred to a creeping stealth tax and cited the average life expectancy of a male as 78. Will he comment on the fact that, mathematically, in the three years from 75 to 78, less income tax would be paid than would be paid under the 35 per cent. arrangement if the lump sum had not been annuitised and had been passed on to another generation? There is no creeping stealth tax: less tax would be paid.

Mr. Osborne: People would lose their entire pot after they were 75. The point is that by sticking with the age limit of 75, the Government will deter people from saving for pensions in the long term. There are people who do not take out pensions and look for alternative savings vehicles because of the 75 rule. It adds significantly to the complexity of the process.

Rob Marris: Would the hon. Gentleman care to produce some evidence that the 75 rule is putting people off saving money in pension schemes?

Mr. Osborne: Yes, I would be very happy to do that. I am surprised that in preparing for the Committee the hon. Gentleman did not read the ABI document ''Annuities: The Consumer Experience''. I am happy to lend him a copy. During our extensive correspondence, I might even give him my copy, because once we are through with this Committee I am not sure that I will need it again.

Mr. Howard Flight (Arundel and South Downs) (Con): My hon. Friend may be aware that when Canada changed the rules for the equivalent of stakeholder pensions and permitted people to choose not to buy an annuity, but to have a pension account with the investments as they wanted them, and to pass the residue on to their heirs, what had been a failure

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became a huge success. Some 70 per cent. of the population participate, unlike in this country.

Mr. Osborne: My hon. Friend, whose knowledge in such areas is unparalleled, reminds me of the Canadian experience, which is good and telling. While I was listening, I found some evidence to quote to the hon. Member for Wolverhampton, South-West. It is from the ABI's commentary on the Bill. It states that the provisions that

    ''prohibit the return of unused capital once an individual has reached the age of 75''


    ''further complexity and, as a result, consumers are likely to continue to find it difficult to identify the type of annuity which best meets their individual needs without taking advice.''

It continues:

    ''Removing even more of the complexity''—

by getting rid of the 75 requirement—

    ''will help encourage people to save more for retirement and make pensions simpler to operate for providers and employers.''

Surely the hon. Gentleman wants to see that. [Interruption.] I suspect that he is about to endorse my view.

Rob Marris: First, the quote that the hon. Gentleman read out is a mere assertion; it does not appear to be based on any survey, although there may be a survey in the document. Secondly, on the previous point, made by the hon. Member for Arundel and South Downs (Mr. Flight), under the Canadian system, with its registered retirement savings plans, which have existed for more than 30 years, there was not a 70 per cent. penetration rate. In addition, the plans are a very different vehicle: they can be cashed in at any age. I cashed mine in my 30s to fund my education.

Mr. Osborne: There is a survey on page 33 of the ABI document. The hon. Gentleman says that the quote is just an assertion, but it is an assertion by the ABI, which has some experience of providing pensions and knows what it is talking about.

The hon. Gentleman is wasted as a Government Back Bencher. He would be brilliant in opposition: most of an Opposition Member's job involves standing up and talking for a long time. One of the great tragedies of life is that almost by definition he will lose his seat if the Labour party goes into opposition.

The point is that the age limit of 75, which prevents people from passing on their pension pot after their death, adds to the complexity of the pension process, deters people from saving, and is inconsistent with the Government's concept of flexible retirement, because it provides a cut-off point and, elsewhere in the Bill, requires people to retire at 75. It is, as I said, ageist. I can see that the Financial Secretary, having listened to my arguments, is convinced.

Ruth Kelly: This is the second day of debate on the radical tax simplification proposals. I feel that several times already we have re-run this debate on whether pension incomes should be secured at age 75, or a pension vehicle should be used more widely as an

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inheritance tax vehicle with all the risks that that would bring with it.

The amendments seek to raise from 75 to 80 the age at which lump sum benefits can be paid. Having heard the guidance that you offered, Mr. McWilliam, I do not intend to re-run the debate about whether 75 or 80 is the appropriate age at which income should be secured. We had a long enough debate on that during previous sittings. I will say that the amendments wear the clothes of seeking to increase freedom and choice for all. In fact, what they seek to do is ensure that people with very large pension funds are able to build up even greater funds and transform their personal pension schemes into a tax-efficient way of passing capital down through the generations and, if they are fortunate enough to live to the age of 80, of retaining the opportunity to take pension benefits.

The hon. Gentleman talks about the attractiveness that the amendment would lead to and creates the impression that there would be far more pension saving if we were to push back the age limit to 80. There is almost no evidence that that would be the case. Changing the age at which pension income should be secured is not the most pressing issue in pensions reform. Most people buy an annuity directly on retirement. Even those who choose to defer purchase their annuity well before the age of 75.

Mr. Osborne: The Financial Secretary talked about the age at which pension needs to be secured. I am talking about the ability to pass lump sums on after death. This is not a re-run of the debate that we had last week. Passing on lump sums is extremely popular. I suggest that, if she has not done so, the hon. Lady reads the ABI report, as it suggests that a large number of people—47 per cent.—are interested in the issue.

Ruth Kelly: I have read that consultation document. The ABI points out that, of those who retired in the last two to three years and purchased an annuity, 95 per cent. did so before the age of 70, so the age ceiling of 75 is clearly not an obstacle for the vast majority of pensioners.

The industry may think that there is an opportunity to sell value-protected annuities. I do not dispute that the industry has said that that would be a welcome addition to its portfolio. The hon. Gentleman sought to anticipate the debating points that I intend to make, but he did so without seeing the merit in those arguments.

Mr. Flight: The Financial Secretary may recollect from previous debates on the matter that there is at least one annuity contract, if not two, offered by insurance companies based in Gibraltar that are expensive but include a facility to pass on lump sums. Those are affordable only by those with larger pensions. The Inland Revenue approves them. Does not she think it unjust that, by paying for such a facility, those with large pension savings can achieve such arrangements, but the many with smaller savings cannot, because it would be too expensive?

Ruth Kelly: The hon. Gentleman's proposals are intended to benefit those with large pension pots. We are debating whether the age of 75 is the right cut-off

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point to secure income. I do not accept the arguments for return of capital after 75.

As the hon. Member for Tatton has sought to anticipate my argument, I repeat that pension saving is designed to provide an income in retirement to the member, which on death may continue to be paid to any survivors. It is not a route for conserving or preserving capital, regardless of whether it is properly taxed.

The hon. Gentleman may ask why we allow the passing on of capital before 75 while a person is in income draw-down. We want to ensure that pensions remain a vehicle for securing an income in retirement in later years, but we recognise that those taking their benefits using income draw-down bear mortality and investment risk. For that reason the rules allow that, when a member dies before 75 having taken benefits but without having secured income, any undrawn funds in the pension fund may be repaid as a capital sum, subject as now to tax at 35 per cent.

The hon. Member for Arundel and South Downs draws attention to what I believe is called an open annuity in Gibraltar. I am sorry to disappoint him, but that option will not be available under the new pension tax regime. We operate a principle-based system here. We want people to secure income at the age of 75, and we have based our reforms on maximum simplicity and flexibility for the vast majority of pensioners, but it remains a principle-based system.

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