HC Deb 11 July 2003 vol 408 cc1566-74

'(1) Section 630(1) of the Income and Corporation Taxes Act 1988 (definitions) is amended as follows.

(2) After the definition of "authorised insurance company" there is inserted— "dependant" means—

  1. a child of the member who is under the age of 18;
  2. a child of the member who is aged 18 or over and who is continuing to receive fulltime education;
  3. a person who is financially dependant on the member; and
  4. a person who is dependant on the member by reason of disability."

At the end there is inserted— "surviving spouse", in relation to a member, means a person to whom the member was married at the time of his death.".'.—[John Healey.]

Brought up, and read the First time.

The Economic Secretary to the Treasury (John Healey)

I beg to move, That the clause be read a Second time.

Mr. Deputy Speaker (Sir Alan Haselhurst)

With this it will be convenient to discuss Government amendments Nos. 2 and 3.

John Healey

I congratulate the hon. and learned Member for Harborough (Mr. Garnier) on piloting the Bill thus far through he House. However, as I explained in Committee last week, the Government cannot accept—in principle or in practice—some of the provisions in the Bill, and some issues remain to be dealt with. I therefore propose new clause 2 and associated Government amendments Nos. 2 and 3.

Mr. Edward Garnier (Harborough)

I am acutely aware of the time constraints that face us this afternoon, though one resulting joy is that the hon. Member for Hendon (Mr. Dismore) will not be able to speak for two and a half hours. The Minister need not explain the new clause and corresponding amendments at great length, because I accept them.

John Healey

I am grateful to the hon. and learned Member for Harborough for indicating his acceptance at this stage. I shall not develop my argument to the extent that I could, but a couple of important points need to be made to enhance the House's understanding.

Mr. Andrew Dismore (Hendon)

I understand that the hon. and learned Member for Harborough (Mr. Garnier) accepts the Government new clause and amendments, but ultimately they are a matter for the House and at some stage of the debate I want to raise some of my concerns about the amendments. I therefore hope that the Minister will outline the amendments in a little more detail.

John Healey

I shall certainly outline them, but I would not want to prevent my hon. Friend from expanding on his concerns. He demonstrated on Second Reading the detailed study that he has given to the Bill and his detailed concerns about some aspects of it.

The new clause inserts definitions of "dependant" and "surviving spouse" into the Income and Corporation Taxes Act 1988. I propose the new clause because, although the Bill purports to be about setting a minimum retirement income for members of personal pension schemes so that they do not have to rely on state support, it is also important to think about the spouses and dependants of the scheme member, once he or she has died. The risk is that they would suffer the very real disadvantages that the Bill would impose just as much as the scheme members. In essence, the Bill would wipe away the rule that says that by age 75 all pension funds built up with the benefit of tax relief, other than the tax-free lump sum, must be used to provide a secure income for the whole of a person's remaining retirement. Instead it would require people with personal pensions to buy an index-linked annuity by age 65 of at least a minimum amount to be specified annually by order. The Bill would allow any funds not used to buy such an annuity to remain tax free in a retirement income account—or RIA. It would allow unrestricted access to the funds of the RIA at any time and the ability to pass residual funds on death to the annuitant's estate. That in a nutshell is what the Bill would do.

While the Government agree that pension annuities deserve wider debate, the proposals in this Bill are not the way forward. They would help only a minority of the better-off, and they would also seriously disadvantage the vast majority of people in personal pension schemes, and their dependants, who are saving for their retirement. That is an extremely important point that is consistently glossed over by the Bill's proponents.

Mr. Howard Flight (Arundel and South Downs)

rose—

John Healey

I shall give way to the hon. Gentleman, who has been a staunch proponent of the Bill and of a wider debate on annuities. I pay tribute to him for that, because he brings great expertise from his previous professional life and his time in the House to the issues.

Mr. Flight

I thank the Minister for his kind comments. The pensions Green Paper contains a commitment to end the obligation to buy an annuity by 75. Much discussion has taken place within the pension industry on what would happen then, but can the Minister confirm that that undertaking represents a commitment from the Government to address the issue and end the enforced—and outdated—obligation to buy an annuity?

John Healey

I can confirm what is in the Green Paper and—as I indicated earlier—the Government's commitment to a full and wide debate on the future of annuities, but I cannot confirm the detail of what proposals we will make. The hon. Gentleman will be aware of the nature of a Green Paper and the issues deserve wider debate, but the detail of this Bill is not the place for that debate.

The hon. and learned Member for Harborough said in Committee that just because we cannot help everybody that does not mean that we should not help anybody."—[Official Report, Standing Committee C, 2 July 2003; c. 20.] Of course, if the proposals merely helped some people and left others as they were they might be less objectionable, but the fact is that the main effect of the Bill would be to take away people's choices as to what type of annuity to buy and when to buy it. Instead of increasing choice and freedom—the principles on which the Bill's proponents, including the hon. Member for Arundel and South Downs (Mr. Flight), argue their case—it would force the vast majority of people to use the whole of their pension funds, after the tax-free lump sum had been taken, to buy an annuity at age 65 and not by age 75 as the current rules require. Furthermore, it would force them to buy only an index-linked annuity, thus restricting the flexibility and choices that people currently have when deciding when and what kind of annuity to buy. Spouses and dependants of the annuitant would of course suffer indirectly as a result of those impositions.

Mr. Barry Gardiner (Brent, North)

It is on the issue of dependants that I seek clarification from the sponsor of the Bill or from my hon. Friend the Minister. I probably cost the Treasury rather more than I had anticipated when I went to the Vote Office and asked for a copy of the Income and Corporation Taxes Act 1988. Given its size, I now appreciate how much work hon. Members did in previous years. We thought that we were hard done by on the Financial Services and Markets Act 2000 and the number of clauses—

Mr. Deputy Speaker

Order. I remind the hon. Gentleman that he is making an intervention, not a speech.

Mr. Gardiner

I am sorry, Mr. Deputy Speaker. I am grateful for your guidance. I shall stick to the point.

The new clause reads: After the definition of 'authorised insurance company' there is inserted— Will my hon. Friend clarify whether the part of section 630(1) of the Income and Corporation Taxes Act 1988 comes after the words "authorised insurance company", or whether it comes after the following two paragraphs, (a) and (b), because that would seem to conflict with the numbering within the amendment? It is an extremely technical point, but I think that it requires clarification.

John Healey

As my hon. Friend says, it is a highly technical point. I undertake to reflect on the issue. If my hon. Friend will accept that, I shall be happy to deal with the matter in detail once I have had a chance to reflect on the point.

I shall not develop my arguments as I might have done in other circumstances because I want to give the hon. and learned Member for Harborough time to respond.

The new clause does what currently tax legislation does not do, which is to define the terms "dependant" and "surviving spouse". Nowhere in legislation are these definitions laid down. At present, the Revenue uses discretionary powers in guidance notes for both personal and occupational pension schemes. In principle, the Revenue's proposals for simplifying the tax regime mean that it is moving towards a single and simpler set of rules covering all sorts of pension arrangements. The rules imposed by the Revenue under these discretionary powers are to be minimised, and in principle that must be right.

The Bill gives us the opportunity to take a step in that direction by defining "dependant" and "surviving spouse" for pension purposes. It also gives us the opportunity, but I do not propose to take it up now, to consider the consequences in terms of the provisions in the Bill. Suffice it to say that new clause 2 is simply designed to import current definitions into the taxes Act. It is intended to maintain the status quo until any wider changes are announced. I have in mind particularly the consultation document that was issued last month by hon. Friend the Minister for Industry and the Regions on the new legal status for civil registered partners—same sex partners. To be clear, that is not to say that unmarried partnerships will not be able to benefit under the current pension rules. As things stand, an unmarried partner of either sex can qualify for a survivor's pension if they were financially dependent on the scheme member at the time of his or her death.

To go further at this stage, as some propose, to try to provide an automatic pension for the surviving partner in the way that a widow's or widower's pension is provided for now, poses serious challenges that I do not propose to deal with now, and which need to be discussed and developed elsewhere. The new clause is designed to clarify things as they stand. Until a clear-cut alternative to a formal marriage is introduced such as the proposed civil registration, I see no alternative to defining "spouse" as the person to whom the scheme member is married, and "surviving spouse" as the person to whom the scheme member was married at the time of their death.

I turn briefly to amendments Nos. 2 and 3. The Bill makes it compulsory for the annuity benefit that a personal pension scheme must provide to be not less than the minimum retirement income that is set under clause 2. Of course, while the Bill attempts to keep the personal pension scheme member off state benefits, it would do nothing for the member's spouse or dependants. There is no provision to prevent spouses or dependants falling back on the state because there is no requirement that they should be provided for out of the minimum retirement income annuity. At present, most annuitants would want to, and do, provide for their spouses and dependants through, for example, joint life annuities.

Mr. Gardiner

I hate to raise the issue of Jeffrey John in the Chamber because it has been much discussed in another place, but the issue prompts me to ask what is the definition of a dependant person, and would it include same-sex partners. It appears from the definitions that have been set out in the Bill that it would not be covered under the Bill as it is drafted.

John Healey

Generally, such definitions, as my hon. Friend will be aware, are a matter for the scheme's trustees and administrators. Generally, the Revenue does not seek to impose such terms on schemes. If Reverend John was interested in those issues, the definition would depend on the provider with whom he or his partner had annuities.

Finally, the correct level for the minimum retirement income annuity is subject to the amendments tabled by my hon. Friend the Member for Hendon (Mr. Dismore), which we may or may not reach shortly, so I do not propose to rehearse the arguments on that. Assuming that the Bill could be made to work, Government amendments Nos. 2 and 3 extend the Bill's underlying principle by requiring the minimum retirement income annuity to continue after the scheme member's death to his or her surviving spouse or dependant. The amendments would result in the annuity to the surviving spouse being set at 100 per cent. of the scheme member's annuity. That is logical, and would ensure that the surviving spouse stays off state support.

2.15 pm

Where there are sufficient funds, it is right that they should be used for both the scheme member's pension and the pension of any surviving spouse. Although we have made plain our reasons for opposing the thrust of the Bill on Second Reading, in Committee, and I hope, this afternoon, its form remains largely the same as when it was first introduced. That being so, it should at least work properly and logically in accordance with its purported underlying principle. It would certainly not be right for a scheme member to secure his own minimum income retirement annuity, then remove the residual fund at will, leaving his spouse or dependants unprovided for after his or her death. On that basis, I commend Government new clause 2 and Government amendments Nos. 2 and 3 to the House.

Mr. Garnier

In view of the time that is left, I am under no illusions about what will happen to the Bill. There is absolutely no need for the hon. Member for Brent, North (Mr. Gardiner) or the hon. Member for Hendon (Mr. Dismore), the two Friday boys who turn out to do the Government's business on these occasions, to get overexcited. In the past, we have had plenty of opportunities in their absence to have fruitful and intelligent discussions about the policy behind the Bill and its details. I congratulate the Minister on what he said in Committee and this afternoon—unlike his hon. Friends, he has approached our deliberations constructively.

I will acquit the hon. Members for Brent, North and for Hendon to a certain extent, because I largely agree with the amendments that they have tabled today. Indeed, I largely agree with the Government new clauses amendments that we are discussing. Of course, it is open to Government Back Benchers to engineer a sterile final few moments in the Bill's life, and no doubt their pensioned constituents will thank them for the line that they have taken on the Bill over the past few months. I am pleased that the right hon. Member for Birkenhead (Mr. Field) is in the Chamber—his private Member's Bill has already received the treatment that the Government usually give to private Members' Bills that are designed to ameliorate pensioners' position.

A delegation from ASW—Allied Steel and Wire—is in the Palace of Westminster today. The plight of those people and many others whose companies have failed to deliver on their pension promises is something that all of us in the House should be concerned about, irrespective of our party allegiances. I welcome the Government's constructive amendments and the way in which the issue behind the Bill has at last received attention from the Treasury. It is undoubted that the pensions crisis exists and that it is growing. Other than the issues that the Government face over weapons of mass destruction, the pensions crisis is probably the biggest political issue with which the Government, as the governors of this country, and we, as politicians, must cope.

Mr. Frank Field (Birkenhead)

Given that my hon. and learned Friend has sympathy for the new clause and the amendments, would it not be proper for the Government to respond by adopting his Bill and my Bill, and to say that they will work them into a new form? That would at least send out a clear message that they believe that there is a pensions crisis and that they are trying to grapple with it—they have failed to grapple with it up to now.

Mr. Garnier

I could not agree more. My Bill is the third Bill on this subject, and I make no claims for originality. Until my Bill came out of Committee last week, it was identical to that of my right hon. Friend the Member for Skipton and Ripon (Mr. Curry). As far I can tell, it is little different from that promoted a little while ago by my hon. Friend the Member for Bournemouth, West (Mr. Butterfill).

The Government cannot have been taken by surprise by either the policies behind my Bill or the thrust of the Bill of the right hon. Member for Birkenhead. They cannot have been taken by surprise by the growing fears for their future prosperity of those who are already of or who are about to enter pensionable age. Those matters have been on the table for months and months, and they are getting worse.

The hon. Member for Brent, North almost begged for congratulation on having gone to the Vote Office to get the Income and Corporation Taxes Act 1988, which is a large volume. He would have been derelict in his duty as a parliamentarian if he had not gone and got the 1988 Act, which my Bill would amend. It is not a matter for congratulation but a matter of common sense that he went to get it. I trust that Government Members—this was their job on 7 March on Second Reading—have taken the time to study the 1988 Act and to interweave it with my Bill to allow them fully to understand the issues that we are discussing.

I shall end my remarks because I want to hear what the Minister has to say about the succeeding Government amendments. Because I suspect that I shall not have another opportunity to address you on this subject, Mr. Deputy Speaker, I say in advance that I have no quarrel with new clause 3.

Mr. Deputy Speaker

Order. Even at this late stage, the hon. and learned Gentleman should not stretch the rules of order to the extent of discussing amendments that are not in this group.

Mr. Garnier

I merely seek to engage in the same constructive behaviour as the Minister, who has taken that approach since he took charge of the Bill a little while ago.

I am acutely aware that we are in the last six minutes of the Bill's life. I want to take the opportunity offered by the discussion on the new clauses and amendments to thank all those, including the Minister, who have supported me in getting the Bill this far. I thank my hon. Friend the Member for Arundel and South Downs (Mr. Flight) for his hard work and, indeed, the Conservative, Labour and Liberal Democrat members of the Committee. I also want to thank the Retirement Income Reform Campaign, which has given me sterling support on both the technicalities of the Bill and the wider policy issues. Without its support, the Bill would not have got this far.

In conclusion on this group of amendments, the ideas behind the Bill are ones that the Government must come to terms with, and they must do so very quickly. They have no time to waste. I suspect that between now and November, when I assume that the next Session will begin, the Treasury will need to do a great deal of work to produce the detail of a pensions law that incorporates not only the ideas in this Bill and that of the right hon. Member for Birkenhead, but some of the other matters discussed in the discussion papers that the Government have produced over the past few months, and to announce in the Queen's Speech a Bill that deals with the same matters. It is no good the Government saying, "We are looking at this and consulting on it." They have had plenty of time to do that and the time has now come for action.

If the Government introduce early in the next Session a Bill that takes up the points that I have made, as well as those made by the right hon. Gentleman, I shall be prepared to wish them a degree of good will in dealing with this aspect of public policy. On the other hand, if they allow the issue to dry up and wither on the vine, hundreds and thousands of pensioners in this country, as well as the hundreds and thousands of others who will inevitably become pensioners, will reward the Government in the usual way at the next election. I am not suggesting that my Bill alone will be the undoing of this Government, but it is symbolic of a need for them to open their mind, relax and be prepared to take on ideas that come from outside the Treasury.

Retirement income reform is a vast subject and I accept that it is perhaps not always adequately dealt with by Opposition Back-Bench Bills. None the less, the thrust of my Bill and that of the right hon. Gentleman lies in ideas that are worthy of support. They are worthy of constructive support, as well as constructive thought—something that I fear has not always been given to the Bill. It was certainly not given on Second Reading by some of the Minister's hon. Friends.

On that basis, I shall sit down and prepare to wind up the funeral band.

Mr. Dismore

Obviously, I am not going to talk for two and half hours in this debate. I think the hon. and learned Member for Harborough (Mr. Garnier) has probably shot my fox in his last remarks in terms of trying to develop my arguments effectively. I say to him that the only reason why I had to speak at such length in our previous debate was that he did not introduce the Bill properly. I did so not because I was doing the Government's bidding, as he suggested in the personal attack on me that he made at the start of his speech. I have taken a great interest in the issues with which the Bill deals as a member of the Select Committee on Work and Pensions and of its predecessor. Indeed, I have been a member of that Committee for five years or more. I was very concerned that the Bill was inadequate. If he had addressed some of the arguments that I advanced in that two-and-a-half hour speech, we might have been able to make rather more progress. As I recall, Mr. Deputy Speaker, you called me to order once for quoting some lengthy figures, but I think that the rest of my remarks were in order.

Mr. Garnier

May I tell the hon. Gentleman that, no matter what he intended on that previous occasion, the impression that he inevitably gave was entirely contrary to the expressions that he has just given to the House?

Mr. Dismore

I can only respond by saying that, if the hon. and learned Gentleman had introduced his Bill properly, developed the arguments at length and dealt with some of the issues when they had arisen in debates on similar Bills, we might not have had to spend so much time on the detail. None the less, as I said last time, I am wholly in favour of annuity reform. My concern is that the Bill is simply not the appropriate vehicle. If I may express some agreement with the hon. Gentleman, I hope that the Government will make their own proposals very soon, preferably in the Queen's Speech, to introduce proper annuity reform.

On new clause 2, I have some concerns about the definition of "dependant".

Mr. Frank Field

My hon. Friend said that he hoped that the Government would introduce their own reforms in the next Session. If they fail to do so, may we ask him to adopt the pose of a Trappist monk and remain silent when others of us are trying to push through pension reform?

Mr. Dismore

The answer is that I shall take any Bill as it comes. If the Bill is adequate, I will not have to say anything. If it is woefully defective, as the Bill before us has been during the previous attempts of the Conservative party, I will make the contribution that I should make and point out those defects.

On the meat of new clause 2, I am very concerned about the definition of "dependant". I can illustrate that point in a number of different ways. My first concern is the reference to "a child of the member". A little while ago, in my previous life, I had to represent a family who had been bereaved by the Zeebrugge ferry disaster. The father and the mother had both been killed. The mother had children by a previous marriage who had not been formally adopted by the father. The net result was that although the father had assumed financial responsibility for those children, they were not technically his children in law or by blood. That created an enormous series of anomalies that had to be corrected in the courts—

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