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Lord Goodhart: My Lords, when this matter was raised in Committee I said that I could not support the amendment moved by the noble Lord, Lord Higgins. The situation has not changed since then. We feel that the tax relief that is given on contributions to pension funds is given for a specific purpose; namely, to provide for pensions income at retirement age when people give up their business or profession. We do not feel that this is an appropriate vehicle to use simply to build up a fund which can then be passed down in a tax efficient way to future generations. There are other tax favourable methods of saving such as ISAs. We think,

27 Jun 2000 : Column 808

therefore, that to allow pension funds to be held free from any obligation at any point in time to buy an annuity is inappropriate and defeats the purpose for which the relief is granted.

We recognise the desirability of drawdown schemes in deferring the date at which an annuity is drawn. I should confess that I have a drawdown arrangement myself. However, that is an entirely different matter. We are unable to support the amendment.

Baroness Hollis of Heigham: My Lords, as we have heard, this amendment seeks to remove the current requirement for tax-approved defined contribution pension funds to be used to purchase an annuity by the time the member reaches the age of 75. We debated this issue in Committee.

As I tried to suggest, pension annuities are the only product available that converts a capital sum in a pension fund into a guaranteed income for the remainder of the annuitant's life. That guarantee is paramount to the financial security of pensioners.

There is already some flexibility to defer annuity purchase by using the income drawdown facility, as the noble Lord, Lord Goodhart, said. However, it carries the risk of high administrative charges and a reduced capital fund if investments do not perform well. All the advice from the industry is that it should be taken up only by people with substantial funds; for example, a fund of at least £200,000. In practice, the majority of people are best advised to convert their pension fund to an annuity as soon as they retire because their funds are of more modest size.

We believe that requiring that an annuity be purchased by age 75 strikes a fair balance between flexibility over the timing of buying an annuity, while guarding against the risk that the fund becomes seriously depleted when someone may need to return to income related benefits.

Noble Lords will appreciate that tax-approved pension funds attract generous tax relief as an encouragement for people to save for their retirement. It is right that such pension savings should be used to provide a regular income throughout retirement. As the noble Lord, Lord Goodhart, has rightly said, other vehicles such as ISAs, which attract tax relief, are available to those wishing to save for other purposes, such as to provide an inheritance for their children.

I know that there has been sustained criticism that annuities do not provide value for money because the rates today do not compare favourably with the rates which were offered a decade ago. I believe that the noble Lord, Lord Higgins, made that point tonight.

However, as I have said before, I do not think that a simple comparison of annuity rates tells the whole story. Many people have benefited from substantial investment growth since annuity rates peaked and are now retiring onto considerably higher pensions in real terms than their predecessors who retired in the 1980s. For example, in 1990 someone on average earnings--and, given certain assumptions, producing a pension pot of £31,000--would have an income of £92 a week, or £119 in today's prices. In 1998, although annuity

27 Jun 2000 : Column 809

rates had fallen from 15 per cent to 9 per cent, that fund would not have been £31,000 but £97,000. The income would have been £175 a week, with inflation of only two per cent, compared with the £119 a week of the person retiring in 1990.

Annuity rates have fallen by a third or a half, according to the timescale one follows. As I say, annuity rates have fallen from 15 per cent in 1990 to 9 per cent in 1998 on a pot that has trebled in value to face inflation that is a sixth of what it was. That therefore generates a 50 per cent increase in income in real terms compared with what someone would have got in 1990 with those same three variables in play. Too often people want high annuity rates, high capital growth and low inflation all at the same time. That, of course, is not reasonable.

There is already flexibility and a reasonable degree of choice for those with pension savings. There are a number of annuity products on offer which cater for different needs. Because the pension annuity business is an expanding market, new products are being launched to offer even greater choice to purchasers. In recent weeks, two new investment-linked products have been launched. I believe that something like 10 companies now provide investment-linked annuity products which obviously track, follow or are related to growth in the markets.

It is clear from recent developments that the pension industry can and does innovate to provide greater flexibility for annuitants. There has been a noticeable increase in the number of companies offering investment-linked annuity products, giving greater choice for people to shop around for competitive annuity rates and the products that meet their needs.

It is worth reminding noble Lords that the Government keep the current arrangements under review, but we need to be absolutely sure that if a change were to be made it would represent a definite improvement over the present position.

I should also re-emphasise that the annuity purchase rules are laid down in the Income and Corporation Taxes Act 1988. Amendments to that legislation do not come within the scope of the Bill, so the proposed new clause would not have the intended effect. I hope that in the light of what I have said and what the noble Lord, Lord Goodhart, said, the noble Lord will feel able to withdraw his amendment.

Lord Higgins: My Lords, I thank the Minister for that thoughtful reply. The problem is the inflexibility of the arrangement as far as individuals are concerned. It may well be that they feel able to defer drawing their pension; that they prefer to see it accumulate in the way described by the noble Baroness and to draw a larger pension at a later date. It is true, of course, as the noble Baroness said, that the insurance industry, to some extent, has begun very recently--perhaps belatedly--to produce products related to the stock market rather than to the gilt market. None the less, this is a comparatively late development.

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As we have seen in the past, some of the problems arise from disappointed expectations. It is perhaps true that, given the general history of these matters, people expected to see their funds grow at a reasonable rate and faster than inflation, but none the less based their expectations on the annuity rates which had prevailed for a considerable time. One can recall a period not so long ago--perhaps two-and-a-half to three years ago--where the lack of flexibility forced people who had reached 75 but who had not previously drawn their pension to do so at a moment when the stock market was in a very bad way.

This proves something which I still find surprising--namely, that the Government intend in their general pensions policy to forecast what pension people are likely to receive. The reality is that there are very wide fluctuations in the markets. A degree of flexibility is something from which people would benefit, rather than being forced at a specific date--provided they have not taken a pension previously--to invest in an annuity.

The Minister has made a number of interesting points. I do not find them wholly convincing and I shall seek the opinion of the House.

5.34 p.m.

On Question, Whether the said amendment (No. 97) shall be agreed to?

Their Lordships divided: Contents, 129; Not-Contents, 186.

Division No. 2


Alexander of Weedon, L.
Allenby of Megiddo, V.
Anelay of St Johns, B.
Astor, V.
Astor of Hever, L.
Attlee, E.
Belstead, L.
Biffen, L.
Blackwell, L.
Blaker, L.
Blatch, B.
Boardman, L.
Brabazon of Tara, L.
Bridgeman, V.
Brougham and Vaux, L.
Burnham, L. [Teller]
Buscombe, B.
Butterworth, L.
Byford, B.
Caithness, E.
Campbell of Alloway, L.
Campbell of Croy, L.
Carlisle of Bucklow, L.
Carnegy of Lour, B.
Chadlington, L.
Clark of Kempston, L.
Coe, L.
Colwyn, L.
Cope of Berkeley, L.
Courtown, E.
Cowdrey of Tonbridge, L.
Craig of Radley, L.
Craigavon, V.
Cranborne, V.
Crathorne, L.
Crickhowell, L.
Cuckney, L.
Dean of Harptree, L.
Dundee, E.
Eames, L.
Eccles of Moulton, B.
Eden of Winton, L.
Elliott of Morpeth, L.
Elton, L.
Feldman, L.
Fookes, B.
Forsyth of Drumlean, L.
Glentoran, L.
Goschen, V.
Gray of Contin, L.
Hanham, B.
Hayhoe, L.
Henley, L. [Teller]
Higgins, L.
Howe, E.
Howell of Guildford, L.
Hylton, L.
James of Holland Park, B.
Jenkin of Roding, L.
Jopling, L.
Kelvedon, L.
Kimball, L.
Kingsland, L.
Laird, L.
Lamont of Lerwick, L.
Lincoln, Bp.
Liverpool, E.
Luke, L.
Lyell, L.
McConnell, L.
Mancroft, L.
Marlesford, L.
Marsh, L.
Masham of Ilton, B.
Miller of Hendon, B.
Molyneaux of Killead, L.
Monro of Langholm, L.
Monson, L.
Montagu of Beaulieu, L.
Mowbray and Stourton, L.
Moynihan, L.
Murton of Lindisfarne, L.
Naseby, L.
Northbrook, L.
Northesk, E.
Norton of Louth, L.
Onslow, E.
Onslow of Woking, L.
Oppenheim-Barnes, B.
Palmer, L.
Park of Monmouth, B.
Peyton of Yeovil, L.
Pilkington of Oxenford, L.
Platt of Writtle, B.
Plummer of St. Marylebone, L.
Rawlings, B.
Reay, L.
Rees, L.
Renfrew of Kaimsthorn, L.
Renton, L.
Roberts of Conwy, L.
Ryder of Wensum, L.
Saatchi, L.
Saltoun of Abernethy, Ly.
Seccombe, B.
Selborne, E.
Selsdon, L.
Sharples, B.
Shaw of Northstead, L.
Shrewsbury, E.
Skelmersdale, L.
Stewartby, L.
Stodart of Leaston, L.
Strathclyde, L.
Swinfen, L.
Taylor of Warwick, L.
Tebbit, L.
Thatcher, B.
Thomas of Gwydir, L.
Trefgarne, L.
Vivian, L.
Waddington, L.
Wakeham, L.
Weatherill, L.
Wilcox, B.
Willoughby de Broke, L.
Windlesham, L.
Wolfson, L.
Young, B.


Acton, L.
Addington, L.
Ahmed, L.
Alli, L.
Alton of Liverpool, L.
Amos, B.
Andrews, B.
Archer of Sandwell, L.
Ashley of Stoke, L.
Ashton of Upholland, B.
Avebury, L.
Bach, L.
Bassam of Brighton, L.
Beaumont of Whitley, L.
Berkeley, L.
Billingham, B.
Blackburn, Bp.
Blackstone, B.
Blease, L.
Borrie, L.
Bradshaw, L.
Bragg, L.
Brennan, L.
Brooke of Alverthorpe, L.
Brooks of Tremorfa, L.
Burlison, L.
Carlile of Berriew, L.
Carter, L. [Teller]
Chandos, V.
Christopher, L.
Clarke of Hampstead, L.
Cledwyn of Penrhos, L.
Clement-Jones, L.
Cocks of Hartcliffe, L.
Crawley, B.
Currie of Marylebone, L.
Dahrendorf, L.
David, B.
Davies of Coity, L.
Davies of Oldham, L.
Dean of Thornton-le-Fylde, B.
Desai, L.
Dholakia, L.
Diamond, L.
Donoughue, L.
Dormand of Easington, L.
Dubs, L.
Eatwell, L.
Elder, L.
Evans of Parkside, L.
Evans of Watford, L.
Ezra, L.
Falconer of Thoroton, L.
Falkland, V.
Farrington of Ribbleton, B.
Faulkner of Worcester, L.
Filkin, L.
Fyfe of Fairfield, L.
Gale, B.
Gavron, L.
Geraint, L.
Gibson of Market Rasen, B.
Goldsmith, L.
Goodhart, L.
Gordon of Strathblane, L.
Goudie, B.
Gould of Potternewton, B.
Graham of Edmonton, L.
Greaves, L.
Grenfell, L.
Hamwee, B.
Hardy of Wath, L.
Harris of Greenwich, L.
Harris of Richmond, B.
Harrison, L.
Haskel, L.
Hayman, B.
Hilton of Eggardon, B.
Hogg of Cumbernauld, L.
Hollis of Heigham, B.
Hooson, L.
Howells of St. Davids, B.
Howie of Troon, L.
Hoyle, L.
Hughes of Woodside, L.
Hunt of Chesterton, L.
Hunt of Kings Heath, L.
Irvine of Lairg, L. (Lord Chancellor)
Islwyn, L.
Jacobs, L.
Janner of Braunstone, L.
Jay of Paddington, B. (Lord Privy Seal)
Jenkins of Putney, L.
Kennedy of The Shaws, B.
King of West Bromwich, L.
Layard, L.
Lea of Crondall, L.
Lester of Herne Hill, L.
Linklater of Butterstone, B.
Lipsey, L.
Lockwood, B.
Lofthouse of Pontefract, L.
Lovell-Davis, L.
Ludford, B.
Macdonald of Tradeston, L.
McIntosh of Haringey, L. [Teller]
MacKenzie of Culkein, L.
Mackenzie of Framwellgate, L.
Mackie of Benshie, L.
McNally, L.
Maddock, B.
Mallalieu, B.
Mar and Kellie, E.
Mason of Barnsley, L.
Massey of Darwen, B.
Merlyn-Rees, L.
Methuen, L.
Miller of Chilthorne Domer, B.
Mitchell, L.
Molloy, L.
Morris of Castle Morris, L.
Morris of Manchester, L.
Newby, L.
Nicholson of Winterbourne, B.
Nicol, B.
Northover, B.
Orme, L.
Parekh, L.
Patel of Blackburn, L.
Patel, L.
Perry of Walton, L.
Peston, L.
Phillips of Sudbury, L.
Pitkeathley, B.
Plant of Highfield, L.
Prys-Davies, L.
Ramsay of Cartvale, B.
Randall of St. Budeaux, L.
Razzall, L.
Rea, L.
Redesdale, L.
Rendell of Babergh, B.
Rodgers of Quarry Bank, L.
Russell, E.
Sainsbury of Turville, L.
Sawyer, L.
Scott of Needham Market, B.
Serota, B.
Sewel, L.
Sharman, L.
Sharp of Guildford, B.
Sheppard of Liverpool, L.
Shore of Stepney, L.
Shutt of Greetland, L.
Simon, V.
Smith of Clifton, L.
Smith of Leigh, L.
Stoddart of Swindon, L.
Stone of Blackheath, L.
Strabolgi, L.
Symons of Vernham Dean, B.
Taverne, L.
Taylor of Blackburn, L.
Taylor of Gryfe, L.
Thomas of Walliswood, B.
Thomson of Monifieth, L.
Thornton, B.
Tomlinson, L.
Tordoff, L.
Uddin, B.
Varley, L.
Walker of Doncaster, L.
Wallace of Saltaire, L.
Walmsley, B.
Warner, L.
Warwick of Undercliffe, B.
Watson of Richmond, L.
Wedderburn of Charlton, L.
Whitaker, B.
Whitty, L.
Wilkins, B.
Williams of Crosby, B.
Williams of Mostyn, L.
Williamson of Horton, L.
Woolmer of Leeds, L.
Young of Old Scone, B.

Resolved in the negative, and amendment disagreed to accordingly.

27 Jun 2000 : Column 812

5.45 p.m.

Clause 53 [Jurisdiction of the Pensions Ombudsman]:

[Amendment No. 98 not moved.]

Clause 54 [Investigations by the Pensions Ombudsman]:

[Amendment Nos. 99 and 100 not moved.]

Schedule 5 [Pensions: miscellaneous amendments and alternative to anti-franking rules]:

[Amendment Nos. 101 to 104 not moved.]

Clause 57 [Rights of appeal]:

[Amendment No. 105 not moved.]

27 Jun 2000 : Column 813

Clause 58 [Time limit for appeals]:

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