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Sir Malcolm Rifkind: Yes, I do not see why that should not be possible, and I hope it would indeed be available. I agree with my hon. Friend's broader point: we are all on a learning curve. Conservative Members and, I freely accept, the Government are trying to find ways to re-establish the savings habit, which has declined dramatically. The stakeholder has not proved successful, for reasons which with we are all familiar. The TUC, if not the Government, has acknowledged that. This proposal tries to build on the success of individual savings accounts and to learn the proper lessons from that.

Mr. Laws: I am grateful to the right hon. and learned Gentleman for giving way again. Given that his priority is flexibility for people in relation to their savings, how did he decide on the conditions set down in clause 5(6), which would determine the basis on which people could draw down amounts before pension age? Why did he decide on those particular items, rather than giving even greater flexibility?

Sir Malcolm Rifkind: The reason is quite straightforward: the primary purpose of the SaRA is to encourage long-term saving, not people withdrawing at an earlier stage. However, we recognise that many people, especially younger people, do not want to go for savings that will be locked in—for 40 years, in some cases.

Telling those people that they could use the funds they are saving now only when they retire at 65 or whatever age means that they simply would not save in that way. Therefore we acknowledge, as the Canadian scheme does, that many people—especially those in their 20s and 30s—would be willing to put their savings in a retirement product if they knew that, perhaps only temporarily, they could withdraw some of their savings to contribute to the deposit on a house or something of that kind.

The system would be properly controlled and could not be exploited because there would be no tax relief available, and therefore no benefit, for those who withdrew funds permanently. The scheme would be limited to house purchase or lifelong learning, which we believe is the proper approach, although it could be expanded, if that was what the House wished. That is an important point.

Mr. Geoffrey Clifton-Brown (Cotswold) (Con): On the subject of controls, nothing does long-term pension
 
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schemes of whatever sort—my right hon. and learned Friend is proposing an excellent one this morning—more harm than the thought that they might end up in the liquidation courts. His scheme would not require any trustees. Will he say something about the control and regulation of his scheme and ensuring that it became a viable long-term product?

Sir Malcolm Rifkind: Even stakeholders do not require trustees. Indeed, such stakeholder products as have been taken up are done in the main on contract rather than through the trustee system. The option is there, and it would be for people to decide which was more important to them, although the pensions regulator and the Financial Services Authority would be involved. There would be the normal safeguards that are available both on the investment side and on the pensions side. That is important, because I fully recognise that a pension product requires higher security than a normal investment product, as people's whole retirement income might depend on it.

Mr. Pat McFadden (Wolverhampton, South-East) (Lab): The right hon. and learned Gentleman has spoken about the product in relation to house purchase and being an alternative to stakeholder pensions. On the issue of risk, does he accept that there are reasons for having safeguards in those areas, given what has happened in the past? For example, people have been exposed to endowment mortgages that carried risks that they were not aware of at the time. On pensions products, people have found themselves in situations that they did not expect to be in after paying into a scheme for years. Will he tell the House more about the balance between risk and people's freedom to invest their own money as they wish? This is an important area and safeguards are needed.

Sir Malcolm Rifkind: The hon. Gentleman raises perfectly legitimate concerns. The important point to dwell on is the recognition that this is not some theory that has suddenly been thought up in the last few weeks. The system already works extremely well in Canada, and has done so for a good number of years. In addition, we are talking about withdrawal to fund a deposit for a first-time buyer's home, not some dramatic new reason to spend the money. If people cannot do that through money that has been put in a savings account, they will not save that money in that form in the first place. They will simply use other forms of saving and the whole retirement objective will not be assisted.

If someone wanted to continue to get the tax benefits, they would have to repay in later years the sum they borrowed from the SaRA. If they failed to repay, although they would not be legally obliged to do it, they would lose the tax benefits and would therefore be using their own money in a way that they had themselves chosen. So the incentive to put the money back would remain if they wished to get the full tax benefit. That is what one assumes most people would do as their income increased during their working life.

May I now discuss part 2? This principally covers reform of the current compulsion to purchase an annuity no later than the age of 75. This is a
 
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controversial matter, but the House should be aware that the obligation to purchase an annuity no later than the age of 75—I emphasise this—does not exist in any other western country. I am aware of no country in the western world, or anywhere else for that matter, that imposes such an obligation. So the Government, although they have always resisted change, cannot say that that obligation simply conforms with normal practice.

The Government's insistence on retaining the obligation has become less and less credible: for many people, an annuity might indeed be the best means of providing for their retirement income; for many others, it has become less and less attractive in recent years. That issue has been debated in the House and when private Members' Bills have been introduced by my colleagues on the Conservative Benches.

We have listened to the Government. They have raised the concern that proposals in previous Bills would have required as part of the solution everyone—not just those who do not take an annuity—to take out an index-linked annuity at 65 to the extent required to ensure that they did not become unnecessarily dependent on state benefits.

We understand the Government's concern, so that proposal is not repeated in this Bill, which does not propose any such obligation, or indeed any new obligation. It would put no new burdens on the large majority of people who currently choose to purchase an annuity when they retire. However, it would offer them an alternative and give similar freedom to those who reach 75 without having purchased an annuity.

I am proposing an alternative way of using a pension fund on retirement and a way to control the investments and income derived from it. In some circumstances, that new alternative could be more attractive to an individual than the purchase of an annuity. It could also benefit everyone—not just the well off, who have traditionally been considered the only beneficiaries of the removal of the compulsory purchase of an annuity.

The alternative that I propose is a retirement income fund—the fact that the acronym is RIF is a pure coincidence, and no one should draw any conclusions from that. Again, it is based on a Canadian alternative to annuity purchase: registered retirement income funds. They were first introduced in 1985 in Canada, so they have been in force for 20 years—long enough to judge whether they have provided income satisfactorily for the individual's life in retirement. In the 20 years in which this option, which I propose for this country, has been available in Canada, it has proved highly successful and very popular.

Retirement income funds are the most widely held retirement income vehicle for pension savings in Canada, and they continue to grow in popularity each year as more people retire with defined contribution pension schemes. For the last tax year in Canada, out of just over 3 million citizens above retirement age, no less than 1.4 million—almost half—received income from a retirement income fund of the kind that I am proposing today. With the move away from defined benefit schemes to defined contribution schemes, compulsory annuitisation will affect more and more people, and the proposed retirement income fund allows for greater flexibility and potentially a more affluent retirement for everyone.
 
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As with the Canadian system, under the new system at retirement, individuals would be able to choose whether to convert their pension saving into an annuity or a retirement income fund. At age 75, people will need either to convert their pension funds into an annuity, or into an alternatively secured pension, which the Government introduced some years ago, or to place their funds into a RIF, to ensure that each individual has a ready income for their old age. If the individual remains in employment beyond 75, however, or if he has sufficient income to be above the minimum retirement income level, he would be under no requirements to withdraw income from his RIF. The funds could be self-administered—the individual could select, along with the trustees of the fund, what investments could be made or managed by the insurance or trust company. The advantage of such a fund is that unlike an annuity, the fund can continue to be invested in equities, mutual funds, banks deposits and bonds. It would be possible to change RIF providers or to have more than one RIF in order to diversify the portfolio and the risk.

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