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Clause 16 [Dispute resolution arrangements]:

Lord McKenzie of Luton moved Amendment No. 62:

(a) must include provision requiring an application to which subsection (3A) applies to be made by the end of such reasonable period as is specified;(b) may include provision about the time limits for making such other applications for the resolution of pension disputes as are specified.(a) any application by a person with an interest in a scheme as mentioned in section 50A(1)(e), and(b) any application by a person with an interest in a scheme as mentioned in section 50A(1)(f) who is claiming to be such a person as is mentioned in section 50A(1)(e).””

The noble Lord said: Although this is a minor and technical amendment to the clause on dispute resolution arrangements, it is a necessary change because, without it, the time limits for making an application will not work as intended. The requirement for occupational pension schemes to have dispute resolution arrangements has been with us since 1997. From the start, there has always been a cut-off date for applications from people who no longer have an interest in the scheme. This is simply to protect schemes from complaints many years after the event, when there may be little prospect of a satisfactory investigation or resolution. Up to now, these time limits have always been prescribed in regulations but, in keeping with the wider policy on time limits, we want to replace the fixed six-month period currently in place with reference to a reasonable period. What constitutes a reasonable period is open to interpretation. The Pensions Regulator is required under Section 90(2)(a) of the Pensions Act 2004 to provide guidance in the form of a code of practice. In the dispute resolution arrangements, the requirement for an application to be made within a reasonable time is intended to apply in two situations: first, for applications where the person has ceased to be a person with an interest in the scheme; and, secondly, where a person is claiming to be a person with an interest in the scheme, but that interest is in the past. Unfortunately, the clause as drafted goes beyond what was intended in the second situation.

In the case of an application from someone claiming to have an interest in the scheme, new subsection (3)(b) to Section 50B, as inserted by Clause 16 as it stands, requires the arrangements to apply a time limit for every case, including those where the application is from a person claiming to have a current interest in the scheme. This amendment ensures that the requirement for a time limit for applications applies in those cases only where the claimed interest is in the past. Under the clause as it stands, it is difficult to establish when a reasonable period would start where the application is, for example, from someone claiming to be a current member. The amendment is necessary to ensure that the time limits work as intended. I am sorry if this sounds a little convoluted: in this case, the effect of the amendment is far simpler than the explanation. I beg to move.

Lord Skelmersdale: This may be a rather nitpicking point, but in the amendment subsection (3)(a) of new Section 50B says “must” and (b) says “may”. In the Bill, it is the other way around. This amendment is a technical replacement for the words in the Bill, so why have we had this—I think the word is probably—transvergence?

Noble Lords: Transposition.

Lord Skelmersdale: I am told that the word is transposition.

Lord McKenzie of Luton: The noble Lord is as eagle-eyed as ever. I may just have to ponder a little to give him a full explanation on why those words have been transferred or transmogriphied or whatever, but I will revert to him.

On Question, amendment agreed to.

Clause 16, as amended, agreed to.

Clause 17 agreed to.

Schedule 5 agreed to.

Clause 18 agreed to.

[Amendments Nos. 63 and 64 not moved.]

Lord Hunt of Wirral moved Amendment No. 65:

The noble Lord said: First, I declare my interest as a partner in the national, commercial law firm of Beachcroft LLP, as deputy president of the Chartered Insurance Institute and the other entries in the register, including my honorary fellowship of the Institute of Actuaries. We now move on to discuss a battery of amendments that touch on some profound and serious issues of principle. This debate has been well rehearsed in this House, in another place and beyond these precincts for many years. I am obliged to my honourable friends in the other place, including Nigel Waterson and Sir Malcolm Rifkind, for their hard work in helping to draft the amendments to which I now speak, including Amendment No. 65.

To summarise the thinking that lies behind these amendments, I concede immediately that annuitisation has its merits. It offers a simple and secure way of ensuring that a pensioner will be able to maintain a certain level of income throughout his or her retirement. There is nothing in these amendments that will stop pensioners looking for this simple and secure way of funding their retirement by continuing to buy an annuity at any point throughout their retirement. It is also palpably true that the guarantee of a certain minimum income, no matter how long one might endure, is to the general benefit of the taxpayer at large.

Annuities can of course prevent pensioners spending their pension pots too quickly and being forced to fall back on benefits such as pension credit. Again, I should like to point out that these amendments do nothing to weaken that guarantee. Instead, they give pensioners a choice. Pensioners would be able to exercise choice over their pension funds with the single limitation that they must not recklessly spend them so that they end up becoming a burden to the long-suffering taxpayer.

The largest amendment in the group, Amendment No. 66, allows for the establishment of a minimum retirement fund. In essence, this would be a savings scheme from which pensioners could draw down their retirement savings at a time of their choosing, as subsection (2) of the proposed new section makes clear. Subsections (3) and (4) of the new section ensure that a pensioner cannot draw out so much that the provider will no longer be able to guarantee a certain level of income for the rest of his or her life—a level that Amendment No. 65 establishes is set by the Secretary of State. The final two amendments are consequential.

The Parliamentary Under-Secretary of State for Work and Pensions in another place suggested that there was no real demand for this sort of scheme, but that is certainly not the case in other countries. In Canada, a similar scheme is chosen by around 50 per cent of pensioners; indeed, it is the most popular savings vehicle in the country, and I reckon that the popularity of a scheme is not a bad criterion by which to judge it. On that basis, surely the fact that not one other country in the developed world has a compulsory annuitisation scheme akin to ours tells its own story.

Ministers have already allowed those who find compulsory annuitisation unattractive a way out. The Christian Brethren must have set a record by now for the most references in parliamentary debates per capita. This tiny but admirable band of around 738 souls at the last count has a principled objection to the pooling of the risk of mortality, which is essentially how annuities work. Quite understandably, Ministers hold the opinion that religious convictions which do no harm to the general public or to the taxpayer should be permitted. Consequently, they have allowed members to take out alternatively secured pensions. What I find quite inexplicable is why the Government will not extend the same privilege to those who object to compulsory annuities on non-religious grounds. I hope that the Minister will be able to explain why a secular desire to avoid suffering the unnecessary costs and inflexibility of an annuity is considered less legitimate than the desire to avoid breaking a religious stricture.

Members on these Benches believe that a person’s pension pot is his or her own property. Tax incentives for pension schemes are there to encourage people to save for their retirement; they do not and should not transfer moral or practical ownership of those schemes to the Government. Neither do they provide an excuse for the Government to interfere or meddle, beyond protecting the taxpayer from misconduct or maladministration, with how that retirement is to be enjoyed. These amendments would therefore re-establish control for our fellow citizens over their own hard-earned money. They would also protect the taxpayer from being forced to bear the cost of any reckless decisions and allow for a secure income throughout retirement. So I would contend that these amendments are all about choice, freedom and the right to property.

It is precisely—I must say to the noble Lord, Lord Oakeshott—because this is an issue of principle that I continue to harbour reservations about Amendment No. 80, which we are also debating. I look forward to hearing from him on that subject. This is because Amendment No. 80 concedes the all-important principle relating to freedom of action and seeks only to ameliorate the effects of a bad law. David Laws put it very well indeed at the Committee stage of this Bill in another place when he described the situation in the following terms:

That was a fairly firm statement. I look forward to hearing from the noble Lord, Lord Oakeshott, whether in the light of that statement he might feel able to support this group of amendments because Amendment No. 80 would merely postpone the age at which this rather antiquated and illiberal system may continue.

There is always a temptation when in government to seek to expand one’s sphere of influence by exercising control over areas of human activity which are best left alone. There is a consensus that what we need—indeed, what we want—is for people to invest more for their old age. I believe these amendments would enhance the incentive to save, with no ifs and no buts. I beg to move.

4 pm

Lord Skelmersdale: My name is attached to the amendment because my noble friend Lord Hunt is absolutely spot on. For several years now the position of the Conservative Party has been to abolish the obligation—like my noble friend, I highlight the fact that it is the “obligation” and not the “right”—to take an annuity at the age of 75. Nothing has changed in our determination and it remains our policy today.

Clearly it would be quite wrong for people to spend all their pension pot before they reached 75, or, indeed, before they died, and we propose the alternative of a retirement income fund so that they will not be able to depend on state benefits. As my noble friend said, the guts of this are to be found in Amendments Nos. 66 and 67. The retirement income fund has been criticised outside this Chamber for being far too complicated, but I do not believe that it is. I remind the Committee that a non-statutory fund can already be built up by way of independent savings accounts. Many people have these ISAs and the tax regime, though very different, is broadly similar in effect. ISAs can be spent tax free at any point. However, once they are spent, the previous owner may still be eligible for state benefits—pension credit, for example. The conditions attached to the retirement income fund avoid this.

The soon-to-be-former Chancellor has been both obstinate and quirky on this issue: obstinate, because to start with he would brook no argument on annuities; quirky, because he suddenly produced a new pension product, the alternatively secured pension, as a result of lobbying by the Plymouth Brethren, who persuaded him that taking an annuity was a form of gambling, which is anathema to their brand of religion. Although this pension was intended only for them, it was inevitable that pensions consultants would seek to use it to cover other people. So successfully did they do this that he had to rein in the alternatively secured pension in a subsequent Budget.

Even so, there is an obvious chink in the Chancellor’s armour, which should now be broken cleanly and not only for the few. The Government like to give the impression that this set of amendments is only for the few. That is not so. The Bill is the precursor of the plan of the noble Lord, Lord Turner, for personal pensions, which we will be discussing later today. It will take 50 or more years to build a complete pension pot. Page 7 of the Pensions Commission’s report reveals its belief that:

The White Paper says a very helpful thing at paragraph 5.21:

How much better it would be for the retiree to be able to pick his own annuity date. So long as he remains on total income above the pension credit level, no one can complain. Why, so long as people do not end up on state benefits, should they not be allowed to draw down their pension as and when they need it? The same rules should apply to everyone, as do those that apply now—those that we are determined to abolish.

Lord Oakeshott of Seagrove Bay: I feel a considerable sense of déjà vu in this debate. The compulsory taking of annuities was the key issue at the end of our consideration of the previous Pensions Bill in 2004, which the noble Lord, Lord Skelmersdale, and I both remember well. We had repeated ping-pong, and eventually our joint amendment to increase the age for compulsory annuitisation, which ended up being 80, was lost by a small majority.

Our approach to the Bill is to see whether we can practically improve the situation for people who are compelled to buy annuities. We heard movingly from the noble Lord, Lord Hunt, the appeals to property, liberty and so on. They will not cut any ice with the Government, obviously, but in practice the points can be argued either way. He helpfully—and I was going to make this point—quoted my honourable friend David Laws, who went on to say that the problem,

The top priority for us on these Benches is to improve the basic state pension as fast as possible and to get away from means-testing, which will reduce the problem. We and the Conservatives argued strongly and clearly last time that, even if one accepts the Government’s argument that there should be some protection—and I think that there is a case for it—it makes no sense to have the age of compulsory annuitisation frozen in aspic at 75. That is the practical point where we can move.

I remember meeting the Minister at the other end at the time, Malcolm Wicks, with my colleague Steve Webb, and having a discussion during which, as he later did publicly, the Minister gave an undertaking that the whole question of compulsory annuitisation would be revisited after the Turner commission reported. The commission reported, but if there was a review we heard nothing about it, and there has been no change in the Government’s position. I am bound to say that I feel fairly let down by that process, and I shall focus on holding the Government to account in our consideration of the Bill and forcing them at least to explain why their position makes sense when life expectancy is rising so fast. If it was right to take the decision back in the late 1970s to fix the age at 75, how can it possibly be right to maintain that position indefinitely?

At the time of the previous Bill, I had quite a discussion with the noble Baroness, Lady Hollis, then the Minister, about how fast life expectancy was increasing. At that time, it seemed common ground that life expectancy had increased by about six and a half years since the age of compulsory annuitisation was fixed at 75. It is now three years later and that figure has now risen to eight years, so the age of compulsory annuitisation would be 83 if one were to put it on the same basis as before. Our amendment suggests 85, but we are reasonable people and are putting that age forward as an initial shot. We would like to hear the Government’s response on what a realistic figure would be, given that I thought that, in many ways, they accepted the principle of movement under pressure at the time of the previous Bill.

Our other problem with the Conservative proposals is that they are complicated. If there is political consensus in this country on pensions, it is that we want simplicity. Nothing could be simpler than to discuss and agree the age, whether 80, 82 or 85, to which the age of compulsory annuitisation should be increased. Everyone knows where they stand. I am afraid to say that when one looks through all the amendments on RIF tabled in the Commons and the Lords, the Conservative Opposition’s way is more complicated. It is unrealistic to think that there is any chance of what they propose happening and it is complicated at a time when we all want simplicity. I shall not quote the people who are giving views too much, except to say that the Association of British Insurers is calling for a straightforward increase.

Let us be practical and put something forward in this House that tries to achieve a realistic way forward rather than something that tries to change the principle on which the Government work, which I do not think that they will change. Let us put something in that is based on the evidence of the change in life expectancy since the rules were last fixed, which is what we asked for in the previous Bill.

Lord Fowler: I am rather amazed by that speech. I seem to remember that at Second Reading the noble Lord, Lord Oakeshott, spoke about compulsory annuitisation. He laid down the gauntlet and said:

Having listened to that meandering speech, I am not quite sure what fight the noble Lord is in. As far as I can see, the most we can hope for is a brave abstention on the part of the Liberal Democrats. If the noble Lord is going to go for those sorts of policies, he should moderate his language when it comes to Second Reading debates. His option of adding a few years to the annuity age of retirement does not remotely begin to answer to issue.

Lord Oakeshott of Seagrove Bay: It was the stomach for the fight for exactly this amendment, which we could have won last time when it was a joint Conservative/Liberal amendment. We are moving it this time and suggesting that now is a realistic time. It is very clear stomach for a very clear fight, not a different one.

Lord Fowler: The noble Lord has a selective stomach for a fight. I am sorry to say this to him because I am normally on his side, as he well knows, but I found his speech to be one of the more meandering and obscure speeches he has made on pensions for some time. His solution does not answer the principle at all. If it was accepted, it would increase the age for annuities, but it does not answer the principle enunciated by my noble friend Lord Hunt. The essence of his proposal is that it gives choice to the public. Many members of the public may well choose to go for the certainty of an annuity and a tax-free lump sum; that may well be attractive to many people. However, some people may want to exercise their choice in another way. They may want to choose not to have an annuity and to be able to leave some money to their children. It will probably not be a great deal of money, but it will be some money. Provided that the Bill does not come back on the taxpayer in terms of extra benefits—in other words, if someone manages to diffuse his resources in a way that means he becomes dependent on pension credit or other benefit—I cannot for the life of me see the objection. I thought that my noble friend made the case very powerfully.

We are trying to get more and more people to save for their future. I thought that was what the report of the noble Lord, Lord Turner, was about and what the Government’s aim was. Here is a sensible incentive for people to save for their future. What my noble friend said about the Canadian experience was extremely interesting and shows the potential that exists. We have to decide whether we will simply use empty words about trying to get people to save for their future or whether we will take sensible action. This is not the most radical step ever invented. The Treasury has been taking the same stance year after year and its opposition to the proposal is quite ludicrous. The Government should think again, as should the Liberal Democrats.

4.15 pm

Lord Turner of Ecchinswell: Compulsory annuitisation was not discussed by the Pensions Commission, essentially because there were so many other issues we had to discuss that we were relieved to be able to leave some things aside. However, we need to address this debate somewhat more rationally than it has been addressed in the past.

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