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I am aware of the strength of feeling on this issue; I have seen it in today’s debate. However, I ask noble Lords to consider the implications of such a suspension, the point that the noble Lord, Lord Oakeshott, focused on. A temporary suspension of the income requirements, either just for annuities or for all means of drawing an income, would add uncertainty, complexity and cost both to those making pension savings and the companies providing pensions and annuities. Those approaching retirement would face uncertainty about the choices that they must make and when they must make them. Annuity providers and pension companies would be faced with the same uncertainties and the additional costs in terms of system and literature changes that
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We should also consider the message that would be sent out to people by instigating such a suspension. There is a risk that those approaching retirement would believe that taking an annuity is not the right thing to do. While delaying annuitisation may be something that some people decide is in their best interests, and which they are free to do under the current framework, there are vital issues that they would have to consider in taking such a decision. After all, there is no guarantee that their assets will improve or even maintain their value. It is also possible that annuity rates could fall, potentially reducing the income available. In combination, a stagnation or fall in asset prices alongside a fall in annuity rates would have a severe impact on the income available from a person’s pension savings. For anyone relying on their pension savings to support themselves in retirement, these are serious risks. It would be irresponsible for the Government to do anything which could lead people to delay taking their pension income and expose themselves to such risks without fully thinking through the consequences.
There are also problems inherent in allowing an option to extend suspension. This would compound the uncertainty faced by consumers, companies and advisers. Those approaching retirement need certainty and stability. Those advising savers and those providing income products need to know that the rules which govern them are not subject to change on the basis of an undefined set of criteria.
4.45 pm
The approach to retirement is an important and potentially complex time for many people. Pension companies begin to contact people with their options up to a year before they reach retirement age. For a suspension to be introduced potentially without the necessary lead-in times would do little other than cause confusion and could send out the wrong message to those faced with a very important decision about their future income.
I appreciate that in the current economic climate there are real concerns about the impact of the falls in the stock market on retirement incomes. However, the impact of these falls will not necessarily feed through directly into the value of an individual’s savings. The amount of income that a pension fund would provide via an annuity is based on two main items, annuity rates and fund size. Recently, rates on annuity levels—the most popular form—have increased due to rising corporate bond rates and are now around a five-year high. It is also important to remember that pension funds rarely invest exclusively in equities. Other investment methods have not been affected in the same way, and therefore not all pension funds will have suffered the same reductions. Indeed, many pension schemes offer a “lifestyling” option. For stakeholder schemes, it is mandatory for the default option to include lifestyling.
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I hope I have explained that a temporary suspension is unnecessary because current rules already allow flexibility to delay annuitisation beyond age 75, and potentially damaging because it would create enormous uncertainty impacting on all parts of the pension system, from individual savers to advisers to pension companies.
Baroness Hollis of Heigham: My Lords, I am sorry to keep intervening, but is my noble friend arguing against the amendment on the ground of pre-emption because, if it were passed, we could not then discuss the subsequent Amendments Nos. 80 and 85, which, given his emphasis on the uncertainty of this as opposed to other ways forward, might be measures that he would favour?
Lord McKenzie of Luton: My Lords, I am perfectly happy to offer my noble friend the Government’s view on those amendments when we reach them. As regards the amendment we are discussing, I argue that temporary suspension is simply not the way to address this. It would compound a challenging issue. My noble friend rightly referred to the fact that people are building up increasingly bigger pots in DC schemes. If you project forward 20 or 30 years, particularly with auto-enrolment, that will increase substantially. However, in the second quarter of 2008, there were something like 114,000 annuity sales, nearly 40 per cent of which were for pots of less than £10,000 and only 13 per cent of which were for pots in excess of £50,000. Therefore, we are a long way from that situation at the moment.
I am disappointed that when we debate this matter the focus of attention is on people at or around or approaching 75, whom I have sought to deal with. However, we have not discussed people who might be in more challenging circumstances—those who annuitise early because they need the income. Those people have very real deadlines driven by their economic circumstances. Frankly, I am more concerned about those people than those who have the options I have outlined. I think that the temporary suspension is the worst of all options that we face at the moment.
Lord Skelmersdale: My Lords, at the end of the noble Lord’s remarks, which, like some of my noble friends, I found almost unbelievable, he referred to people needing to take an annuity at an earlier stage. Surely the whole point about that decision is that it is influenced by their individual circumstances; it is not imposed by government or anyone else.
Lord McKenzie of Luton: My Lords, I thought we were discussing the practical circumstances that people face and what current equity values have meant for individuals. I was simply making the point that if somebody needs to convert their pot into an income because they need that income, that is very much a deadline for them now, even though they may not even be close to 75. That point is reinforced by the fact that only 5 per cent of people annuitise after 70.
Lord Fowler: My Lords, frankly, that was a deeply disappointing reply from the Government. The Minister talked about uncertainty. The uncertainty is caused by
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It is significant that out of 10 speakers apart from the Minister, only one, the noble Lord, Lord Oakeshott, argued against the amendment. I thank my noble friend on the Front Bench for his support, and I thank my noble friend Lord Sanderson. My noble friend Lord Forsyth pointed out that the people who we are harming are those people who have done the right thing and have saved for their retirement. Surely the aim of policy should be to help them, not to damage their interests. The noble Baroness, Lady Hollis, made a powerful speech, which was made all the more powerful because of her knowledge as a former Pensions Minister. She rightly said again that the impact of this will be on future pension policy, and it will be profound. We want to encourage pension saving, not discourage it.
The noble Lord, Lord Crickhowell, made a very interesting point about alternatively secured pensions. The Government have suddenly become the greatest supporter of alternatively secured pensions. We never heard that argument from the Government before; up to now, they have regarded it as a bit of a loophole. Up to now, they have said, “Okay, the Plymouth Brethren can do it”. I had not realised that this was a central plank of government policy, or that they were putting it forward for everyone up and down the country. I had not realised that they were saying to financial advisers and banks, “Please tell people to take alternatively secured pensions”. This is entirely new; I do not remember that argument. If the Minister will forgive me for saying so, it is a very odd line. He is really saying, “We have this rule on compulsory annuities, but take a bit of advice and you can get around the rule”. It is the most extraordinary excuse that I have heard from a Minister for many years.
I thank the noble Lord, Lord Howarth, and the noble Baroness, Lady Dean, for their interventions. The noble Baroness said that there were ebbs and flows in the stock market, but we are not dealing with ebbs and flows. The comment made by the deputy governor of the Bank of England, Charlie Bean, was:
“This is a once in a lifetime crisis, and possibly the largest financial crisis of its kind in human history”.
That is not an ebb and flow; that is a crisis. The Government keep on saying that they will have policies to help people through this crisis. We challenge them to provide something in this area, and they do absolutely nothing.
The noble Baroness, Lady Greengross, with her vast experience in this area, also supported the amendment, as did the noble Baroness, Lady Howe. The only person who argued against it was the noble Lord, Lord Oakeshott. To be honest, I am puzzled by his position, although I could put it more strongly than that. He seems to basically be saying, “If you will not have my amendment, you cannot have any other amendment”. I am quite happy to go with my amendment if that is his only argument. The fatal flaw in his argument is that he is arguing for annuities at the age of 85. I do not see any sign whatever that the Government are going to give in to that position, so the noble Lord
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In those circumstances, I really would ask the noble Lord, Lord Oakeshott, to reconsider his position, because he is going forward on a proposition that will be rejected by the Government. This is the whole case—and I do not doubt the noble Lord’s goodwill—but we are both putting forward proposed solutions, and the Government are saying no to everything. This is a moderate, middle-of-the-road proposition.
This is a question of justice for men and women who have saved for their future, but have been caught in a financial storm which they have had no way of influencing and very little chance of avoiding. We have an opportunity of seeking to deal with that injustice. That was the challenge to the Minister which he was unable and unwilling to take up. In those circumstances, I would like to test the opinion of the House.
4.55 pm
On Question, Whether the said amendment (No. 69A) shall be agreed to?
Their Lordships divided: Contents, 129; Not-Contents, 156.
Alton of Liverpool, L.
Anelay of St Johns, B.
Ashcroft, L.
Astor of Hever, L.
Attlee, E.
Baker of Dorking, L.
Bates, L.
Brooke of Sutton Mandeville, L.
Brougham and Vaux, L.
Browne of Belmont, L.
Buscombe, B.
Byford, B.
Caithness, E.
Campbell of Alloway, L.
Carnegy of Lour, B.
Cathcart, E.
Chadlington, L.
Cobbold, L.
Colville of Culross, V.
Colwyn, L.
Cope of Berkeley, L.
Courtown, E.
Craig of Radley, L.
Craigavon, V.
Crathorne, L.
Crickhowell, L.
Crisp, L.
De Mauley, L.
D'Souza, B.
Eccles, V.
Eccles of Moulton, B.
Eden of Winton, L.
Elliott of Morpeth, L.
Elton, L.
Falkner of Margravine, B.
Feldman, L.
Ferrers, E.
Fookes, B.
Forsyth of Drumlean, L.
Fowler, L. [Teller]
Fraser of Carmyllie, L.
Gardner of Parkes, B.
Garel-Jones, L.
Geddes, L.
Glenarthur, L.
Goodlad, L.
Goschen, V.
Greengross, B.
Greenway, L.
Hamilton of Epsom, L.
Hanham, B.
Hayhoe, L.
Henley, L.
Hodgson of Astley Abbotts, L.
Hogg, B.
Howard of Rising, L.
Howarth of Breckland, B.
Howe, E.
Howe of Aberavon, L.
Howe of Idlicote, B.
Howell of Guildford, L.
Hunt of Wirral, L.
Inglewood, L.
James of Blackheath, L.
Jay of Ewelme, L.
Jenkin of Roding, L.
Kingsland, L.
Knight of Collingtree, B.
Leach of Fairford, L.
Lindsay, E.
Liverpool, E.
Lucas, L.
Lyell of Markyate, L.
McCluskey, L.
McColl of Dulwich, L.
Mackay of Clashfern, L.
Mar, C.
Marlesford, L.
Marsh, L.
Masham of Ilton, B.
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Mayhew of Twysden, L.
Miller of Hendon, B.
Montgomery of Alamein, V.
Montrose, D.
Morris of Bolton, B.
Moser, L.
Naseby, L.
Neville-Jones, B.
Newton of Braintree, L.
Noakes, B.
Northesk, E.
O'Cathain, B.
O'Neill of Bengarve, B.
Onslow, E.
Oppenheim-Barnes, B.
Palmer, L.
Patel, L.
Plumb, L.
Ramsbotham, L.
Rawlings, B.
Rees-Mogg, L.
Rogan, L.
Rowe-Beddoe, L.
Ryder of Wensum, L.
Saatchi, L.
Sanderson of Bowden, L.
Seccombe, B. [Teller]
Selsdon, L.
Sharples, B.
Shaw of Northstead, L.
Shephard of Northwold, B.
Skelmersdale, L.
Stair, E.
Stewartby, L.
Stoddart of Swindon, L.
Swinfen, L.
Taylor of Holbeach, L.
Tebbit, L.
Trenchard, V.
Tugendhat, L.
Ullswater, V.
Verma, B.
Wade of Chorlton, L.
Wakeham, L.
Walpole, L.
Warsi, B.
Williamson of Horton, L.
Windlesham, L.
Addington, L.
Adebowale, L.
Adonis, L.
Ahmed, L.
Amos, B.
Andrews, B.
Archer of Sandwell, L.
Avebury, L.
Bach, L.
Barker, B.
Barnett, L.
Bassam of Brighton, L. [Teller]
Berkeley, L.
Bernstein of Craigweil, L.
Bhattacharyya, L.
Bilston, L.
Bonham-Carter of Yarnbury, B.
Borrie, L.
Boyd of Duncansby, L.
Bradshaw, L.
Brooke of Alverthorpe, L.
Brookman, L.
Campbell-Savours, L.
Carlile of Berriew, L.
Carter of Barnes, L.
Carter of Coles, L.
Christopher, L.
Clark of Windermere, L.
Clement-Jones, L.
Clinton-Davis, L.
Corbett of Castle Vale, L.
Darzi of Denham, L.
Davidson of Glen Clova, L.
Davies of Oldham, L. [Teller]
Dholakia, L.
Dixon, L.
Dykes, L.
Eatwell, L.
Evans of Parkside, L.
Falkender, B.
Farrington of Ribbleton, B.
Faulkner of Worcester, L.
Fearn, L.
Filkin, L.
Foster of Bishop Auckland, L.
Foulkes of Cumnock, L.
Fyfe of Fairfield, L.
Gale, B.
Garden of Frognal, B.
Gibson of Market Rasen, B.
Goodhart, L.
Gordon of Strathblane, L.
Goudie, B.
Griffiths of Burry Port, L.
Grocott, L.
Hamwee, B.
Harris of Haringey, L.
Hart of Chilton, L.
Haskel, L.
Haworth, L.
Henig, B.
Hilton of Eggardon, B.
Howells of St. Davids, B.
Howie of Troon, L.
Hughes of Woodside, L.
Hunt of Kings Heath, L.
Janner of Braunstone, L.
Jones, L.
Jones of Whitchurch, B.
Jordan, L.
Judd, L.
Kennedy of The Shaws, B.
King of West Bromwich, L.
Kirkhill, L.
Kirkwood of Kirkhope, L.
Layard, L.
Lea of Crondall, L.
Lee of Trafford, L.
Leitch, L.
Lester of Herne Hill, L.
Lipsey, L.
Lofthouse of Pontefract, L.
Ludford, B.
McIntosh of Hudnall, B.
MacKenzie of Culkein, L.
Mackenzie of Framwellgate, L.
McKenzie of Luton, L.
McNally, L.
Maddock, B.
Mar and Kellie, E.
Massey of Darwen, B.
Maxton, L.
Meacher, B.
Morgan, L.
Morgan of Drefelin, B.
Morris of Manchester, L.
Morris of Yardley, B.
27 Oct 2008 : Column 1388
Northover, B.
Oakeshott of Seagrove Bay, L.
O'Neill of Clackmannan, L.
Patel of Bradford, L.
Pendry, L.
Pitkeathley, B.
Plant of Highfield, L.
Prosser, B.
Prys-Davies, L.
Quin, B.
Razzall, L.
Rea, L.
Redesdale, L.
Rendell of Babergh, B.
Rennard, L.
Richard, L.
Rodgers of Quarry Bank, L.
Rosser, L.
Rowlands, L.
Royall of Blaisdon, B.
Sawyer, L.
Sewel, L.
Sharp of Guildford, B.
Sheldon, L.
Shutt of Greetland, L.
Simon, V.
Smith of Clifton, L.
Snape, L.
Soley, L.
Stone of Blackheath, L.
Strabolgi, L.
Symons of Vernham Dean, B.
Taverne, L.
Taylor of Blackburn, L.
Taylor of Bolton, B.
Temple-Morris, L.
Teverson, L.
Thomas of Winchester, B.
Thornton, B.
Tonge, B.
Tope, L.
Tordoff, L.
Triesman, L.
Truscott, L.
Tunnicliffe, L.
Turnberg, L.
Tyler, L.
Vadera, B.
Wall of New Barnet, B.
Wallace of Saltaire, L.
Walmsley, B.
Warner, L.
Warwick of Undercliffe, B.
Watson of Invergowrie, L.
West of Spithead, L.
Whitaker, B.
Williams of Elvel, L.
Woolmer of Leeds, L.
Resolved in the negative, and amendment disagreed to accordingly.
5.06 pm
Clause 100 [Effect of entitlement to guaranteed minimum pension]:
Lord McKenzie of Luton moved Amendment No. 71:
71: Clause 100, page 53, leave out lines 7 to 15 and insert—
“(5) The Secretary of State must require the Government Actuary or Deputy Government Actuary (“the Actuary”) to prepare a report on how actuarial equivalence should be determined for the purposes of this section.
(5A) In preparing the report the Actuary must consult such persons as appear to the Actuary to be appropriate.
(5B) The Secretary of State must lay the report before Parliament.
(5C) Having considered the report, the Secretary of State must by regulations make provision for determining actuarial equivalence for the purposes of this section.
(5D) If any recommendation in the report is not followed in the regulations, the Secretary of State must prepare and lay before Parliament a report explaining why.”
The noble Lord said: My Lords, before I explain Amendments Nos. 71 and 72, it might help the House if I briefly remind noble Lords of the Government’s proposals with regard to additional state pension simplification. Under our proposals, people retiring from 2020 will have all their accruals of the different forms of additional state pension up to 2012 rolled up into a single consolidated cash value. This will greatly simplify the way such pensions are calculated.
Broadly speaking, for individuals contracted out of SERPS—the additional state pension between 1978 and 1997—a contracted-out deduction needs to be applied to the consolidated amount. The contracted-out deduction, which can currently vary in relation to the additional state pension, both before and after retirement,
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I turn to Amendments No. 71 and 72. In Committee, following amendments tabled by the noble Baroness, Lady Noakes, I agreed to consider whether it should be mandatory for the Government to commission a report from the Government Actuary’s Department on determining actuarial equivalence. It has always been the Government’s intention to commission such a report from the Government Actuary’s Department. The amendments I have tabled will make that mandatory. I have also considered whether it should be mandatory for regulations to be made based on that report. While it is absolutely right that the Government should fully consider the impartial Government Actuary’s report, the final decision on whether regulations are made with reference to that report should be a government decision. To do otherwise would, in effect, go against an important principle of legislative competence, which is that it is for the elected Government of the day to propose legislation and for Parliament to approve it. However, to ensure openness, our amendments commit the Secretary of State to lay the Government Actuary’s report before Parliament. Regulations setting out how actuarial equivalence will be achieved will be subject to debate in both Houses. Furthermore, should the Secretary of State not be minded to follow the recommendations in the Government Actuary’s report, we are proposing that a report must be laid before Parliament explaining why. I hope that I have been able to reassure the noble Baroness that we have taken on board the key concerns that she raised in Committee and that she will understand why we have not been able to agree absolutely 100 per cent. I beg to move.
Baroness Noakes: My Lords, I thank the Minister for tabling this amendment. I was much encouraged in Committee when he said that he viewed my amendments “with some warmth”, but of course when we got down to the small print in his detailed response he revealed a difference of view about who should call the shots on actuarial valuation. That difference remains today.
The amendments that I spoke to in Committee made it clear that it should be the Government Actuary who determines actuarial equivalence. That is, after all, what actuaries spend all those years learning to do. The Government’s amendments leave the discretion in determining actuarial equivalence with the Secretary of State. I cannot ever recall a Secretary of State having an actuarial qualification and so being qualified to opine on actuarial equivalence.
The truth is that the Government like to pick and choose actuarial assumptions, as we have seen, whether it was DWP Ministers or Treasury Ministers working behind the scenes. When it came to contracted-out rebates, they ignored the Government Actuary’s advice on the basis of something that they called “sustainable affordability”.
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I accept that the Government have improved on the clause that they introduced initially, as they must now involve the Government Actuary and explain to Parliament if they do not follow his advice. Moreover, the regulations will be subject to the affirmative procedure. On that basis, I have decided not to seek further amendments and to accept my half a loaf.
On Question, amendment agreed to.
Lord McKenzie of Luton moved Amendment No. 72:
72: Clause 100, page 53, line 17, at end insert—
“( ) In section 185(2) (consultation) at the end of paragraph (c) insert “or 46A(2); or”.
( ) In section 186(3) (parliamentary control) before paragraph (a) insert—
“(za) regulations made by virtue of section 46A(5C), or”.”
On Question, amendment agreed to.
Clause 112 [“Implementation Period”]:
Lord Tunnicliffe moved Amendment No. 73:
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