OPTION TO COMMUTE ANNUITY RIGHTS FOR A LUMP SUM (Hansard, 16 July 1987)

§ Sir Brandon Rhys Williams (Kensington)
I beg to move, That the clause be read a Second time.
Some time ago when the concept of personal pension schemes was under general discussion it was suggested in some quarters that it would be a good idea if this facility could be made available as a build-up of a personal identifiable asset available for discretionary use at any time during the beneficiary's lifetime. The idea did not find favour because it was not thought acceptable that the beneficiary could perhaps lose what was intended primarily as a retirement benefit through taking advantage of the right to draw the capital out at any time. The Bill does not, as I understand it, give any facility for the lump sum in a personal pension scheme to be drawn out before the normal age of retirement.
The object of my new clause is to give a partial option—a one quarter option—to the member if he requires his capital after a period of 10 years in the scheme. I think that it would be quite appropriate to allow this in the case of personal pension schemes and I can see no particular reason why it should not be permissible in all occupational pension schemes where the amount of money standing to the account of the member can be identified.
The clause would permit the extension of the facility to make a part commutation of the entitlement to annuity at the time of retirement so that the ability to draw a lump sum becomes available to the member after 10 years' membership of the scheme. If the lump sum is taken early in this way, it will reduce the amount of the eventual retirement annuity, but no more than if the lump sum were taken at the normal date. The clause partially changes the nature of a pension scheme so as to turn it into a savings scheme with a potential somewhat wider objective than a pure retirement benefit scheme. I can see no objection to that.
It is right to encourage savings and provision for emergencies as well as for retirement. If a man in middle life sees an opportunity to embark on a new venture or needs to have access to capital because of some emergency, 1340 is it not natural that he should be permitted to withdraw the money immediately from the fund which is accumulating for his benefit? My 10-year limit would prevent the abuse of the tax-haven status that we are offering to the schemes, which is founded on the principle of save now and pay tax later.
I am not suggesting that withdrawing a lump sum in the way that the clause would permit should have any special tax advantage for the beneficiary. I think that my right hon. and hon. Friends know that I personally believe that the withdrawing of a lump sum, in so far as it is acquired through contributions made in future years, should be taxable at the standard rate. The clause does not make any special provision in regard to taxation. The object is to widen the facilities available to savers through occupational pension schemes, and I believe that it should commend itself to the Committee.

§ Mr. Norman Lamont
As has happened on many other occasions during our consideration of the Bill, my hon. Friend the Member for Kensington (Sir B. Rhys Williams) has come forward with a new idea. We have been running hard to keep up with all his other ideas. Although we are digesting many of them and will talk to him about some of them, I cannot accept the new clause. I have no doubt, however, that as with his other ideas the drip, drip process will continue, and that in years to come we shall find ourselves wondering why we did not accept his ideas earlier.
As my hon. Friend has said openly, the new clause would, in essence, convert pension schemes into the form of a tax-sheltered savings medium. My hon. Friend has emphasied that pension arrangements take the form of a tax haven, but the rules governing them, especially when Finance Bill proposals are in place, are designed to ensure that a pension scheme is used for its intended purpose, which is to provide a replacement income in retirement when paid employment ceases.
The objection to the new clause is that it would allow any individual, no matter what his age, to withdraw a lump sum. He could take a part of his benefit at any time after completing 10 years' membership of the scheme. A person who joined a scheme at the age of 20 years could have a sum equal to one quarter of his benefits to date at any time after the age of 30. Although my hon. Friend expressed his reservation about the tax status of the lump sum, as he has done in all our debates, there would be benefit from the tax privileges even if we changed the taxation of the lump sum in the way that my hon. Friend suggests. I do not need to repeat what has been said about that and how that would be a radical change.
The new clause would turn occupational pensions and personal pensions into highly tax efficient savings vehicles that in many ways would compete with other forms of savings and investment. I do not think that that is a role that pension schemes, which benefit from generous tax reliefs, should fill. I always think about my hon. Friend's ideas and, as I have said, we shall have discussions with him about some of them, but I cannot commend this one to the Committee and I do not expect my right hon. and hon. Friends to accept it.

§ Sir Brandon Rhys Williams
I recognise the force of some of my right hon. Friend's arguments. On the other hand, there is an urgent need to encourage the savings motive as far as we possibly can. The country is not saving 1341 nearly enough, and we should not turn down any opportunity that is likely to be popular of encouraging people to save. Nevertheless, I have not put enough work into the drafting of the new clause to seek to insist that the Committee should accept it. I understand fully the arguments that my right hon. Friend has used. In the circumstances, I am glad that I planted the idea—I do not think that it is a new one—and I beg to ask leave to withdraw the motion.