The
Chairman: Before I call the Financial Secretary to reply
to the debate, I want to tell hon. Members that, although I am not sure
what catering facilities are available, we have arranged, with the
assistance of the Clerks, for the Tea Room to remain open to serve hot
meals for the next 45 minutes. Thereafter, it will remain open to serve
tea, coffee, cakes and biscuits until we finish. If we finish very
late, they will also produce bacon butties, affectionately known as
bacon sandwiches.
Hon. Members
can see what is happening in the House: the monitors have gone off and
the House is coming to a grinding halt, with the exception of the
Committee, which will continue to sit. I am inclined to suggest, if the
Committee is not unhappy, that we should suspend for 45 minutes. I am
prepared to drop a quarter of an hour off what would otherwise have
been a more leisurely meal—I had also wanted to see whether I
have had any telephone calls in these past hours—and suggest
that we return at 8 o’clock, when the Minister will reply to the
debate. 7.13
pm Sitting
suspended. 8
pm On
resuming—
The
Chairman: I think all of us feel a wee bit better
and more refreshed, and I hope that within the hour we will be able to
wrap up the Committee, and perhaps at the end, quietly and discreetly,
we can say nice things about each other.
Mr.
Hammond: Including the
Chairman?
The
Chairman: Including the Chairman. That is by the
by.
The
Economic Secretary to the Treasury (Kitty Ussher): Picking
up from where we left off, I would like to place on record my thanks to
the hon. Gentleman who speaks for the Opposition for the thoughtful way
in which he outlined the issues. However, I urge hon. Members to resist
the new clause for a simple reason. I do not know whether the hon.
Gentleman is aware of this, but today HMRC published two papers and a
consultation document that will spawn an official consultation process
with the Government—meetings, workshops and so on—to look
at a number of issues in that area. That is the right way to make good
policy, rather than the independent report that is proposed, and I
encourage all hon. Members to resist the new
clause.
Mr.
Hammond: I know that conspiracy theories abound in the
Treasury. There are two possibilities—either people have looked
at my new clause and decided to try to trump it, or we have a mole
buried deep in the network of HMRC. Which does the Economic Secretary
find more credible?
Kitty
Ussher: On a point of order, I did not give way to the
hon. Gentleman, I sat down because I had finished. I presume that those
were his closing remarks.
Mr.
Hammond: In that case, I am grateful to the Economic
Secretary for her words. I must be honest—I have not seen the
publication of those documents today, for reasons that will become
apparent. One or two people will be getting a call from me in the
morning to find out why I have not seen them. I am intrigued and
perhaps it would be helpful if we had been given a little more
information. From what she said, I take it that the papers published
today cover precisely the area that is the subject of the new clause.
If that is the case, I am pleased to see that the Government are
thinking along the same lines as us—we know that that happens
from time to time in the Treasury. I hope that she is doing it for the
reasons that I outlined, and as an attempt to explore the possibility
of creating a valuable new policy tool, which could be used in a much
more flexible way than the PAYE system currently allows.
Had I known
before, perhaps through an intervention, I might have curtailed my
remarks. However, in light of what the Economic Secretary has said, I
am delighted that she is proceeding in that direction and I beg to ask
leave to withdraw the motion.
Motion and
clause, by leave, withdrawn.
New Clause
19Retirement
Income Fund ‘(1) The Finance
Act 2004 is amended as
follows. (2) In section 164 at
end add “and (g)
payments into a Retirement Income
Fund.”. (3) In section
165 there is inserted in Pension rule 6 after paragraph (c)
“or (d) a withdrawal
from a Retirement Income
Fund.”. “Pension
rule 8 Before a member makes a
withdrawal from a Retirement Income Fund, he must buy a relevant linked
annuity which is linked to the retail prices index, which pays an
income equivalent to the Minimum Income
Requirement.”.
(5) In Schedule 28 after paragraph 16C there is
inserted— “Retirement
Income Fund 16D (1) Subject
to sub-paragraphs (2) and (3) of this paragraph, a Retirement Income
Fund is a vehicle for the reinvestment of savings in retirement,
which— (a) has been
established by a person designated by subsection (1) of section 154;
and (b) is a vehicle the
investments in which
are— (i) investments of
a kind described in the Insurance Companies Regulations 1994, Schedule
X, Part 1, or (ii) approved by
HM Revenue and
Customs. (2)
Funds held in the Retirement Income Fund as referred to in
sub-paragraph (1) may be withdrawn from the Retirement Income Fund by
the member as and when he
elects. (3) A member may not
invest in a Retirement Income Fund unless the requirements of Rule 8 of
section 165 have been met. (4)
A Retirement Income Fund, and any income derived from it, must not be
capable of assignment or surrender by the
member. (5) Any withdrawal from
the Fund by the member under sub-paragraph (2) shall be assessable to
tax under Schedule E (and section 203 shall apply accordingly) and
shall be treated as earned income of the
member. Minimum Retirement
Income 16E (1) The amount
of Minimum Retirement Income shall be set for each financial year
following consultation by the Chancellor of the Exchequer by
order. (2) An order under this
paragraph shall, in respect of each financial year after that in which
this section comes into force, be made on or before 31st January
preceding the year in
question. (3) An order under
this paragraph shall be made by statutory instrument and shall be
subject to annulment in pursuance of a resolution of either House of
Parliament.”’.—[Mr.
Hoban.] Brought
up, and read the First
time. Mr.
Hoban: I beg to move, That the clause be read a
Second
time.
The
Chairman: With this it will be convenient to discuss new
clause 20— Dependant’s retirement income
fund ‘(1) The Finance Act 2004
is amended as follows. (2) In
Schedule 28 after paragraph 22
insert— “Dependant’s
retirement income fund 22A
(1) Subject to sub-paragraphs (2) and (3) of this paragraph, a
dependant’s retirement income fund is a vehicle for the
reinvestment of savings in retirement
which— (a) has been
established by a person designated by subsection (1) of section 154;
and (b) is a vehicle the
investments in which
are— (i) investments of
a kind described in the Insurance Companies Regulations 1994, Schedule
X, Part 1, or (ii) approved by
HM Revenue and Customs. (2)
Funds held in the retirement income fund as referred to in
sub-paragraph (1) may be withdrawn from the retirement income fund by
the members as and when he
elects. (3) A dependant may not
invest in a dependant’s retirement income funds unless the
requirements of Rule 8 of section 165 have been
met. (4) A retirement income
fund, and any income derived from it, must not be capable of assignment
or surrender by the member. (5)
Any withdrawal from the fund by the member under sub-paragraph (2)
shall be assessable to tax under Schedule E (and section 203 shall
apply accordingly) and shall be treated as earned income of the
member.”.’.
Mr.
Hoban: Briefly, the new clause inserts into the
Finance Act 2004 the possibility for people to set up a retirement
income fund. New clause 20 covers the possibility of setting up a
dependant’s retirement income fund. My right hon. and learned
Friend the Member for Kensington and Chelsea (Sir Malcolm Rifkind) took
the opportunity of a private Member’s Bill earlier this Session
to float these issues. It is a concept that is available in Canada,
where it works very effectively. The issue the two new clauses are
trying to address is the ongoing debate about the appropriate use of
pension funds on retirement. Someone who retires with a defined
contribution scheme can defer buying an annuity until the age of 75 and
draw down income from that pension fund to that point.
In the Finance
Act 2004 the Government saw fit to introduce the concept of
alternatively secured pensions, mainly to address the theological
objections of the Christian Brethren to annuities. Although that
measure was aimed at their particular needs, it had broad appeal to a
large number of people who felt that they wanted the choice as to what
to do with their fund at the age of 75. The debate has continued. The
issue was addressed on Report during the passage of the Finance Bill
last year and the House of Lords also considered it in some detail. My
sense is that there is growing consensus around providing more choice
for people retiring with a defined contribution scheme.
Baroness
Hollis, a former Minister in the Department for Work and Pensions,
argued in favour of relaxing the rules around compulsory annuitisation.
The only people who seem to be outside this debate are the Treasury.
There is a lot of support for the end of compulsory annuitisation, but
to get to that point some technical issues need to be addressed. The
debate is becoming more pressing. Lord Turner, who has chaired the
Government’s Pension Commission and is now the chairman
designate of the Financial Services Authority, highlighted the need to
reduce some of the pressures on the annuity market in his report on
pensions. He suggested that the end to compulsory annuitisation might
be a way of reducing that pressure.
As the pension
landscape changes, more and more people are retiring with a defined
contribution scheme. They then have to make some choices about where
they invest that fund. The more funds there are in defined contribution
schemes, the more demand there is for annuities. We need to find ways
to address the impact that that will have on the price of annuities and
the returns that they offer in the market. If we are to allow people to
opt out of compulsory annuitisation at 75 we need to ensure that they
do not squander their pension pot, spend it and then become dependent
on the state for the rest of their income in retirement. There have
been various ways of trying to deal with that.
The retirement
income fund is one way of tackling that issue. In effect it sets a
minimum income that people have to enjoy from a retirement income fund
so that the state knows that they are taking responsibility for their
own income and to ensure that they do not fall back on means-tested
benefits. New clauses 19 and 20 try to address
that—[Interruption.] I am sure that this is more gripping
than the football result, although I am not entirely convinced given
the reaction of Labour Members to that information.
Under the new
clause, the minimum retirement income level would be set by the
Chancellor of the Exchequer annually, by order. Having a Government-set
de minimis limit is the right way to proceed. The concept of
annuitisation would not be totally abandoned because people would need
to buy annuities that are linked to the retail prices index and that
would pay an income equivalent to the minimum income requirement.
Annuities would not be dead under the measure; they would still be
needed to provide the minimum income level, which would be set by the
Chancellor. That would partly relieve the burden on the annuities
market. There
has been some debate about whether the returns that could be earned
from such a system would be sufficient, and whether people would be
sacrificing some return by opting for what is seen as a potentially
more volatile set of assets, moving away from annuities to investment
in mutual funds, stocks and shares. The Investment Management
Association has made a significant contribution to the debate with some
research that it published earlier this year, which indicated that the
return from investing in securities and mutual funds could generate an
income in excess of that provided by a conventional annuity. There is
some merit, in terms of providing income for pensioners, in going down
that route and enabling them to have choice in retirement about where
they invest income and how they buy an income source for retirement.
The IMA’s work has helped to give more weight to the argument
against compulsory annuitisation.
The Government
always use the same argument on the issue. It was used in our earlier
debates on the pensions clauses and was used frequently by the previous
Economic Secretary, now the Secretary of State for Children, Schools
and Families. However, it was not a concern for his predecessor, the
current Secretary of State for Transport, who introduced the
alternatively secured pension scheme in the Finance Act 2005. The
concern is that people will use tax-incentivised savings as a vehicle
to provide inheritance for their
children. Emily
Thornberry (Islington, South and Finsbury) (Lab): On the
subject of children, is the hon. Gentleman aware that my son broke his
arm last night and has just had his last GCSE in economics? I would
very much like to go home and see him.
Mr.
Hoban: I hope that the hon. Lady’s
son—
The
Chairman: Order. I hope that the Opposition spokesman will
express sympathy but not devote too much time to it. We are very sorry
and we hope that the hon. Lady’s son recovers, but that is not
strictly relevant to the new
clause.
Mr.
Hoban: Indeed, Sir Nicholas. I join you in expressing
sympathy to the hon. Lady’s son. I hope that his economics GCSE
will enable him to participate
in—
Mr.
Hammond: As my hon. Friend has expressed sympathy to the
hon. Lady’s son, which I am sure we all share, perhaps he will
place on the record the Committee’s good wishes to my hon.
Friend the Member for Braintree’s
son, who had emergency surgery on Tuesday night. My hon. Friend has none
the less been able to attend the Committee
today.
Mr.
Hoban: I know that all hon. Members will agree, with
sympathy, with my hon. Friend. We are all making sacrifices to serve on
the Committee this evening.
Perhaps the
hon. Lady’s son will be able to participate in future debates
about the impact of high and punitive taxation on people’s
choices in retirement. I was getting to that point before she
intervened.
There is a
punitive tax charge on people who opt out of buying
annuitisation—it works out at about 82 per cent.—which
acts as a disincentive for people to go down the route of alternatives
to annuities. Although I understand the Government’s position on
the matter, there may be better ways of dealing with people’s
opting out of buying annuitisation than simply penalising them. I do
not think that the Government’s measure goes with the grain of
how people want to run their lives. People want more choice. Indeed,
they are being forced to take on board more choice by the move away
from defined benefit schemes and defined contribution schemes. It is
time that the options for people in retirement reflected the fact that
people want control and want to maximise their income in a way that
meets their needs and ensures that those things are balanced, at the
same time, with the obligations towards the Exchequer and that, in
making their own choices about retirement, people do not end up
becoming dependent on the
state. 8.15
pm
| 
