Finance Bill

The amendments would amend schedule 19, which introduces a minimum draw-down from alternatively secured pensions. Those pensions have been a feature of Finance Bill debates in three of the past four years. It may help hon. Members if they understand some of the background. In response to concerns expressed by the Christian Brethren, the Government legislated in 2004 for alternatively secured pensions, which in effect ended compulsory annuitisation at age 75. In 2006, they introduced new rules to determine the tax on the annuitised pot of ASP members on death. However, the Economic Secretary decided that even the new complex rules on inheritance tax and ASPs were not enough to discourage people from buying them and therefore introduced even more draconian rules, increasing the tax rate on death to a maximum of 82 per cent. and introducing a new minimum draw-down from the funds, which is the focus of the amendments. The amendments are relatively modest compared with those tabled in previous years. The Pensions Bill was amended in the other place to reflect proposals made by my right hon. and learned Friend the Member for Kensington and Chelsea (Sir Malcolm Rifkind) in his private Member’s Bill to set up a retirement income fund as an alternative to compulsory annuitisation. We will have a longer and fuller debate on the issues when the Pensions Bill returns from the Lords shortly, but my amendments are narrowly drafted to reflect one particular aspect: the draw-down. Schedule 19 as drafted stipulates that an ASP member must withdraw a minimum of 55 per cent. of the basis amount for the ASP year. That amount is determined on an annual basis by the Government Actuary based on the life expectancy of a 75-year-old. My approach is to substitute 55 per cent. with the minimum amount of income required to ensure that someone does not need to rely on state benefits—a concept that underpins the Bill of my right hon. and learned Friend and the amendments passed in the Lords. I accept that setting any minimum level of draw-down is difficult, but by setting the minimum threshold in that way, it would give members of ASPs more freedom over the use of their retirement assets. My concern about the Government’s approach is that it compels members to draw down income that could be surplus to their immediate needs if they have income from other sources. Based on the way in which the schedule is drafted, if members do not draw down 55 per cent. of the basis amount, they will be penalised. My measure could be criticised for being as crude as the Government’s approach, in that it does not take into account other sources of income, but it would give members of the ASP scheme more flexibility. That would increase the flexibility and attractiveness of ASPs and would make the product much more suited to the needs of pensioners. As the debate in the Lords demonstrated, there is a growing consensus on creating more flexibility in pension arrangements. In the debate on that point in the other place, Lord Turner of Ecchinswell, who is the architect of the pensions reforms going through Parliament at the moment, said that"““there are two arguments, but two arguments only, for compulsory annuitisation. One is that people should not fall back on the means-tested benefits of the state; the other…is that tax relief is given to pension contributions as they go into the scheme, and it is therefore reasonable that as money comes out of the scheme, those are taxed moneys out.””" He also argued that"““if we took those two principles, we might well end up with a rule establishing a minimum level of annuity that people had to buy, plus an appropriate set of rules as to the tax treatment…I have found it difficult over the years to understand what the arguments against that approach are.””" Lord Turner hits the nail on the head. Increasingly, it is the Government who are out of step with the views of pensioners and the industry, and it is the Government who need to understand more about the pressures that are arising in the pensions debate. My amendments do not tackle the exit charge on death, which is also addressed in Lord Turner’s comments, but they do tackle the amount to be drawn down from the fund. Increasingly, people will look for alternatives to annuitisation as the growth in defined contributions schemes increases, and my amendments would make an ASP more attractive to those approaching retirement. It is worth reflecting on the pressures in the system. The Office for National Statistics shows that between 1997 and 2005 employee membership of defined benefit pension schemes, such as the scheme that hon. Members benefit from, fell from 46 per cent. to 35 per cent., while membership of defined contribution schemes increased from 10 per cent. to 15 per cent. Those are the people who will end up on retirement with a pot of money to be invested in annuity or some alternative way to provide a retirement income—perhaps something that is more flexible than the arrangements on offer at the moment. The switch from defined benefit to defined contribution schemes has been especially evident for smaller employers. That is an indicator of the potential increase in demand for annuities, but as Lord Turner indicated in the same debate:"““The bigger the imbalance is between demand for and supply of that capacity, the lower the annuity rates will be.""There is an interest for everyone who buys an annuity in ensuring that those who do not need to buy one do not push their demand into the market and therefore decrease yields.””—[Official Report, House of Lords, 6 June 2007; Vol. 692, c. 1142-1148.]" If, through amendments such as these we can make alternatives to annuities more attractive, that will benefit those who wish to buy annuities instead of making their own arrangements in retirement. That reflects the growing consensus in the House of Lords debate. Lord Turner supported that principle, as did Baroness Hollis, a former Minister at the Department for Work and Pensions. Lord Howarth of Newport, having seen the damage that the Chancellor had caused to pension funds, also supported the proposals. There is a progressive consensus on this issue, but the Government are out of step with it—