HC Deb 12 April 2002 vol 383 cc296-331 11.46 am
The Economic Secretary to the Treasury (Ruth Kelly)

I beg to move amendment No. 5, in page 1, line 6, leave out— 'or sums for investment in a Retirement Failsafe Fund'.

Mr. Deputy Speaker (Sir Alan Haselhurst)

With this it will be convenient to discuss the following amendments: No. 1, in page 1, line 10, at end insert— 'or a Retirement Failsafe Fund'.

No. 2, in page 1, line 13, at end insert— '(g) the payment to a member of income from a Retirement Failsafe Fund satisfying the conditions of section 637C.'.

No. 3, in page 2, line 23, leave out "section is" and insert "sections are".

No. 4, in page 2, line 42, at end insert— '637C Retirement Failsafe Fund (1) There shall be a vehicle for savings for retirement known as a Retirement Failsafe Fund. (2) A member may transfer funds into a Retirement Failsafe Fund if he elects not to purchase an annuity. (3) Regulations may make provision relating to Retirement Failsafe Funds, and in particular in connection with—

  1. (a) the sums to he invested in the fund;
  2. (b) withdrawals from the fund;
  3. (c) the age at which a pension is payable;
  4. (d) preventing the assignment or surrender of withdrawals from the fund.
(4) Regulations under subsection (3) shall be made by statutory instrument subject to annulment in pursuance of a resolution of either House of Parliament.'.

Ruth Kelly

The amendment was intended to correct a defect in the Bill as it left Committee. In Committee, the hon. Members for Arundel and South Downs (Mr. Flight) and for Tiverton and Honiton (Mrs. Browning) tabled an amendment on behalf of the Christian Brethren to allow a personal pension scheme to invest in a retirement failsafe fund. The Committee accepted that amendment but rejected another, which provided for the specification of a retirement failsafe fund and the conditions it would have to meet. Consequently, the Bill is defective. The amendment therefore corrects the defect by removing the reference to a retirement failsafe fund in the clause. It is worth taking some time to consider the substance of the group of amendments.

The amendments are designed to ensure a minimum retirement income without the necessity of buying an annuity. They are a genuine attempt to meet the needs of the Christian Brethren, whose beliefs will not let them participate in insurance products.

As we know, the first definition of a retirement failsafe fund put forward by the hon. Members for Arundel and South Downs and for Tiverton and Honiton did not survive the Committee stage. I have sympathy with the aims behind the amendments. I do not believe that they are designed, like the Bill, to extract money other than as retirement income, or to preserve it for heirs after the death of the scheme member. They are intended to provide an alternative means of securing a retirement income that does not involve buying an annuity. The intention is that the retirement failsafe fund will generate an income equivalent to the minimum retirement income, which the Bill defines elsewhere. However, the amendments are silent on the conditions that should apply.

It is not clear, for example, whether money can be placed in the retirement failsafe fund at any time after joining the pension scheme or only when benefits first come to be drawn. Instead, the amendments provided that all the details of exactly what a retirement failsafe fund is and how it would operate are left to regulations, rather than spelled out in the Bill.

Mr. Barry Gardiner (Brent, North)

Does my hon. Friend share my incredulity that such an amendment should have been tabled, given the number of times that we have heard the reluctance of the hon. Member for Arundel and South Downs (Mr. Flight) to accept anything that would lead to a Henry VIII clause, leaving the Government free to make their own regulations on a Bill, particularly a finance Bill? I have heard the hon. Gentleman wax lyrical on numerous occasions about the difficulties that that would pose. Does my hon. Friend share my view that the Opposition should not proceed in this way on this occasion?

Ruth Kelly

I thank my hon. Friend for his comments. I sympathise with the aim behind the amendment, which is to meet a genuine concern of the Christian Brethren. However, I do not and cannot sympathise with the way in which that concern would be met, or with the degree of power, to which my hon. Friend rightly refers, that the amendment would grant the Treasury through regulations.

Mrs. Angela Browning (Tiverton and Honiton)

Perhaps it would have helped the hon. Member for Brent, North (Mr. Gardiner) and his new-found interest in the Bill if he had been present in Committee when it was made clear, in presenting the amendments on behalf of the Christian Brethren, that they have already been engaged in no fewer than four years' negotiations with the Inland Revenue on the matter. Given the implied agreement in the Minister's opening remarks that she is seeking to resolve the problem, I am surprised to hear such a mealy-mouthed intervention from the hon. Gentleman.

Ruth Kelly

I thank the hon. Lady for her comments. I have said that I sympathise with the aims of the amendment, but I do not think that the Bill can meet them in a successful fashion. My hon. Friend the Member for Brent, North (Mr. Gardiner) rightly draws attention to some of the Bill's deficiencies.

Mr. Gardiner

On a point of explanation, I should make it clear to the hon. Member for Tiverton and Honiton (Mrs. Browning) that I said on Second Reading—a debate for which she obviously was not here—that I had followed the subject of annuities very closely in the House over the past four or five years, that I am a member of the relevant all-party group and that I have been extremely active in these matters. If the hon. Lady had done her homework a little better, she would not be quite so flushed in the cheeks at the moment.

Ruth Kelly

I know the interest that my hon. Friend takes in these matters; I have regular discussions with him on these and other financial matters, in which he also takes a great interest.

Mr. Edward Leigh (Gainsborough)

Can we please get back to this very important issue of conscience? The Minister is herself a lady of religious conviction. Hers may not be the same religious conviction as that of the Christian Brethren, but they have an honest belief, and the Government must try and find a way forward. I suspect that my hon. Friend the Member for Arundel and South Downs (Mr. Flight) tabled the amendment in the way he did because if it had been prescriptive, the Government would have argued that it was defective and took the wrong approach. My hon. Friend cannot win. Will the Minister explain how she will meet the genuine beliefs of this small but important minority? Minorities are important, even if they are small.

Ruth Kelly

I completely agree with the thrust of the hon. Gentleman's point. These are valid concerns: I have taken a personal interest in them and would like the Inland Revenue to be able to meet them in a way that is compatible with the Government's overall aims. While I intend to address some of the technical deficiencies associated with this manner of meeting the concerns alluded to, I hope that, through the negotiations that I know are ongoing, we will find a different way of meeting those concerns.

As the hon. Gentleman is no doubt aware, the Government recently published a consultation document on annuity reform on which the Christian Brethren have made representations to the Inland Revenue and the Treasury. I shall be looking at those representations extremely closely, and although this dialogue has been going on for a long time, perhaps in the future we will manage to find a way through it. However, we must bear it in mind that it is not compulsory for people to save in a pension fund. There are other ways of saving, so people have a choice about the way in which they save for their retirement. It is not incumbent on individuals who disagree with our approach to buy an annuity product. They have other methods at their disposal and other ways of saving for their retirement.

Dr. Vincent Cable (Twickenham)

I should like clarification of the Government's intention. Is the Minister saying that they are now committed to meeting the concerns of this group and will seek to meet them through regulatory change or negotiations with the Inland Revenue even if primary legislation is not forthcoming? Is that a Government commitment?

Ruth Kelly

It is a commitment to try and understand its concerns and see whether there are ways in which we can meet them. I am afraid that I cannot today give a commitment that we will be able to meet them. Although there is a compulsion to buy an annuity if one saves through a pension fund, there are of course other ways of saving for old age, and I shall bear that in mind when considering these issues.

I want to get back to the way in which the amendment has been tabled and the technical difficulties that the Opposition's proposals present. The essential problem remains—that of securing an income for the whole of a person's retirement, no matter how long that might be. The version of the retirement failsafe fund in Committee attempted to cover the detail in the Bill itself. Presumably, the general thrust that Members who tabled the amendments would like to see in regulations remains much the same.

The proposals made in Committee had many drawbacks and would not have provided the necessary guarantees. For example, they attempted to deal with the possibility of the fund running out over time by requiring the size of the retirement failsafe fund to be 150 per cent. of the fund size needed to generate an annual minimum retirement income, presumably by reference to what could be purchased on the annuity market. The minimum retirement income is to be whatever amount was set by the Chancellor for the year in question. It would have to increase each year by reference to increases in the retail prices index, capped at 5 per cent. How much of the fund would be necessary to achieve that were an annuity to be purchased on day one would depend on the age of the scheme member at that time. Even if there were enough money in the pension scheme to cover the 150 per cent. condition at the outset—and most funds would be well below the necessary fund size of around £83,000—there 'would be no guarantee that the failsafe fund would be able to generate the minimum retirement income year after year. A downturn in the investment fund could easily lead to a depletion of the fund size.

I understand the concerns of the Christian Brethren, but the fact remains that an annuity is the only means of guaranteeing a secure income for the whole of a person's life. A failsafe fund cannot do that. Apart from the possibility of a downturn in the investment market causing funds to deplete rapidly, the pension scheme member would be permanently exposed to mortality drag. That concept may seem arcane to the outside world, but we had discussions in Committee about the importance of mortality drag, and it remains critical to the debate. I think that it would be helpful if I explained the phenomenon in broad terms because of the importance that I attach to it.

Some people believe that it is better for a pensioner to wait to buy an annuity because annuity rates are higher for older people. It is certainly true that annuity rates are higher for older people, but that fact is only part of the story. Annuity providers set their rates by judging the life expectancy of their customers. The judgment determines how much capital they can afford to return each year to people who buy annuities, along with interest. Because older people are more likely to die, this mortality cross-subsidy allows the provider to give a bigger capital boost to its older annuity customers. That is why annuity rates rise with age.

If someone decides to start taking benefits from their pension savings, delays buying an annuity and draws income from their fund, part of their fund remains invested. After a period they could use the residual fund, with any investment growth, to buy an annuity at the rate for their age then. However, the residual fund needs a strong growth rate if it is to allow pensioners to buy the same level of annuity income as they could have achieved if they had bought an annuity when they first started drawing benefits from the fund. There are two reasons for this: first, the residual fund does not benefit from mortality cross-subsidy until it is used to buy an annuity. The delay means that older people get less benefit from the early deaths of people born at the same time, because their capital was never pooled with them.

Secondly, life expectancy increases with age. For example, a man of 65 might on average expect to reach age 82, but if he survives to age 75, he can expect to reach age 85. This may at first seem odd. It happens because people who die younger have fallen out of the picture when the life expectancy for people at any given age is calculated. So the older people are when they buy an annuity, the greater the age the annuity provider must expect them to achieve, and the longer the annuity has to last. Taken together, those two effects mean that the residual fund has to make sustained and reliable returns well above those of fixed interest securities such as gilts in order to keep pace with the income that an annuity would have provided.

12 noon

Mr. Gardiner

I am grateful to my hon. Friend for giving way again. Have she or her officials done any research into the intended effect of the proposals? If they encouraged more and more people to take annuities later in life, how would the annuities market be affected? Might not rates automatically be depressed by the very phenomenon that the proposals seek to achieve?

Ruth Kelly

I thank my hon. Friend for his very interesting remarks. Clearly, substantial changes of the sort that hon. Members opposite propose would have a very significant impact on the annuity market in terms of rates, availability and types, and so forth. I intend to return to some of those issues when we discuss other amendments, and especially in relation to the effect of the proposal of the right hon. Member for Skipton and Ripon (Mr. Curry) to ask people to buy a compulsory annuity at 65. Presumably, that applies to people who describe themselves as non-Christian Brethren, although that is not clearly set out in the Bill. The proposal would also have a substantial impact on the gilt market—an issue to which I shall return, along with other matters; especially the affordability of the proposals.

Mortality drag is one of the factors that must be taken into account when income withdrawal or draw-down, as it is also known, is considered under the existing rules. However, the period of draw-down is limited to attaining the age of 75—after which the increased investment returns begin to look unsustainable. In that context, the proposal is that an annuity would never be purchased, possibly with dire consequences for the pension scheme member as they get older. I hope that I have at least shown that there is no quick and easy alternative to annuity purchase that would meet the Government's requirement that tax-relieved pension fund moneys should provide a secure income that is guaranteed to last for the whole of the pensioner's retirement, no matter how long they live.

I should also like to remind the House of some of the other elements of the retirement failsafe fund that would have taken effect under proposals previously tabled by hon. Members. Anyone whose fund size was more than that needed to meet the 150 per cent. condition would have the freedom to withdraw as much as they liked from the remaining personal pension fund before they reach 80, when all the remaining funds would be merged. Then and for every year afterwards, the fund would be divided by the number of years remaining to age 100, and that amount would be paid out as income.

There was nothing to stop the whole of the fund that remained after the failsafe fund has been set up from being withdrawn before age 80. Clearly, it would be the choice of many wealthy people to extract the maximum amount possible just before reaching 80 so that it was not subject to the rules that came into play at that age. The lack of any compulsion to annuitise and the provision of full access to the funds before age 80 would, like the Bill's main proposals, be an enormous encouragement to wealthy people to save much more of their income or transfer savings from elsewhere into tax-relieved pension funds.

The Exchequer costs of the extra tax reliefs that would be claimed as a result are estimated to run into hundreds of millions of pounds a year. I shall not explain the matter further at this stage, but I propose to return to it later in the debate. The point is that the reliefs would be given other than for their intended pension purpose. The proposals would have enabled those with large funds built up with the benefit of very generous tax reliefs to set aside only a small proportion for the provision of retirement income and use the rest for any purpose they wished. That is not an acceptable use of tax relief. The proposals considered in Committee also left unaddressed the critical question of what would happen if the scheme member lived to 100. Even if the fund had not run out beforehand, it was designed to do so at that age.

Mr. David Curry (Skipton and Ripon)

His life expectancy would be 130 by then.

Ruth Kelly

The right hon. Gentleman points out that if people reach the age of 100, they may have a significant further period to live.

The hon. Members who tabled the amendments have argued in the past—they may do so again today—that it is precisely because of the need to address the difficulties that I have mentioned that they now propose that all that should be sorted out by regulations. I hope that I have made it clear that it is not that easy to solve some of these very difficult problems and that it cannot be done merely through regulation. I think that that shows that the proposals have not been thought through coherently.

Mr. Leigh

I think that we can take it as read that, for the technical reasons that the Minister has outlined, she and her officials are opposed to the retirement failsafe fund. That is fair enough; she is entitled to her point of view. However, the House is entitled to get an explanation before she sits down. Given that she holds those views, how does she intend to address the conscientious objection that people have registered?

Ruth Kelly

I thank the hon. Gentleman for his comments, which I know are genuine; indeed, I share those concerns. It would be beneficial if we could think of some way of meeting the concerns of the Christian Brethren while maintaining our basic principles for the use of tax relief, as has been clearly set out in our consultation document. Of course, we are still considering the results of the consultation, which is not designed to fit in neatly to the timetable of the Bill. We will consider those results and we take the issues extremely seriously.

Even if the principle behind the amendments were acceptable—I have pointed out that there are serious concerns even about the principle that they involve—they are still technically flawed. For example, amendment No. 1 still treats income invested in a retirement failsafe fund as benefit to be paid out of the personal pension scheme. However, there is no proposal to amend section 633 of the Income and Corporation Taxes Act 1988, which defines the scope of benefits that a personal pension scheme can provide to include payments into such a fund. So the status of the retirement failsafe fund is again left unclear and uncertain. Regulations could not sort out that problem because they could not override section 633 of the Income and Corporation Taxes Act.

There is also still the unresolved conflict with the Bill's other clauses. For example, the Bill makes a minimum retirement income annuity compulsory at 65. Although amendment No. 4 states that a member may transfer funds into a Retirement Failsafe Fund if he elects not to purchase an annuity", it is insufficient to disapply the Bill's mandatory annuity purchase requirement. Even if the member could transfer funds into a retirement failsafe fund, it is not clear what would happen if the proposed regulations had not been made at that time. The amendments make no provision as to time scales.

I am afraid the amendments that we have are completely unworkable on technical grounds and could not be put right by regulations. As I said, the previous proposals did not resolve the difficulties and were costly. Now the aim of the hon. Members who tabled the amendments is for the Government to accept the failsafe fund in principle and to sort out the problems at a later date by way of regulations.

I do not believe that this Bill is the right way to take the issues forward and to meet the Brethren's concerns. I believe that the better course is to examine the issues as part of our ongoing consultation exercise. The consultation document "Modernising Annuities", which was published on 5 February, is intended to stimulate discussion on annuity issues. I shall certainly commit myself to studying the response of the Christian Brethren very carefully. As I said in the House on 14 February, 1 shall be happy to go on exploring the issues with those involved if we cannot make an immediate response to their demands.

I do not think that the Bill is the right way to take those particular concerns forward, so to say the least, I am not comfortable with the amendments that have been tabled by hon. Members opposite.

Mr. Howard Flight (Arundel and South Downs)

The Minister presented the proceedings in Committee the wrong way round. A clear vote was cast by a cross-party majority in favour of the principle of the failsafe fund. The votes were not in favour of the specific detailed proposals. It is therefore logical that on Report we should follow that principle: the concept is accepted, but we all know that there are difficulties in working out precisely how the provisions would operate. Given that there have been four years of discussions with the Revenue, it is entirely logical to speak in support of our main amendment in the group. In essence, that amendment leaves the meeting of the objectives to be sorted out with the Revenue in regulations.

The Minister's remarks were disingenuous, as the issue has been around for four years. The Brethren have been in detailed discussions with the Revenue to sort out an arrangement that can provide retirement income for them without their having to go against their religious principles by purchasing an annuity. The point at issue is that an annuity is an insurance policy, which, for the Brethren, represents gambling with death, and that is against their religious principles. It is simply not good enough for the Government to go on mumbling about commitments to go on talking for another four years to solve the problem: it is time that it was solved.

Mr. Andrew Dismore (Hendon)

I have some sympathy with the position of the Christian Brethren, but I find it difficult to understand what leads them to that conclusion. Can the hon. Gentleman enlighten me about the biblical authority on which it is based, so that I can appreciate the fundamental point to which they object?

Mr. Flight

I should have thought that the hon. Gentleman was capable of a better contribution. I am not a member of the Plymouth Brethren. The point of principle is clear, and the exact biblical references are set out in their substantial literature.

Mrs. Browning

I am not a member of the Plymouth Brethren, but the reference is Romans 13.1.

Mr. Flight

I thank my hon. Friend.

As the Minister said, the proposals were not supported in Committee, and further discussions are required to work out what will satisfy all parties. The failsafe fund would have a very conservative investment approach, so, contrary to her comments, there would he no equity risk. Moreover, the amount that people put into it would have to be sufficient to avoid the possibility of their drawing too much of it prior to death, then becoming dependent on income support.

The Minister cited as a basic principle a concept that is in fact untrue, as she has accepted on other occasions. A standard guaranteed annuity in no way provides certainty of retirement income. For example, if we face a period of very high inflation resulting from oil prices rocketing because of the tragic middle east situation, a guaranteed annuity could easily become of minimal worth. It is potentially a less secure way of providing for certainty of income in old age than a failsafe fund that can widen its investments. The principle that a guaranteed annuity provides certainty is inaccurate—it provides no certainty of real income, but merely a certainty of a nominal income.

In essence, the amendments pursue the position reached by the Committee to its logical and sensible conclusion—to leave the Revenue to work out a legal framework for arrangements that meet the Brethren's religious conscience. It is more than time that the issue was settled. It is not good enough simply to go on saying, "We'll go on talking; we'd like to do something about it." That is disingenuous.

There was a marked lack of conviction in the Minister's comments about annuities that are not directly relevant. We shall no doubt debate those in due course.

12.15 pm
Mrs. Browning

Obviously, I support my hon. Friend, as I, too, put my name to this group of amendments.

On several occasions the Minister referred to the group of amendments as having been tabled by "hon. Members opposite". She and other hon. Members should be aware that the amendments were also tabled in the name of the right hon. Member for Birkenhead (Mr. Field), whose knowledge and experience of pension matters probably exceeds that of any other Back Bencher on either side of the House. When the relevant amendments were voted on in Committee—where the Government clearly had a majority—only four Labour Members voted, so my amendments received a degree of cross-party support.

Ruth Kelly

I should make it clear that the members of a Committee on a private Member's Bill are chosen by the hon. Member who is promoting it, so of course the Government did not have a majority.

Mrs. Browning

When the vote was taken, the majority in favour of the amendments arose as a result of the abstention of Labour Members. My right hon. Friend the Member for Skipton and Ripon (Mr. Curry) is younger that me, so he probably has a more finely-tuned memory.

Mr. Curry

My life expectancy is, I believe, going up with every year that I continue to survive.

To clarify the position, the promoter of a private Member's Bill is obliged to select a Committee membership that respects the balance of forces in the Chamber. When I selected my Bill Committee, I could not select all its Labour Members from those who participated on Second Reading, because not enough had done so, so I was obliged to trawl more widely. I even chose a Parliamentary Private Secretary, which was an example of unaccustomed generosity.

Mrs. Browning

I am grateful to my right hon. Friend. That proves my point.

I want to press my case with the Minister. As the hon. Member for Brent, North (Mr. Gardiner) said, in redrafting the Bill prior to Report my right hon. and hon. Friends and I said that we were willing to allow the Government to make some progress. The Government are consulting on the subject and I am aware of the Plymouth Brethren's most generous contribution to the Government's paper as an attempt to offer ways forward.

I repeat a point that was made in Committee. The United Kingdom is not unique in this respect. The Brethren have a presence in other countries such as America and Australia, whose legislatures have had similar problems, especially in relation to revenue services, but they have found ways forward. Thanks to the last Conservative Government, the UK pioneered the way in private pensions. Given that other countries have found a way round the difficulty and enabled all parts of their communities, including minorities, to participate in providing for their retirement, it is extraordinary that the Government are unable to find a practical and pragmatic way forward to accommodate the needs of this minority in line with the checks and balances required by the Inland Revenue.

The amendment is helpful as it would allow the matter to be decided later in the regulatory process. However, discussions have taken place and there are clear examples from abroad that the Government could call upon to ascertain how other countries have proceeded. It should not be beyond the wit of man to make some pretty urgent progress on such an important issue.

I hope that the Government will start seeking opportunities to find solutions, rather than considering old arguments which suggest that nothing can be done. I hope also that the Minister will take in good faith the motivation underlying the amendments. The supporters of the amendments are trying to make progress. We are looking for more from the Minister than her assurance that there will be more talks. Clearly, there will need to be more talks, but we would like those talks to result in positive action.

Dr. Cable

I support the way in which the hon. Member for Arundel and South Downs (Mr. Flight) spoke to the amendment. We understand that the Government have serious problems with the Bill. There are many serious arguments that they can bring to bear. The Minister advanced many of the arguments adequately on Second Reading and in Committee. However, the way in which the Government have handled the issue is unworthy of them. I am referring to the history of the way in which they have dealt with the religious minority that we are considering, and not only to the amendments.

It is not merely a matter of there being cross-party consensus. Those who are trying to achieve change are acting in an entirely disinterested way. A point not yet made today but which was made in Committee is that the Brethren do not vote. None of us has any self-interest in pursuing this line of action. We are acting to preserve the interests of a small minority that rightly or wrongly feels strongly about the issue before us.

We are talking about conscientious objection. I have a rather colourful and varied spiritual CV. In an earlier part of my life I was a Quaker. Most of my fellow Quakers at that time had a conscientious objection to war. This country has long accepted that they should opt out of such obligations without national defence collapsing.

The Inland Revenue seems unable to accept that a small minority can find a way out of the annuities regulations without the revenue base of the country collapsing. That shows a complete lack of imagination and flexibility. I thought that the Minister would say, "We see problems with the failsafe mechanism, but I accept that the process has taken far too long. I will work with the Inland Revenue to find an expeditious solution to the problem." That is what we want the hon. Lady to say.

I do not accept the amendment in all its details, but I hope that the Minister will be a little more positive and constructive than she has been so far.

Mr. Curry

I am grateful to my hon. Friend the Member for Tiverton and Honiton (Mrs. Browning) for her gallantry. It was slightly excessive gallantry, as I am older than her. I would not wish the House to be misled on that demographic phenomenon, especially as it affects my life expectancy. The advantage of being older than my hon. Friend is that I have an enhanced life expectancy. The exponential consequences are wonderfully biblical.

There is no point in pretending that the amendments proposed by my hon. Friends and the right hon. Member for Birkenhead (Mr. Field) are not at odds with the principle of the Bill. We might as well be clear about that. I have rested the Bill upon the continued obligation to buy an annuity to satisfy the Government's need that people should remain out of welfare and that provision made with the benefit of tax concessions should be devoted to the purposes for which the concession was made in the first instance. In that sense, what is being proposed clearly runs counter to one of the underlying principles in the Bill. I sought to present a Bill that does not confront the Government's preoccupations, but which will work with the grain of them.

I recognise the sense of frustration that after such a long time there is still not an outcome. I am sure that my hon. Friend the Member for Arundel and South Downs (Mr. Flight) tabled the amendments without regarding them as being impeccable in every way. I have yet to encounter a private Member's Bill that did not contain technical flaws; that is the nature of the beast. However, at some stage we must precipitate a more active response from the Government. I am sure that the purpose of the amendments is to bring about such a response.

The Minister accepts that there is a genuine attempt to address a problem. As the hon. Member for Twickenham (Dr. Cable) said, the Christian Brethren are a part of his electorate, but they are not part of his electors. We are all in that situation. The Minister said that she understands the situation and that she would like to find a way through it. We accept that good will has been expressed on both sides of the House. There is not a tricky mechanism in the Bill to try to achieve a certain purpose. The Bill is specific in its functions. That is why my hon. Friend the Member for Arundel and South Downs said to the Government, "Find a way of doing this."

We have all sought some landing lights from the Government. The Minister's speech was aspirational. What she aspired to was welcome. We all want to find an answer. If she were able to give us something a little more concrete in terms of timetabling and the means by which engagement will take place—some sort of structure by which she hopes to find a way through—I am sure that we would all be greatly reassured. The purpose of the amendments is not to drive a coach and horses through the Bill, but to address a problem that has dragged on for a very long time. In a mature democracy such as ours, it should be possible to find a solution.

Mr. Leigh

There is very little new to say. I was one of the people who put my name to the amendments. I have had numerous discussions with the Plymouth Brethren, who have come to see me in my surgery on many issues. They are difficult people to deal with because they have an absolutely rigid conscientious belief in what the Bible says and base their whole life on it.

By definition, no one in the Chamber is a member of that particular religion. Apparently, only about 12,000 people around the country are, so it would be easy to dismiss them as unimportant people who have a very rigid narrow lifestyle, but although I do not share their beliefs I firmly believe that the House of Commons is precisely the place where the standard should be taken up for tiny minorities. If we do not do it now and do not achieve progress this morning, we are failing in our duty.

Mr. Dismore

I know that the hon. Gentleman is a man of great faith. The hon. Member for Tiverton and Honiton (Mrs. Browning) mentioned the biblical reference Romans 13.1, which I have looked up. I have some difficulty in understanding the basis of the Plymouth Brethren's objection. Romans 13.1, the Kings James version, says: Let every soul be subject unto the higher powers. For there is no power but of God: the powers that be are ordained of God. Perhaps the hon. Gentleman could explain how the Plymouth Brethren use that particular biblical reference to reach their objection. I know he is a man who understands these issues very well. If I am to understand the basis of this debate, I would like to understand that. In the debate on a previous Bill, we spent some time examining the basis of the argument. I would like to understand the basis of this one.

Mr. Leigh

Although this Chamber is very well placed to identify a minority group and to try to ensure a mechanism by which that minority group can live properly in society, it is not well equipped to start to look into the detailed religious beliefs of minorities, whether the Plymouth Brethren or any other, and to say why they have come to their views. The fact is that they have come to those views and they believe that, if people take out an annuity or an assurance policy they are gambling with life. They believe that it is prohibited in the Bible.

None of us in the Chamber shares that view. All of us are happy with taking out insurance policies, annuities and all the rest of it. That is not the issue. The issue is that there is this minority. The Minister's speech was disappointing in that respect. She is entitled to say that the amendment is defective and that she is opposed to a retirement failsafe fund. My right hon. Friend the Member for Skipton and Ripon (Mr. Curry) referred to landing lights. It is not a question of not being able to see the landing lights. We have no conception after this short debate of where the Minister is going. Despite numerous interventions—she was questioned again and again—she has not shed the slightest bit of light on how she intends to deal with these people.

I would have thought—I hope that the Minister will have a chance to sum up in this debate—that it was possible for her to say, "We have these people whom we are not allowed to mention who are advising us, some of the cleverest people in the land. We have this tiny minority of 12,000 people." As I understand it, she is saying that, if she were to accommodate that minority, it would create a loophole for wealthy people who are not Plymouth Brethren. That is an understandable point of view.

Would it not be more honest, then, for the Minister to say, "This is such a technically difficult subject, this is such a small minority that I am never going to be able to resolve the issue. If I make an exception to help that particular minority, a much wider group of wealthy taxpayers will pour through the loophole"? That would be a more honest point of view. The Plymouth Brethren would have to accept that. They would have to accept that they will never be able to have an annuity and will have to find some other mechanism. The Minister said that there were other mechanisms, but she was not prepared to articulate them.

12.30 pm

This debate is depressing because, frankly, it is disingenuous. The Minister could say either that she would never be able to accommodate the concerns—we could understand that—or that she had been discussing the matter with her officials for four years and there was a way of dealing with it that she was prepared to share with the House without giving a commitment today, which no one would expect. We would like a brief elucidation of how she thinks the problem can be resolved. If it cannot be resolved, let us be honest and admit it here in winding up the debate today.

Mr. Gardiner

I have some sympathy with the remarks of the hon. Member for Gainsborough (Mr. Leigh). The amendment should be called the proselytising or evangelical amendment.

Members have talked about how there are only a mere 12,000 Plymouth Brethren in the entire United Kingdom. I suspect that were the amendment to be passed, that 12,000 might become closer to 12 million. The amendment's supporters are seeking to put through a package without specifying what is in it, but which would achieve certain objectives that would have extremely damaging consequences for the Treasury, as they well know.

Mr. Flight

Do I understand the hon. Gentleman correctly as saying that there are at least 12 million people who are opposed to the Government's policy in this area?

Mr. Gardiner

As the hon. Gentleman will recognise, that is not what I am saying. If 12 million people were to be given by the Government what amounts to an enormous loophole through the taxation system, they might well avail themselves of it. I could not support that and I trust that the hon. Gentleman would not either.

I understand the considerable concern about annuities that has prompted the Bill. I pay tribute to the right hon. Member for Skipton and Ripon (Mr. Curry) for the way in which he has piloted the Bill through the House and conducted Second Reading, and the skilful way in which he dealt with the Committee. The decline in the equities market and the falling rate that annuities now achieve have caused concern about security in retirement. Obviously, that is something that the Government must address and are addressing through consultation.

It is in all of our interests that people's savings for retirement are secured into the future, but nothing could prompt me to go quite as far as the hon. Member for Arundel and South Downs (Mr. Flight) in claiming that annuities were not, in principle, a secure way of doing that. He gave a scenario in which oil prices escalated and inflation became rampant, so that even guaranteed annuities were not able to achieve the expected security that they might otherwise provide in old age.

Mr. Flight

It is clear that the indexed annuities proposed in the Bill do that. It is widely known and understood that guaranteed annuities, which are not indexed, cannot provide any secure real income.

Mr. Gardiner

I take issue with the hon. Gentleman's remarks that annuities do not provide the most secure way of providing for one's retirement income way into the future. He and his party have always maintained that—they maintained it when in government—and I should be wholly surprised if they tried to imply otherwise at this stage. The example that he uses—rampant inflation and escalating oil prices—fails to take into account the effect of the equities market on funds that would be in precisely the investment vehicle that he proposes. Of course, there would be similar consequential and deleterious effects. It is disingenuous of him to claim that one could discover a problem with annuities in this context, but not with his proposed investment vehicle. To be honest, I expect better of him, knowing how well he understands these issues.

My hon. Friend the Minister spoke extremely cogently about mortality drag, but several sedentary interventions implied otherwise. The right hon. Member for Skipton and Ripon said that the older one becomes, the older one is likely to become, but anybody who understands the business of actuaries and actuarial tables will realise exactly what the Minister was referring to. Over time, mortalities that would occur at an earlier rate fall away, so life expectancy increases—up to a certain point. As with all such matters, there are limiting parameters. Of course, the idea that one can go on to 130 once one attains the great age of 100 is complete nonsense. Such cheapskate responses by Opposition Members to the Minister's arguments are wholly inappropriate.

As the Minister explained, the costs arising from the problem of mortality drag are substantial, and I seek from the Opposition a response to the point that I tried to make in an intervention. Precisely how would they deal with the global effect of a rise in the age at which people seek to take out annuities? I will happily give way to any Opposition Member, including the right hon. Member for Skipton and Ripon, who proposed the Bill. Would he care to explain that point to the House, because it is important and the Opposition have yet to resolve it? I see that I have no takers, which obviously means that they have no response to make.

My hon. Friend the Member for Hendon (Mr. Dismore) encouraged us to look more carefully at the biblical reference in Romans 13.1, given to us by the hon. Member for Tiverton and Honiton (Mrs. Browning), which is the basis for the argument. I shall quote from the slightly more up-to-date version that I have obtained—the revised standard version—rather than the King James version.

Mrs. Browning

Will the hon. Gentleman give way?

Mr. Gardiner

I will—as soon as I have read the passage to which the hon. Lady referred: Everyone must submit himself to the governing authorities, for there is no authority except that which God has established. The authorities that exist have been established by God.

I know that certain pages of Private Eye may carry such a view, but I find it hard to understand how the hon. Lady makes the leap from the passage Everyone must submit himself to the governing authorities to the position that no one who believes that passage should take out insurance. In this country, the governing authorities—this Parliament—stipulate that those who drive a car or employ people must take out insurance. Therefore, in what way does that passage, of all passages, suggest that people should not submit themselves to the governing authorities?

Mrs. Browning

The answer is simple. As a Member of Parliament, I respect the views, whether religious or other, that people hold on a point of conscience based on what they believe, although I neither share nor challenge them. I am sorry that the hon. Gentleman does not show that respect. If I may say so, I hope that his remarks are not part of a filibuster. Let me give him a Shakespeare quote: The devil can cite scripture for his purpose. It sounds to me as though the hon. Gentleman is doing just that.

Mr. Gardiner

Let me point out that it was not I who began quoting the scriptures; it was the hon. Lady herself. She gave the reference and it is that which I ask her to explain.

Mrs. Browning


Mr. Gardiner

I shall give way again in due course, but, before my forked tail grows any longer, I should have a chance to finish my remarks.

I have absolutely no case to make against the estimable beliefs sincerely held by any group in this country. I am not challenging such beliefs; I am challenging whether the hon. Lady can possibly be correct in citing that particular passage as the basis for such belief.

Mrs. Browning

I am happy to help the hon. Gentleman. The Plymouth Brethren's response to the Government's consultation document says: The fellowship had its origins before 1830. We support Government as instituted by God (Romans 13.1)". That is what I quoted to hint, and I accept that it is the belief of a group of people. I do not challenge it and I do not question it; I respect it. It is about time that he showed some respect.

The hon. Member for Hendon spoke earlier about the need to change the marriage laws in respect of the Jewish community. I am not Jewish and I do not share their faith, but I respect it. I believe that it is the duty of the House to take account of the needs of the Jewish faith. I am sorry that the hon. Member for Brent, North (Mr. Gardiner) is not able to do the same for the Plymouth Brethren.

Mr. Gardiner

Once again, I must rebut what the hon. Lady says. My lack of respect applies not to the beliefs of the Plymouth Brethren, but to her remarks. I do not respect them because they are wrong. [Interruption.] If she will just listen before bouncing out of her seat again, I shall make my point.

The Plymouth Brethren, in the preamble to their remarks, refer to their general and widespread respect for government and cite Romans 13.1 as evidence of biblical backing for that respect. However, the hon. Lady quoted that biblical passage not when asked why the Plymouth Brethren have a general respect for the authorities ordained by God, but in response to a question from my hon. Friend the Member for Hendon about why they believe that they should not take out insurance policies.

12.45 pm

The point I am making to the hon. Lady—if she will only listen, rather than bouncing up yet again—is that that passage does not substantiate the belief of the Plymouth Brethren about insurance policies. If she told us what biblical foundation the Brethren have for that belief, it would be a more proper response to what was said by the hon. Member for Hendon. The fact is that she was mistaken in her biblical citation.

Mrs. Browning

I hesitate to continue this filibuster, and I am not an official advocate for the Brethren, but I think I can share my understanding of why they do not consider life insurance, and products or policies associated with it, acceptable. They render unto Caesar what is Caesar's and unto God what is God's, and therefore they keep the law of the land. If the law of the land says that a motor vehicle must be insured, for obvious reasons, they keep that law, according to my understanding. The taking out of a life policy or an annuity, however, is not a compulsory law of the land, except as indicated in the current pensions legislation. The Brethren therefore opt not, to avail themselves of that opportunity. The aim is to allow them to provide for their retirement without having to avail themselves of it.

Failing to take out an annuity is not a criminal offence. There is a clear differentiation between abiding by the rules of mammon, or of Government, and not taking advantage of that opportunity. As I have said, I am not an official advocate of the Brethren, but I understand them to believe that matters of life and death are matters not for man but for God. I respect those beliefs, because I think the Brethren hold them sincerely. That is what the House needs to understand.

Mr. Gardiner

I am grateful to the hon. Lady for coming to the point, but she has not yet done what my hon. Friend the Member for Hendon asked her to do. She has not given us the biblical basis.

Mr. Leigh

Will the hon. Gentleman give way?

Mr. Gardiner

I should be delighted to do so.

Mr. Leigh

This illustrates why it is wrong to engage in this kind of debate, but we may as well get it right. I have checked with the Plymouth Brethren, and they say that the biblical reference on which they base their belief is I Corinthians chapter 6, verses 19–20. They regard any form of life annuity as a life insurance policy, which they have consistently refused. They quote the Bible, which states Ye are not your own, for ye are bought with a price. That is the basis of their beliefs, and we should respect it.

Mr. Gardiner

I am most grateful to the hon. Gentleman, from whom we have finally secured the proper response to the question posed by the hon. Member for Hendon. I hope the hon. Member for Tiverton and Honiton accepts that the quotation she gave earlier did not provide that response, and that we have now plugged the gap.

The debate has perhaps focused too much on matters of theology and too little on other matters—

Mr. Dismore

Will my hon. Friend give way?

Mr. Gardiner

With trepidation, I give way to the theological gentleman behind me.

Mr. Dismore

I certainly do not claim to be a theological gentleman, but I think that this part of the debate is very important. If we are to provide a remedy for the Plymouth Brethren, we must understand the basis of their objection. We must work out their theological position if we are to find an answer. I thank the hon. Member for Gainsborough (Mr. Leigh) for giving us the correct reference: I should like to look it up for myself, but I suspect there will not be time for me to do so during this short debate.

My hon. Friend is right to explore the issue further with the hon. Member for Tiverton and Honiton (Mrs. Browning), and I am surprised that she objected so much. Only by understanding the basis of the objection can we work together to find a solution.

Mr. Gardiner

I am grateful to my hon. Friend, and also to the hon. Member for Gainsborough (Mr. Leigh) for identifying the source of all this.

The reason for my concern about the amendment is plain. It introduces a vehicle to achieve a particular purpose without specifying in any way—leaving it open to subsequent regulation—how that should be effected. It says, "We want you to do something in this area that will broadly achieve this effect, but, for the life of us, we can't work out how you could possibly do it." That may be a good example of the benefits of opposition—one can simply say things without having to work out the nuts and bolts of how you get from A, one's starting point, to B, the end result that one wants. It seems to betoken great irresponsibility on the part of the Opposition if they seek to put that onus on Government without specifying in any way how it might come about.

My hon. Friend the Economic Secretary has made it clear that the Opposition amendment is not only technically at fault. I have no doubt that if the amendment were substantive the Government could avail themselves of draftsmen who could remedy those deficiencies, but it is not a substantive amendment. It is an amendment that has a hole at its heart. It is a Henry VIII clause that would leave the Government to fill in the regulations at a later date. For that reason, I cannot accept it.

Mr. Dismore

I also have a few comments on this group of amendments. I am sorry that Opposition Members took objection to my question, which was simply an attempt to try to understand the basis of the Christian Brethren's objection. Only if we examine the basis of the objection in detail and its origin can we start to think about providing a remedy. If I may draw a contrast between their reaction and the approach adopted in relation to the previous Bill, we researched in great detail the background to why there was a problem with Jewish law and what could be done to deal practically with that problem. That was what we achieved in the previous Bill which, I am pleased to say, passed through the House earlier. The difficulty here is that until we get to the bottom of the problem from the Christian Brethren's point of view, it is difficult to start trying to find a measure that can specifically plug that gap.

One can approach this problem in two different ways. One can pursue a dialogue, as my hon. Friend the Economic Secretary suggested, to try to find a way to meet the requirements and tenets of the faith, yet at the same time satisfy the Inland Revenue, which has its own tenets that—I am afraid to say—are sometimes more obscure than those of the Plymouth Brethren. In the end, however, we must try to satisfy their requirements. For example, one can have a specific conscientious objection clause for the Plymouth Brethren, as the previous Bill had a specific reference to the Jewish faith. Alternatively, one can try to devise a general rule that will sort out the particular problem but will not lead to wider abuses.

To continue the classical themes of the previous debate, I am worried that if we are not careful we could end up creating a Trojan horse. We can introduce an amendment to provide for the 12,000 or so members of the Plymouth Brethren, for whom I have great sympathy and whose problem I would want to address, but how do we create a remedy that does not at the same time create a loophole—a Trojan horse—that will allow many other people for whom the reform is not intended to take advantage of it? That is the dichotomy facing my hon. Friend the Economic Secretary and the Treasury in trying to accommodate the Plymouth Brethren.

My hon. Friend the Member for Brent, North (Mr. Gardiner) opened his remarks by saying that there was the potential to create a great proselytising army on behalf of the Plymouth Brethren, and there is force in that argument. I am afraid that, sometimes, rich people adopt all sorts of strange practices to try to avoid their obligations to the Inland Revenue. We know about the loophole of living overseas, and a miraculous conversion to the Plymouth Brethren may not be out of the question for some people if they saw that they might gain financial benefit from it, thus abusing the very real faith and tenet of the Christian Brethren.

We cannot get round this problem simply by having a conscientious objection clause in the way that the Divorce (Religious Marriages) Bill contained a specific application for the Jewish community. The alternative is to try to develop a rule of general applicability that would solve the problem of the Plymouth Brethren without leading to all the other ills that my hon. Friend the Minister mentioned in introducing the debate.

I am not an expert in annuities, although I know a little more about the subject now than I did before Second Reading, but I understand why it is so difficult to resolve this problem. The hon. Member for Twickenham (Dr. Cable), who is no longer in his place, talked about conscientious objection. If we were to allow conscientious objection to paying taxes, several million people might subscribe to it and the whole country would grind to a halt.

Although we must develop a rule of general applicability for the reasons that I have outlined, it is difficult to see how to go about it. I am not surprised that discussions have been taking place for the past four years, trying to find a solution that satisfies everybody. I sympathise with the position of my hon. Friend the Minister in trying to satisfy the Plymouth Brethren in this respect. The problem dates back to before 1830. My hon. Friend was quoting from a later version of the Bible, whereas I was quoting from the St. James version, which is the one on which the Plymouth Brethren base their objection to insurance. In the previous debate on the Divorce (Religious Marriages) Bill, we solved a problem that had lasted for 2,000 years. We did so relatively easily in the end but only after considerable debate, which had continued for several years before the Family Law Act 1996 was passed. Sometimes it takes an awfully long time to find a solution to these difficult and knotty problems of faith.

I am grateful that the Minister has indicated her willingness to maintain the dialogue with the Plymouth Brethren, but to try to foist a solution on them, as the amendments seek to do, is the wrong way to achieve that objective.

Ruth Kelly

I do not intend today to have a full debate on the underlying rationale behind the Christian Brethren's objection to the use of annuity products. I understand that their objection has been made in a genuine way to the Treasury and the Inland Revenue.

The amendments proposed by Members—I recognise the contribution by my right hon. Friend the Member for Birkenhead (Mr. Field)—have been made in good faith and I accept the motivation behind them. This debate is totally without self-interest because the Christian Brethren do not vote, but it is only right that the House should take an interest in the protection of minorities. They should be able to exercise their conscience in as full a way as the Government and society can provide for.

However, I do not accept that the route provided by this private Member's Bill can enable the Government to meet our objectives in providing secure, long-term savings in retirement and to deal with the difficulties faced by the Christian Brethren in relation to those issues. I set out clearly in my opening remarks some of the technical difficulties and explained why I do not believe that the matter can be dealt with by regulation—for example, there is no provision to amend section 633 of the Income and Corporation Taxes Act 1988 in that regard.

I also have more serious concerns. As the hon. Member for Gainsborough (Mr. Leigh) said, the Bill would not just create a loophole for the few but would undermine the whole purpose of the Bill. That point was reinforced by my hon. Friends. I do not see how the provisions can be set in the context of a private Member's Bill based on the compulsory annuity purchase by the majority of the population at age 65. I cannot see how the two are compatible.

1 pm

Mr. Flight

I thank the Minister for giving way. As she must be clear, the key purpose of the amendments is to secure from the Government a commitment that they will address the needs of the Plymouth Brethren, not that they will consider doing it or continue talking for ages.

Ruth Kelly

I thank the hon. Gentleman for his comments. I hope that hon. Members realise that I also enter these negotiations in good faith and, as far as possible, I am committed to finding a solution to the issues faced by the Christian Brethren. However, it is important to set the provisions in context.

The hon. Member for Twickenham (Dr. Cable), who is no longer in his place, drew a parallel between the Christian Brethren and the conscientious objectors who did not want to fight during the war. Such parallels are not illuminating in this context. We have to try to find a way to enable Christian Brethren to save for a secure income in retirement in a way that does not conflict with their religious beliefs. That is what I intend to try to facilitate.

Officials at the Inland Revenue are already involved in detailed and constructive dialogue with the Christian Brethren. I have published a consultation document and the Christian Brethren have provided a response. [Interruption.] I note the return of the hon. Member for Twickenham. Inland Revenue officials are now exploring with sincere and genuine people a way in which they could provide a secure income in retirement outside the current pensions framework. We have been exploring particularly how they might use the ISA framework.

At the moment, the Christian Brethren can contribute to cash ISAs for themselves or their employees. The problem is that employees might be tempted to withdraw some of the money from the ISA before they reach retirement age and to use it for other purposes. The difficulty is that that is down to individual choice. I understand that the Brethren, as employers, would prefer there to be some lock-in and the dialogue is continuing. However, it is difficult to provide a commitment to a lock-in for one group of individuals that would not apply to the majority of the population. It is not clear that we could provide a specific lock-in, and clearly a general lock-in would frustrate the general thrust of the Government's savings policy. ISAs are designed to be a flexible savings vehicle which allows immediate withdrawal and transfer between providers. However, negotiations are continuing.

I believe that the Christian Brethren understand that the Inland Revenue is looking at this in a constructive manner. Progress is being made in meeting some of their concerns and we may be able to find a way forward that addresses their needs and the Government's concerns. Of course I am committed to continuing the dialogue until both parties are satisfied with the outcome. I congratulate the hon. Members who tabled the amendments as it is right and proper that we discuss these issues in the House.

Question put, That the amendment be made:—

The House divided: Ayes 7, Noes 59.

Division No. 205] [1.4 pm
Curry, Rt Hon David McNulty, Tony
Hill, Keith Pearson, Ian
Johnson, Miss Melanie (Welwyn Hatfield) Tellers for the Ayes:
Kelly, Ruth Mr. Andrew Dismore and
Mackinlay, Andrew Mr. Andrew Miller.
Arbuthnot, Rt Hon James Laing, Mrs Eleanor
Bacon, Richard Lait, Mrs Jacqui
Baron, John Lansley, Andrew
Bercow, John Leigh, Edward
Beresford, Sir Paul Lewis, Dr Julian (New Forest E)
Boswell, Tim Liddell-Grainger, Ian
Bottomley, Peter (Worthing W) Lidington, David
Brady, Graham Luff, Peter
Browning, Mrs Angela Maclean, Rt Hon David
Bruce, Malcolm McLoughlin, Patrick
Burt, Alistair Malins, Humfrey
Cable, Dr Vincent Mercer, Patrick
Cash, William Osborne, George (Tatton)
Chapman, Sir Sydney (Chipping Barnet) Page, Richard
Portillo, Rt Hon Michael
Chope, Christopher Prisk, Mark
Clappison, James Randall, John
Duncan, Alan (Rutland & Melton) Redwood, Rt Hon John
Field, Mark (Cities of London) Roe, Mrs Marion
Flight, Howard Rosindell, Andrew
Forth, Rt Hon Eric Selous, Andrew
Francois, Mark Streeter, Gary
Gale, Roger Swayne, Desmond
Garnier, Edward Syms, Robert
Gibb, Nick Watkinson, Angela
Grayling, Chris Wiggin, Bill
Hammond, Philip Wilkinson, John
Hawkins, Nick Young, Rt Hon Sir George
Heathcoat-Amory, Rt Hon David
Hoban, Mark Tellers for the Noes:
Horam, John Mrs. Cheryl Gillan and
Johnson, Boris (Henley) Mr. Charles Hendry.

Question accordingly negatived.

1.15 pm
Ruth Kelly

I beg to move amendment No. 6, in page 1, line 16, leave out— 'Subject to subsection (7) below'.

Madam Deputy Speaker (Sylvia Heal)

With this it will be convenient to discuss Government amendment No. 9.

Ruth Kelly

The change made by the Bill does not recognise the differing life expectancies of different groups that insurers take into account in setting annuity rates. The measure would remove the right of insurers to underwrite personal pension annuities on the basis of sex, or to allow that to be taken into account as a risk factor. It would force personal pension annuity providers to use composite annuity rates averaging male and female factors.

It is argued that women get a raw deal because the annuity rates that they receive are lower than men's, but that is because of women's longer average life span. At the top rates that are currently available, a 65-year-old man who purchases an annuity for £100,000 might receive £706 a month. The comparable figure for a female purchaser would be £648 a month. However, let us consider what they would receive for the years after their respective life expectancies. The male's total payments for the 17 years over his expected life span would be £144,101, whereas for the 20 years over the female's life expectancy, she would receive £155,618.

Clearly, interest and inflation rates play a large part in assessing the value of the respective amounts, but those simple figures illustrate that the value of a woman's annuity is at least no less than that of a man. Other aspects being equal, an annuity payable to a woman may be smaller than that payable to a man, but it will on average be paid over a longer period.

It is not difficult to understand that unisex annuities would generally favour women and disadvantage men. On average, a man will not live as long as a woman. His annuity will therefore be paid for a shorter period than a woman's, and for the same outlay. That is simply illustrated. If a unisex annuity paid £675 a month for an outlay of £100,000, the male would receive £137,700 for the years after his expected life span whereas the female would receive £162,000. The Bill would prevent a man from entering into a personal pension annuity contract and buying with his money a pension that reflected his life expectancy.

Another effect is that, when setting a composite rate, any provider would be at risk of the male/female take-up not matching the assumed mix, and could therefore build in a margin that would lower annuity rates generally. The proposed change would also introduce inconsistency between types of pension arrangement. If the annuity was bought to secure benefits from an occupational pension scheme or a retirement annuity contract, rates could still take account of the annuitant's sex.

For those reasons, the Government cannot support the measure and I recommend the amendment to hon. Members.

Mr. Curry

We are now embarking on a subject that is central to the Bill. We must address the disparity between the treatment of men and women. I have listened to the Minister's comments, and her arguments are well put but intellectually tenuous. She admitted that a similar investment made by someone of either gender would result in a different outcome in terms of the income paid annually. Because women live longer, that would accumulate, so the total amount paid would be greater.

We could take this point to a more logical conclusion, of course, and open the gap between the rates much further. Then you, Madam Deputy Speaker, who I hope will live to a ripe old age, would say about your private pension, "It was a pretty miserable income year on year but, by gum, it didn't half add up at the end of my life, so I did very well out of it." What matters is people's expectation of the amount they have to live on which supplements their other pensions. The annual income is what counts in these calculations, not just the length of time over which it is paid.

I have introduced the idea of a unisex annuity because I think that it must be addressed. I accept that it has some penalties and could depress the rate available for men. Because most people buy flat-rate annuities, because most people who buy such annuities are men and because men have a shorter life expectancy than women, women get a raw deal. More and more women are acquiring their own pensions and they are surprised at how low some yields are.

Equally, the life expectancy gap is closing. There has been much explanation this morning of what life expectancy is, including the seemingly perverse phenomenon that the longer one lives, the longer one is going to live. However, that gap is closing between the two sexes and, as a member of the male sex, I am rather relieved. So increasing numbers of women will see themselves as being penalised.

The Minister will say that our proposal has all sorts of nefarious consequences. I think that if there is a will to address this issue, and if we say that we must overcome the disadvantage for women, the industry will find a way of delivering. It is a matter of equity.

This is the first Government to appoint a Minister for Women. It is a daft thing to do—I have always opposed such a notion. So it is curious that they are resolutely reaffirming their ability to continue discriminating against women. Yet here am I, from the side of the House that is supposed to be frightfully traditional about these matters, saying that we must break this cycle of disadvantage. We must at some stage grasp the nettle. That is why this proposal is in the Bill; I am very happy to defend it and to oppose the Government's attempts to remove it.

Mr. Gardiner

I hate to go back into history any further than we have already done, considering that we have talked about the destruction of the temple in 70 AD under the Emperor Vespasian and the letters of St. Paul. However, I wish to refer to the Marine Insurance Act 1906 which, as the right hon. Member for Skipton and Ripon (Mr. Curry) is aware, is the consolidation Act upon which all insurance policies have to be written. It is one of the features of insurance that distinguishes it from activities such as gaming and gambling; they are based on risk, not certainty, and on the pooling of risk.

I believe that the right hon. Gentleman is inviting the House to breach one of those fundamentals. I know that he does not lack understanding about the functioning of actuaries, but he is seeking to gloss over why actuaries act in the way they do. Of course, it is the job of an actuary to predict the life expectancy of particular classes of people who want to make provision through annuity for their retirement. As my hon. Friend the Economic Secretary ably pointed out, on average, women live longer than men, and that is a fact of which the actuaries must take account.

Mr. Flight

Will the hon. Gentleman step back and deal with a conceptual issue? I cannot see why there should be any insurance regulation or law stating that people must pool risk on a gender-divided basis. Such provision was a custom in the past because of differences between the legal positions of men and women going back to the beginning of the century. However, whether one likes that or not, is there any argument for requiring in insurance regulation or law that the pooling of risk be divided between the sexes?

Mr. Gardiner

Let me give the hon. Gentleman some clear examples of distinctions that the insurance industry rightly and properly makes between classes of people for insurance purposes. Actuaries must take account of all sorts of distinctions. If a known factor that affects mortality exists in respect of somebody who is applying for a policy, it would be against the law for that person not to notify the provider. Indeed, annuities are one of the rare aspects of insurance on which one can say, "I am more likely to die," and receive a corresponding benefit as a result. It seems perverse, but curtailed life annuities with a known finite term rightly bring increased immediate short-term benefits for the years of life that remain to the policyholder.

As actuaries must work on the information that they have and project into the future the income base that is available to them to achieve a certain outgoing over the period projected for the class of person they are considering, it is absolutely right that they should take account of age profile discrepancies.

Mr. Flight

I think that the hon. Gentleman will find that certain ethnic minorities in our country have different life expectancies from those of indigenous people. Is he arguing that there is some obligation for those providing annuities to work out for particular ethnic minorities packages that are different from those for white Caucasians? The same point of principle is involved.

Mr. Gardiner

I am trying to make this simple point: actuaries work out expected revenue against expected expenditure. On that basis, it is proper that they should take account of the profile of the class of the customer in question in order to deliver the maximum benefit to that customer. I find it staggering that an hon. Member who is so well known in the House for his views on the freedom of the market and on ensuring that commercial activity is unfettered and unconstrained should be trying to impose restraints. A benefit is being provided to customers by allowing a differentiation that will accrue over time to the person who takes out the annuity.

1.30 pm
Mr. Curry

I am slightly puzzled about why there are so many challenges to such rules, which appear to discriminate against women, including challenges that end up in the European Court. As we are speaking actuarially, what odds would the hon. Gentleman give that in 10 years' time we will still be able to differentiate according to gender in the rates that are set for annuities?

Mr. Gardiner

As the right hon. Gentleman will have heard me say, I come from an insurance background, not a gambling one, so I shall not accept his wager.

Returning to ancient Greece, Conservative Members are proposing a Procrustean way of achieving equality. Procrustes was the—hopefully mythical—character who used to lay people down on his bed to see how they measured up to it. If their feet went off the end, he chopped them off; if they did not quite reach it, he attached a couple of ropes and dragged them out until they measured up exactly. The right hon. Gentleman said that there is currently inequality between men and women, but that is not so—actuaries are there precisely to resolve such inequalities. Amalgamating women and men would mean stretching out the women and chopping the legs off the men to achieve a kind of unitary Procrustean equality.

Mr. Curry

I hate to challenge the hon. Gentleman's mythology, but surely the present rules do precisely that. The way in which they operate short-changes women—in a sense, a constant shaving of ladies' feet.

Mr. Gardiner

I did not buy the company, as Mr. Ronson would say, and I do not buy the right hon. Gentleman's argument. There is short-changing over a short period, but exact equality over the whole period. The actuary's job is to ensure that somebody who has a lifespan of, say, 12 years, gets £100 a year, whereas somebody with a lifespan of 10 years gets £120 a year, so that each person ends up getting the same benefits. That is the current situation in law, which the right hon. Gentleman wants to change.

Conservative Members want to ensure that instead of those with shorter life expectancies getting more each year, but the same overall, those with longer life expectancies—who at present get slightly less each year, but the same overall—should be amalgamated down to a kind of middle way. I cannot believe it—here I am, a good new Labour politician opposing the middle way. Nevertheless, on this occasion I must do so, because that is what Conservative Members seek to impose through their misguided proposal.

Mr. Dismore

Having first declared an interest as a man—at least, I was last time I looked—I remind Conservative Members that there are certain biological differences between the sexes, one being that women live longer than men. My hon. Friend the Member for Brent, North (Mr. Gardiner) eloquently described the effect that that has on the arithmetic of calculating annuities. I remind the right hon. Member for Skipton and Ripon (Mr. Curry) of the point that I made on Second Reading, because he has still not come up with an answer to it. I said: What about the sex discrimination legislation and the double exemption? Is it the role of private sector provision to level up between Peter and Pauline…or is that the responsibility of the state? There is nothing wrong with the state's involvement in pooling risk between the sexes. I take the point that when each sex reaches the age of 65 the differences between life expectancy are somewhat lower. However, I question whether it is right for the private sector to adopt this position, bearing in mind how annuities are currently calculated for pooling risk."—[Official Report, 11 January 2002; Vol. 377, c. 848.] That is the essence of the argument. The right hon. Member for Skipton and Ripon is at risk of creating inequality between the sexes for the reasons eloquently set out by my hon. Friend the Member for Brent, North.

It seems paradoxical that Labour Members should advocate a position that, on the face of it, is contrary to our deeply held belief in equality for everyone. To achieve equality for everyone, we must recognise the fact that people are not equal in certain biological respects, such as age, and that can be done through the existing system of annuities. I passionately believe in equality, and the state clearly has a role to play in that, but should we regulate private sector rights?

The Select Committee on Work and Pensions has been discussing the State Pension Credit Bill, and we have produced a report on that subject which was published a couple of hours ago. We have made some important points about the need to ensure that women are properly catered for under the pension credit scheme, especially bearing in mind the fact that pension credit will probably favour women. We have also considered take-up. Those are important points for the state to take into account. On national insurance and old age pensions, it is vital and right that the state should have that equalising mechanism. However, is it appropriate for us to impose the state's will on the private sector?

Mr. Gardiner

If the amendment were passed, it would mean that, although men and women for the same annuity payment would receive the same return each year, women, who on average live longer, would on average gain substantially more than men. That is why the effect of the amendment would be to provide not equality but inequality.

Mr. Dismore

I entirely agree with my hon. Friend, but the amendment goes beyond that. To achieve that objective, we have to rob Peter to pay Pauline, because the money must come from somewhere. Nothing in the amendment creates a bigger pot of money to allocate. It equalises things between men and women. The only way to do that—as the woman has to get more for her contribution—is to take the money away from the man's annuity.

Mr. Curry

The hon. Gentleman asked whether it is right for the state to impose its will on the private sector. That is a welcome statement from him. As the Government keep boasting about minimum income and minimum wage, I am glad that he has had a Pauline conversion. [Interruption.] I do not know whether that is from Corinthians as well.

The Equal Pay Act 1970 has been amended by the Government. A series of measures show that they believe that they have a specific role to intervene in this area.

Mr. Dismore

At the risk of being sent off down the highways and byways of equal opportunities, I should say that the right hon. Gentleman points up the distinction between the right role of the state—in trying to regulate the balance between the sexes—and the wrong role. If a woman is doing work of equal value to that of a man, it is appropriate that she should get the same rate of pay. That is the position we are considering now. It is right that if a woman buys an annuity she should have the product of that annuity. It is right that if a man buys an annuity he should also have the product of that annuity. To achieve the same amount year on year, the woman would have to pay more.

The right hon. Gentleman is not trying to achieve equality through equal work for equal value, or in this case equal pension for equal contribution. He is taking money away from the man to meet the aspirations of the woman for her annuity.

Mr. Curry

The hon. Gentleman stated that one of the consequences of what we are proposing would be more demand, as it were, for a pot that was unchanged. The hon. Gentleman should read the Bill in its entirety. As people would not have to commit the whole of their pension funds to an annuity, that part that would not he necessary to maintain them above the level of income could be used for other purposes. There would not be the same volume of demand chasing the same pot.

Mr. Dismore

In the end, there is no more money available in the overall pot. We can fiddle round the edges as much as we like and we can talk about taking an annuity to a later date. As I said on Second Reading, I have great sympathy with the right hon. Gentleman's overall objective of achieving annuity reform. At the risk of making a Second Reading point, the Bill does not provide a mechanism for doing that. As I mentioned to the right hon. Gentleman on Second Reading, I hope that the Select Committee on Work and Pensions will conduct an overall inquiry into private sector pension provision later in the year. I hope that the problem of sorting out annuities will form part of that inquiry.

I return to my basic bull point. Money is being taken away from one gender to compensate the other. The right hon. Gentleman referred earlier to Europe. The counter-argument is that in this context Europe—there was an earlier discussion about the convention on human rights—favours the view that is being advocated by Labour Members rather than the one advanced by Conservative Members. Has the right hon. Gentleman considered the implications of the Human Rights Act 1998, especially in relation to part II of the first protocol of article 1, which deals with the protection of property? It is straightforward: Every natural or legal person is entitled to the peaceful enjoyment of his possessions. No one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law and by the general principles of international law. The preceding provisions shall not, however, in any way impair the right of a State to enforce such laws as it deems necessary to control the use of property in accordance with the general interest or to secure the payment of taxes or other contributions or penalties.

Through the amendment, the right hon. Gentleman is not using the state, through its own mechanisms, to achieve his objective through taxation, national insurance and the benefit system. He would effectively deprive men who have made contributions towards their annuity pots of their possessions. That is because their possessions include their stake in their pension fund. I think that the right hon. Gentleman is falling foul of human rights legislation.

Mr. Gardiner

I follow carefully and agree fundamentally with what my hon. Friend is saying. Does he agree that it is important that the movers of the amendment recognise that while they might talk about the class of people for actuaries to consider, and take a different class, they are proposing to introduce regulations that force actuaries to class all people together rather than, as at present, to determine for themselves, as providers of insurance, how they will classify their customers, unfettered by legislation?

Stringent regulation is being proposed of an industry that at present is able to offer diversity of service to its customers. If there were an insurance company that wished to pursue the proposals put forward by Conservative Members, and thought that it was commercially viable to do so, it would be free in the market to adopt that policy. However, there is not a company that wishes to take that course. As good free marketeers, I am sure that Conservative Members will agree that that is why their proposals are wrong.

Mr. Dismore

I am grateful to my hon. Friend for his intervention. There is good reason why a company would not adopt that approach, and that is that it would go out of business extremely quickly. It would not be meeting the needs of its customers, whether men or women. My hon. Friend makes some important points, to which I shall return, concerning retrospectivity and the disincentive to save.

I return to the point that I was making in the context of the Human Rights Act.

Mr. Flight

There is an important principle in relation to the human rights argument. That is why I asked earlier what rules or laws were involved. Everyone understands that women live longer than men and why the situation is as it is. If white men lived longer than black men and white women lived longer than black women, we would not permit the insurance industry to offer different rates on the grounds of people's colour or skin. If we believe that men and women are equal, is there not a similar logic that we should not apply prejudice on the ground of sex, one way or the other, among all human beings?

1.45 pm
Mr. Dismore

I am grateful for that intervention. Again, the hon. Gentleman is mixing up the roles of the state and the private sector. The state cannot, must not and should not discriminate between gender or race along the lines that the hon. Gentleman mentions. Indeed, the state does not do so. We have been working very hard as a Government to improve sex and race discrimination legislation in a variety of sectors, including its applicability to government itself, to ensure that there is no discrimination, but I come back to the basic point that has been advocated by my hon. Friend the Member for Brent, North. A pension contract is an individual contract based on an individual annuity assessment between the individual pensioner and the pension-providing company, the life insurance company.

I took out my pension scheme with, I regret to say, Equitable Life—and thereby hangs a tale—many years ago when I was in my late 20s. Even though I was hale and hearty, I was required to undergo a medical examination so that it could determine, presumably through its annuity projections, how long I was going to live. I had to fill in a detailed questionnaire about my family history, what my grandparents died of, my parents' family history and my brother's medical history. The company wanted to calculate my life expectancy to ensure that I pay the right amount of money in my contributions and receive what I would like to receive at the other end. The same goes for when it calculates the annuity itself.

No doubt when I come to cash in what is no doubt a very diminished fund with Equitable Life, I will again have to undergo all the rigmarole to work out how much it will pay out. If I do not have to do so, so much the better. Nevertheless that is an individual contract between me and Equitable Life. That is why we all had to have the ballot on the Equitable Life solution.

Mr. Gardiner

Does my hon. Friend not agree that the hon. Member for Arundel and South Downs (Mr. Flight) is wrong? The fact is that under legislation any insurance company is allowed to break down by ethnicity or by any other feature which it considers appropriate its class for annuitisation. For his own personal interest, he may care to note that ethnic minorities have differing life expectancies, and it works to their advantage on the whole because they get more each year on their annuity as a result. The point is that the hon. Gentleman is—

Madam Deputy Speaker

Order. The intervention is going on for a rather long time.

Mr. Dismore

Thank you, Madam Deputy Speaker. I was going to come to that point. My hon. Friend the Member for Brent, North makes the point in his usual eloquent way. If the contract is an individual—

Mr. Curry

Will the hon. Gentleman give way?

Mr. Dismore

Let me deal with the previous intervention and then I will be happy to let the right hon. Gentleman intervene.

If the contract is an individual contract, it is inevitable that the benefits that flow from it must attach to the individual concerned. My hon. Friend the Member for Brent, North is right: insurance companies do make those distinctions. Several years ago, there was a big argument about whether insurance companies should know whether someone had HIV and the impact that that would have on the assessment of life expectancy and annuities. These things are a fact of life. Some people live longer than others. If I were to take out a particular insurance policy, being somewhat overweight and under-exercised—I think far too many of us in the House are—then compared with someone of the same age who is in the SAS, although that is a hazardous profession, I would probably have to pay more.

That is a fact of life in the provision of pensions in the private sector. We are all different; we all have to face different risks. We all have different life expectancies. Each individual pension product is tailored to our individual requirements, whether we be men or women.

Mr. Curry

If the hon. Gentleman were to die young, would he agree with his hon. Friend the Member for Brent, North that that was an advantage to him because, in his brief span of life when he was receiving his private pension, he got more?

Mr. Dismore

I am not sure how to follow that intervention, but it does not detract from my basic bull point—from which I have been drawn away by the various interventions I have taken—concerning the Human Rights Act.

Even though Equitable Life seems to be doing its best to take my pension fund away from me, the requirement under human rights legislation is that no one should be deprived of their possessions except in the public interest. That requirement cannot be met by the proposals of the right hon. Member for Skipton and Ripon. I agree that we should adopt that approach in relation to matters that are entirely under the control of the state, such as national insurance contributions, taxation, benefits and the equalisation of wages to make sure that everyone gets a fair crack of the whip at work. However, that is not the case with pension provision.

I wish to refer to retrospectivity, on which the right hon. Gentleman's proposals are silent. I have been with Equitable Life for 20 years, and others have been in pension funds for longer. Everybody would have entered into these arrangements on the basis of the projections as they then were. Are we now to say that all those people who entered into contracts on that basis will find that those numbers have to be unscrambled and rescrambled to meet the requirements of the proposed provision? Or is the provision intended only to apply to new insurance contracts that take effect 40, 50 or 60 years in the future?

My concern is that the right hon. Gentleman has perhaps not thought through the implications of that measure. The proposal will have major implications for people's lifestyle projections. Most people approaching their mid-forties will start to think about the age at which they can afford to retire and what their annuity will be. They will have been making their contributions through their lives on that basis.

If the right hon. Gentleman is going to say that a person's insurance provider now has to recalculate the figures and share the money out to equalise between the sexes, that person may find that the projections on which he has been living his life, in terms of his future provision, are drastically wrong, while a women in the same position might find herself rather better off. The proposals do not deal with retrospectivity in sorting out decisions that were taken decades ago in some cases.

Mrs. Browning

Is not that exactly the situation people with pensions at the moment find themselves in now, following the imposition of advance corporation tax by the Chancellor to the tune of £5 billion a year on pension funds? People who took out a pension with a specific premium and a projection of what they might receive are now not going to receive that amount purely because of the actions of the Chancellor of the Exchequer.

Mr. Dismore

I will not get drawn down that byway, but I say to the hon. Lady that the effect is the same for men and women. That takes me back to my original point about the role of the state as opposed to the role of the private sector. So far as I can see—I will happily take an intervention on this—the proposals do not deal with retrospectivity.

I wish to refer to disincentives to save. The Select Committee on Work and Pensions has been doing a detailed study of the pension credit. We have heard a lot of interesting arguments from the experts who have given evidence, and from the Minister, regarding incentives and disincentives to save. Professor Dilnott gave us a detailed analysis of why some bits of the pension credit were an incentive and others might be a disincentive. It got extremely complicated and I became lost in the figures; however, he did not convince me on that issue.

I can be sure that if we say to a man that he can put a pound into his pension fund but will get back only 80p of it when he retires, with the other 20p going to the pension of a woman he may not even have met to make sure that she has the same pension—which she will have for a lot longer than him—that will be a real disincentive to save; a far worse disincentive than anything raised by the Conservatives in terms of the pension credit.

Mr. Gardiner

This is an extremely important element of my hon. Friend's remarks. Is he aware of a report prepared for the Association of British Insurers by Oliver, Wyman and Company, entitled "The future regulation of UK savings and investment—targeting the savings gap"? It points out that a pension provision savings gap of £27 billion is building up, and that it cannot be curtailed simply through financial education and tax incentives. The most important element to which it draws attention is the need to increase effective advice to savers by providing exactly the information that my hon. Friend alludes to. A differential rate for men and women per pound invested in savings would have entirely the opposite effect, and would probably increase the £27 billion gap still further.

Mr. Flight


Mr. Dismore

My hon. Friend the Member for Brent, North cannot take an intervention, but I will be happy to do so in a moment. My hon. Friend makes an important point, which reinforces the basic policy issue that I am trying to address. It is in all our interests that people save for their future, and that is the entire thrust of Government policy. A prime objective of the pension credit is to reward people who have saved. I am sure that the right hon. Gentleman is aware of the arguments advanced by his own party in relation to stakeholder pensions and—perhaps more importantly—to the state second pension: that they contain in-built disincentives because of an equalisation factor between rich and poor. For him to argue that his proposal will not prove a disincentive is therefore like the pot calling the kettle black.

Mr. Flight

Is there not a contradiction between the hon. Gentleman's comment about wanting people to save more for retirement, and the previous comment about the £27 billion gap? The Minister said that one of her main objections to the Bill is that, by encouraging people to save more for retirement, it will lead them to incur tax costs.

Mr. Dismore

That is not the Government's policy objective—at least, I hope it is not. The objective of our discussions with the Secretary of State for Work and Pensions is to hammer home the need for people to provide for their future. If one consequence of their making such provision is that some of it will be taken away—a breach of human rights legislation—they simply will not do it. That would be a disincentive, and they would find ways around the problem by, for example, putting the money into other products if necessary. For all I know, a lot more people might even join the Plymouth Brethren, to whom reference was made in our earlier discussion.

The fact remains that the right hon. Gentleman's proposal would create a serious disincentive to men providing for their future. In the end, the breadwinner—even in this day and age, it is generally the man of the family—must make such provision. If there is a disincentive to save, he simply will not do it. A terrible credit gap exists, and it is already extremely difficult to convince people that they should not live on credit, and should put money aside for their retirement. It is very difficult to persuade them that they should be putting away far more, yet the right hon. Gentleman's proposal would achieve entirely the opposite objective.

Frankly, I have heard nothing from the Opposition that answers those key points. If we accept the proposal, we will deprive people of their existing property rights. The Opposition have also failed to deal with the two extremely important points concerning retrospectivity and the disincentive to save. For those reasons, much as I agree with the principle of abolishing sex discrimination, I cannot support the proposal. Perhaps the right hon. Gentleman will deal with those points in his reply, but I doubt whether he can.

2 pm

Ruth Kelly

Let me respond to what has been an incredibly interesting and informative debate on the Sex Discrimination Act 1975 and the proposals to require insurance companies to offer unisex annuity rates. The first major question discussed today was the fundamental one: are women being short changed? My hon. Friends explored that point, which involves an interesting equality issue. Women receive a lower annuity rate year in, year out, but for longer than men, although over their life span they also receive, on average, cumulative amounts that are equal to or in excess of those received by men. We could debate that point for a long time, as there is no clear cut conclusion to it.

I note the point made by my hon. Friend the Member for Hendon (Mr. Dismore) that there is no satisfactory outcome, because if we imposed unisex annuity rates we would have to take from men to give to women. There is no other money that may be used to resolve those questions or to sweeten the pill for men. That is not an easy one, and in my view it is not clear that there is an equality issue to resolve at all.

Gender is a recognised factor in the setting of risk premiums by insurance companies in many walks of life, and women are not queueing up to argue about receiving better car insurance rates, for example, because women as a group are less likely to commit motoring offences. As far as I am aware, that has not been contested in other areas.

Gender is but one factor that insurance companies take into account when setting annuity rates and determining risk premiums. They also consider the general health of the individual, whether the individual has a disability and, controversially, as my hon. Friend the Member for Hendon pointed out, the lifestyle of the person requesting an annuity.

As the hon. Member for Arundel and South Downs (Mr. Flight) remarked for the Opposition, insurance companies may also take into account whether someone is of a certain ethnic minority. Insurance companies have been specifically designed and set up to cater for certain ethnic minority groups, as they are able to offer higher rate annuity products to those people, recognising the fact that they have shorter life expectancy.

The fact remains that insurance companies, as far as they possibly can, set rates on the basis of what they consider to be individual risk premiums. When they cannot set individual risk premiums, they look across broad classes, use proxy and set risk premiums on that basis.

The ability of insurance companies to determine risk and to attach it as closely as possible to the individual determines their competitive advantage in an extremely competitive market. That is how insurance companies and the insurance market work, and to wander into such terrain without well thought out and coherent proposals would be foolhardy. It would also have ramifications and implications across the insurance industry.

It is important to consider the impact that imposing unisex annuity rates would have on individual insurance companies. If insurance companies were forced to offer unisex rates, and only unisex rates, they could face an unpalatable choice. For reasons that I explained earlier, they might have to set cautiously low annuity rates, so everyone would lose out. The reason behind that is that companies could not be sure that take-up of their annuity products between males and females would match the risk that they assumed at the outset. In the end, everybody would lose out—not just men, but women would not gain as much as the right hon. Member for Skipton and Ripon (Mr. Curry) envisages. Alternatively, insurance companies could face risks to the solvency of their businesses. In that event too, everyone would risk losing out.

Why is it desirable to force insurance companies to discount just one factor, when they can and do take account of many other factors? I am thinking of whether people smoke, the nature of their occupation, where they live, and any other factors that may be considered relevant to the setting of annuity rates. I do not think that we will solve the equality problem today by imposing unisex annuity rates on companies, or that we will solve some of the problems mentioned by the hon. Member for Hendon relating to incentives to save by that means. I certainly do not think that such action will create a more favourable environment for insurance companies.

Mr. Dismore

I mentioned the Human Rights Act earlier. Has the Attorney-General told the Government whether the amendments are in breach of it?

Ruth Kelly

Of course it is important for any amendments to be compatible with the Act. The points that my hon. Friend has made are very relevant, and it is at least debatable whether the amendments are compatible with the Act.

For all the reasons I have given, I do not think that imposing unisex rates is a good idea. Many Members may agree with me. I therefore urge the House to accept the Government's proposals.

Mr. Curry

I do not accept the amendments, for a very simple reason: we must start somewhere in our attempt to deal with these inequalities. I repeat the question I posed earlier to the hon. Members for Hendon (Mr. Dismore) and for Brent, North (Mr. Gardiner), who have performed a wonderful Morecambe and Wise act today. Do they really think that, 10 years from now, we shall be able to sustain a system into which discrimination has been built? The idea that men are suffering in terms of human rights and that we should move in the opposite direction strikes me as wonderfully inventive in the context of a Friday matinee performance, but I feel that it lacks a great deal of intellectual and legal substance.

Mr. Dismore

My point about the Human Rights Act was a serious one. Perhaps the right hon. Gentleman will tell us whether he took legal advice before speaking today, and established whether the effective withdrawal of men's pension rights would be compatible with the Act.

Mr. Curry

The process of government is a process of intervening in the way in which people live their lives and, in many ways, intervening in the market, as this Government know more than anything else. All legislation is capable of being tested on human rights grounds. I believe that if we stack up my beliefs and those of the hon. Gentleman, it will be seen that by and large the trend is going my way.

Question put, That the amendment be made:—

The House proceeded to a Division.

Madam Deputy Speaker

Order. Would the Serjeant at Arms please investigate the delay in the Aye Lobby?

The House having divided: Ayes 15, Noes 56.

Division No. 206] [2.8 pm
Barron, Kevin Kelly, Ruth
Clark, Mrs Helen (Peterborough) Linton, Martin
Cohen, Harry McNulty, Tony
Dowd, Jim Pearson, Ian
Fitzpatrick, Jim Ward, Ms Claire
Gardiner, Barry White, Brian
Hill, Keith
Iddon, Dr Brian Tellers for the Ayes:
Johnson, Miss Melanie (Welwyn Hatfield) Mr. Andrew Miller and
Mr. Andrew Dismore.
Arbuthnot, Rt Hon James Howard, Rt Hon Michael
Bacon, Richard Johnson, Boris (Henley)
Baron, John Laing, Mrs Eleanor
Bercow, John Lait, Mrs Jacqui
Beresford, Sir Paul Lansley, Andrew
Boswell, Tim Leigh, Edward
Brady, Graham Lewis, Dr Julian (New Forest E)
Browning, Mrs Angela Liddell-Grainger, Ian
Bruce, Malcolm Lidington, David
Burt, Alistair Luff, Peter
Cable, Dr Vincent Maclean, Rt Hon David
Cash, William McLoughlin, Patrick
Chapman, Sir Sydney (Chipping Barnet) Malins, Humfrey
Mercer, Patrick
Chope, Christopher Osborne, George (Tatton)
Clappison, James Page, Richard
Curry, Rt Hon David Prisk, Mark
Randall, John
Duncan, Alan (Rutland & Melton) Redwood, Rt Hon John
Field, Mark (Cities of London) Rosindell, Andrew
Flight, Howard Selous, Andrew
Forth, Rt Hon Eric Streeter, Gary
Francois, Mark Swayne, Desmond
Gale, Roger Syms, Robert
Garnier, Edward Watkinson, Angela
Gibb, Nick Wiggin, Bill
Grayling, Chris Young, Rt Hon Sir George
Hammond, Philip
Hawkins, Nick Tellers for the Noes:
Hoban, Mark Mrs. Cheryl Gillan and
Horam, John Mr. Charles Hendry.

Question accordingly negatived.

Mr. Eric Forth (Bromley and Chislehurst)

On a point of order, Madam Deputy Speaker. You have had to ask the Serjeant at Arms why Government Members were lingering unnecessarily in the Aye Lobby to prolong events. Were you aware that a figure no less than the Government Deputy Chief Whip was party to this and was indeed one of the last to leave the Aye Lobby reluctantly? Is there anything you can do to ensure that someone as senior as the Government Deputy Chief Whip sets a better example to hon. Members than to abuse the voting procedures—[Interruption.]

Madam Deputy Speaker

Order. I must reply to the point of order and inform the right hon. Gentleman and other hon. Members that all hon. Members should go through the Lobby in good order and time.

Ruth Kelly

I beg to move amendment No. 7, in page 1, line 16, leave out "must" and insert "may".

Madam Deputy Speaker

With this it be convenient to discuss Government amendments Nos. 8, 10 to 12, 20 and 24

Ruth Kelly

We now come to the heart of the matter. The Bill makes it compulsory for a personal pension scheme to provide a minimum retirement annuity. This annuity has to meet a minimal level set by the Chancellor of the Exchequer. It has to increase in line with the retail prices index although it will be capped at 5 per cent. and it has to be bought no later than age 65. This combination amounts to a maximum reduction in flexibility for the vast majority of pension scheme members.

The Bill would remove people's current choice and instead force them to buy an index-linked annuity for each personal pension arrangement that they hold. That may not be what they want and it certainly may not be in their best interests. The opportunity, if various small personal pension arrangements are held, of taking different annuity types at different times, to spread risk, would be removed. Using their open market option for annuity purchase, people have the freedom to decide which type of annuity best suits their needs. The proposals in the Bill would take away that choice.

The Bill would also require the annuity to be bought by age 65, so that most people would have no option to draw all their pension benefits from that age, whether retired or not—again, limiting choice. That would introduce inconsistency and unfairness, as the requirement to annuitise by 65 applies only to personal pensions and not to retirement annuity contracts or defined contribution money purchase occupational pension schemes, which are not affected.

The age 65 rule also brings in a much larger issue. If people are saving in a personal pension scheme, they would not be able to contribute to it past 65, and would have to take an annuity from that age. Those who have not made provision earlier in their life or are still active and working would be allowed to continue in employment but not to save any of their earnings in pension schemes for their future retirement, unless they have a retirement annuity contract or are in an occupational pension scheme.

Mr. Gardiner

Is my hon. Friend surprised, as I am, that the proposals in this part of the Bill so directly conflict with the flexibility that Conservative Members were seeking to introduce in the first group of amendments?

Ruth Kelly

My hon. Friend makes an incredibly important point, which is at the heart of our objections to the Bill, which, while purporting to increase flexibility does exactly the opposite.

Mr. Curry

How can a Bill that removes the requirement to annuitise the totality of the pension funds and restores choice be said to reduce flexibility?

Ruth Kelly

I admire the way in which the right hon. Gentleman has piloted the Bill, but I fear that he has misunderstood the heart of the Government's objections to it. The vast majority of pensioners would not be given the additional flexibility that he advocates. Their flexibility would be reduced because they would be forced to buy an annuity with their entire income by the age of 65. The average fund from which people buy annuities is currently £23,000.

Mr. Curry

The argument about the size of the pot is becoming extremely futile. Many people have more than one pot, with money derived from SERPS or from occupational pension schemes, so the number of pots and the total that they add up to are what is at issue.

Ruth Kelly

I agree that the figure of £23,000 does not really capture the average size of people's total pension savings, but it gives an indication that the pension savings of the vast majority of people are nowhere near the level at which the Bill would introduce greater flexibility. People would have their choice restricted and be forced to buy an index-linked annuity from the age of 65. That is why the amendment would make the minimum retirement income annuity an option for those who want it.

Mr. Gardiner

In support of my hon. Friend's remarks about the level of income and the number of people affected, I refer her to the report "Targeting the Savings Gap", by Oliver Wyman and Co. It shows that the income figure goes from 85 per cent. for the first decile, down to 33 per cent. for the 10th decile.

Ruth Kelly

I am certainly aware of those figures.

Amendment No. 10 merely tidies up the wording, so I will not dwell on it.

Index-linked annuities will guarantee that the purchasing power of the pension will not be eroded by inflation, but as with all guarantees—

It being half-past Two o'clock, the debate stood adjourned.

Debate to be resumed on Friday 10 May.

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