HC Deb 08 March 1999 vol 327 cc18-20
14. Ms Gisela Stuart (Birmingham, Edgbaston)

What plans he has to abolish the vesting requirements on annuities. [73051]

The Minister of State, Department of Social Security (Mr. Stephen Timms)

There are no such plans. The Inland Revenue rules require that personal pension and money purchase occupational pension funds must be used to buy an annuity at retirement. The exception is when a personal pension fund is used for income draw-down whereby income is drawn directly from the fund. Although that means that annuity purchase is deferred, an annuity must be purchased by the age of 75.

Ms Stuart

I thank my hon. Friend for that answer. However, annuity rates are at a historical low. The Government should be congratulated on their economic policies, which have brought an end to the boom and bust of the Tory years, but those policies will ensure a continued climate of low returns—although current pensioners should not be discouraged from taking annuities. Is there a case for examining whether the age for vesting in annuities should be extended beyond 75, or for reconsidering easing the draw-down facilities and making the process easier for those over 75?

Mr. Timms

I recognise that many people have been disappointed by the fall in annuity rates, but they have enjoyed the benefits of substantial stock market growth so their funds are bigger than might once have been expected. My hon. Friend is right to draw attention to the Government's success in managing the economy and that can be expected to continue. Inflation is lower and stable so that annuities keep their value better. My hon. Friend is an acknowledged expert on these matters and I am always interested in her ideas, but I cannot see a practical alternative to the present framework. Life offices which provide annuities have a good record of reliability, which is an important point in favour of the existing system.

Mr. Howard Flight (Arundel and South Downs)

Will the Minister accept that there is widespread pressure to abolish the obligation to buy an annuity at 75? In addition, will he accept that profits-linked annuities suffer from rules that discourage their usage? Given the enormous increase in the volume of money purchase pensions required, will the Government consider both the ability of the annuity industry to cope and the possibility of increasing the opportunities for draw-downs?

Mr. Timms

It is an important principle that since pensions savings are tax free, they must eventually be converted into an income stream so that tax may be paid on them. Of course, we always keep these matters under review, but, as I said to my hon. Friend the Member for Birmingham, Edgbaston (Ms Stuart), the present system is the only practical one available.