§ Vera Baird (Redcar) (Lab)
I beg to move amendment No. 46, in page 144, line 40, after 'employers', insert 'and annuity providers'.
§ Mr. Deputy Speaker (Sir Michael Lord)
With this it will be convenient to discuss the following amendments:
No. 47, in page 144, line 41, after 'employees' insert 'and annuity purchasers'. No. 44, in page 145, line 12, at end insert—'(f) make provision about the information and advice given to employees and their spouses.'.
No. 48, in page 145, line 12, at end insert— 933'(f) provide that they apply to annuity providers of a prescribed description and annuity purchasers of a prescribed description.(g) make provision as to the action to be taken by annuity providers to ensure that annuity purchasers and their spouses have signed to confirm that they have received and understood information relating to the annuity purchase.'.
No. 45, in page 145, line 19, at end insert—'(d) the person who would be affected directly or indirectly by the provision of the information.'.
No. 49, in page 145, line 23, at end insert—'(7) In this section "annuity provider" means any company selling annuities whether or not resident or incorporated in any part of the United Kingdom.'.
§ Vera Baird
The amendments seek out a positive approach from the Government to a difficult problem.
Clause 219 is concerned with the supply of clear, good-quality information so that people are fully informed when they make decisions about their retirement income. The amendments are consistent with that aim and would mean that the employers and companies selling annuities would have to ensure that those buying the annuities and their spouses had signed to indicate that they had received and understood information relating to the purchase.
The amendments drive at the difference between a single life annuity and its impact and a joint life annuity. I am well aware that everyone in the Chamber knows the difference, but I should explain that a single life annuity is paid to the individual taking it out. When that person dies, the annuity income dies too. There is no benefit to the surviving spouse. The joint life annuity, on the other hand, continues to pay as long as one member of the pensioner couple is alive. For that reason, income from joint life annuities is considerably less than single life annuities. The purpose of the amendments is to ensure that on purchase of an annuity by a married person they and their spouse are fully aware of the consequences of their decision to purchase a single rather than a joint life annuity. They are also designed to ensure that on the death of their spouse nobody faces an unexpectedly huge drop in pensioner income.
According to the Association of British Insurers, only 19 per cent. of married people have joint annuities, although it is unclear on what information their decision was based. The amendments require that when a married person purchases a single life annuity their spouse signs a form saying that they have read and understood a leaflet explaining the options. The spouse should also give their consent for their partner to purchase a single life annuity and understand the implications of that decision for their pension income should their partner die before them. If the annuity purchaser decides to buy a single life annuity and not a joint life annuity, the written consent of their spouse to buy such an annuity should be required. If they cannot obtain that consent, the default position should be that they buy a joint annuity.
934 I emphasise that the amendments are not meant to compel all married people to purchase a joint life liability—the decision would still be theirs. The rationale for people having a right to their spouse's savings when they do not have rights to their earnings is based on the fact that it is women who are primarily disadvantaged by the present position. Women's historical and current difficulties in building up a decent pension mean that they are disproportionately reliant on their husband's pension income. If their husband dies before them, they are reliant on any survivor benefit in their husband's pension, so it is critical that they should be aware of what is happening.
Survivor benefits are particularly important because women have less pensioner income in their own right—on average, it is 57 per cent. of men's pensioner income, and the gap has widened since the 1980s. Less than 12 per cent. of women get a full basic state pension in their own right. Men have high membership rates of pension schemes, and they purchase the majority of annuities. In addition, women are likely to outlive their husbands. Almost half the women over the age of 65 are widows, and a 65-year-old woman can expect to live three years longer than a 65-year-old man. The issue is therefore a pressing one.
I accept that for some couples a single life annuity will be the best option—for example, when both spouses have access to sufficient pension income in their own right or when the survivor is on a low income and receipt of survivor benefits will reduce the amount of means-tested benefits that they receive. That decision, however, ought to be taken jointly, so that at the outset both spouses are aware of the consequences.
As a footnote, I should add that annuities provide non-married or single-sex couples with a good opportunity to make provision for survivor benefits. One of the obvious benefits of a joint life annuity is that an individual can decide to provide survivor benefits for their dependant regardless of the relationship. Occupational schemes often exclude non-married or same-sex partners. Without legal recognition of those partnerships, as is currently the case, it would be inappropriate to enforce a signed waiver of rights, but it would be prudent none the less to ensure that the annuity buyer understands the implications of their decision.
This is an extremely important issue, and there is a good deal of consensus is on it among the Fawcett Society, Age Concern and other pressure groups that have sought repeatedly to draw the problem to the Government's attention. I have no intention of pressing the amendments to a vote, but I hope for a positive response from my hon. Friend the Minister.
§ Mr. Webb
I should put on record, for the benefit of the whole House, the Committee's appreciation of the hon. and learned Lady's contribution in Committee, where she secured that a report be made next year on women's pensions issues. This group of amendments represents one of those issues, although obviously it relates to men as well. As she said, this set of amendments refers particularly to women, because if a person buying an annuity—typically, a man—fails to provide for his surviving spouse, it is women, typically, who lose out. In a number of forums—in the House, Westminster Hall and elsewhere—the hon. and learned 935 Lady has stood up for women pensioners in particular and she deserves a great deal of praise for that. [HON. MEMBERS: "Hear, hear."]
I support some of the amendments in the group. Amendment No. 44, which would allow regulations to be made to make provision about information and advice to employees and their spouses, seems entirely appropriate. We need more information and advice. However, I have always felt uncomfortable about the written permission referred to in amendment No. 48. I am trying to work out what it is that makes me feel uncomfortable.
Although the process that the hon. and learned Lady describes is technically gender-neutral, let us take the most common case, in which a man gets to the point where he has to buy or wants to buy an annuity. If the amendment were agreed to, he would be prohibited from buying a single life annuity without the written consent of his wife. That just does not feel right. That is not a very good argument, but it does not feel right that an individual who has saved for their own pension should be prohibited from buying with that pension the particular investment vehicle that they think is right. My worry is the power of veto. I do not lave a problem with the amendments that provide for both partners to be given information. One would hope that in a normal relationship they will talk to each other, weigh things up and make a decision. The power of veto would presumably apply where relationships are not working quite as well as that.
Whether the answer is to give one partner a legal block on the other partner's ability to buy a single life annuity worries me. Let me give an example. Suppose this may be a less typical case—that the man who wants to buy an annuity has a pension pot. That is his entire pension provision for old age, whereas his wife has a fantastic occupational pension—say, she had been a Member of Parliament or something like that. Even though all the annuity will come out of his savings and it is all he has to depend on, he still needs her written permission not to make provision for her. The hon. and learned Lady might well say, 'Yes, but being a reasonable woman, she will give it", and she may do so.
Often in legislation we have the concept of what may reasonably be done. If everyone were behaving reasonably, we would not need the provision at all, because they would all talk to each other, they would have been sent the leaflets and they would make a joint decision. We need the power of veto presumably for couples whose relationship is not terribly good. Is it right in all cases to prohibit one partner who may need the money from buying the annuity that serves his—in this case, his—purposes best? Although his wife may subsequently get her very good pension, if the relationship is not terribly good, she may not share it. Obviously, the converse of all those things is true if one transposes the gender, but we are dealing with a typical case.
I think that the hon. and learned Lady would accept that there is a raft of issues to do with women's pensions that need addressing, of which this is one. There is a raft of issues even on the subject of survivors' benefits, of which this is a subset. It would be unfair to criticise the proposals as piecemeal, because we all do things 936 piecemeal—that is all we can do when faced with legislation. We try to make the world a slightly better place where we can.
That is meant not as a criticism, but as an observation that we need a strategy for widows and other survivors that encompasses not only annuities and, hence, money purchase pensions, but occupational pensions, where in many cases there are no survivors' rights, as well as public sector pensions. Until the happy day comes when men and women have accrued enough pension in their own right and we can do away with the concept of survivors' benefits, which must be the goal of pensions policy, we must tackle this huge generational transition. I fully accept the need for a provision such as amendment No. 44, which lays down requirements on information and ensures that both partners know what is going on, but the power of veto seems one step too far.
§ Vera Baird
Divorce law establishes that pensions are joint assets on divorce and therefore during marriage. Pensions are analogous with other joint assets such as houses, which cannot be mortgaged without the consent of both parties. Why does the same argument not follow for pensions?
§ Mr. Webb
The point is fair, but one of my worries is that the position is not necessarily reciprocal, because amendment No. 44 relates only to a specific category of pension provision. In my example, the man has a defined contribution pension that must be converted into an annuity, but if the woman has a final salary pension with no survivor's rights, asymmetry would be created.
The hon. and learned Lady argues that the pot of money to buy an annuity is the couple's joint property, but on that basis their joint property should also include the woman's occupational pension. The woman would have the power of veto over the man's pension, and asymmetry would occur because the provision does not include her occupational pension; it is not holistic—the example holds for both men and women if we were to reverse the genders.
The idea is right, but the power of veto is not what we want to introduce when dealing with pensions. We want to make substantial general provision for survivors, who are predominantly women. The hon. and learned Lady was right to table amendment No. 44, and I support some other amendments in the group. I hope that the Minister reassures us that the Government have a broad strategy on survivors' benefits, and if he can do so, the hon. and learned Lady will have done us all a great service.
§ Mr. Pond
My hon. and learned Friend the Member for Redcar (Vera Baird) asked for a positive response, which I can certainly give her. I add to the tribute paid to her by the hon. Member for Northavon (Mr. Webb) for her vociferous arguments on the issue.
Clause 219 aims to ensure that where employers contribute little or nothing towards their employees' pensions and where levels of scheme membership are low, employees get access to the information and advice that they need to help them make an informed choice about savings for retirement. As part of that requirement, employees will receive information or advice about annuities, where it is appropriate.
937 The amendments promoted by my hon. and learned Friend the Member for Redcar work with the grain of both our agenda of informed choice and our determination to ensure justice for women in pensions matters. The amendments would considerably extend the requirements in clause 219, and would, via the Secretary of State's power to make regulations, require employers and providers of annuities to give employees, purchasers of annuities and their spouses access to information and advice about retirement planning and, in particular, annuities.
That fits with the informed choice agenda, but I ask my hon. and learned Friend to consider the practical difficulties, which we must examine in deciding whether we can take the amendment forward. The Government believe that employers have a responsibility to help their employees provide for their retirement, but to extend that responsibility to cover the spouses of employees presents considerable practical difficulties. For example, arranging presentations or one-to-one advice sessions in the workplace for employees' spouses would not be an easy task. Such a requirement would lead to additional complexity and costs that many employers, especially the smallest employers, would find difficult to bear.
In addition, providing information and advice to spouses about annuities and other pensions matters might well raise data protection issues, as well as conflict of interest issues, for providers and employers. We recognise that consumers who are considering retirement and who must purchase an annuity face an important and complex decision. That is why the Financial Services Authority has already introduced changes designed to help people choose the annuity that is best for them.
FSA rules now require providers of personal pensions to give annuity purchasers information about open market options. For example, many issue the FSA leaflet, "Your pension—it's time to choose", which explains in simple language what an annuity is, as well as the options that are available to people and how they can shop around to get a better deal. In January this year, the FSA published further guidance in its "Guide to annuities and income withdrawal", and since the spring of 2003 it has included annuities in its comparative tables to make it easier for purchasers to shop around for the best value annuity available.
Additionally, new rules introduced in this year's Finance Bill will mean that occupational money purchase schemes are required to offer members the opportunity to choose between a scheme pension and a lifetime annuity. If they choose the annuity, members will again be informed about their open market options.
The issue of annuities has been the subject of considerable consultation over the past few years, and the outcome of that consultation has fed into our pensions simplification work. In answer to the hon. Member for Northavon, we are seeking to put in place provisions that will ensure that surviving spouses have support. We are strongly committed to the concept of 938 informed choice, and we are trying to move forward on that. We are also committed to the concept that pension provision should close the inequality that has traditionally existed between men and women. I understand that that is why the Fawcett Society, the Equal Opportunities Commission and Age Concern have supported such proposals, which, although we find them attractive in principle, involve issues of practicality that we need to resolve.
I can assure my hon. and learned Friend that we will keep the need for further annuity-specific information and advice under review and that we will continue to assess how we can move forward on this agenda. I hope that given that reassurance she will feel able to withdraw her amendment.
§ Vera Baird
I thank my hon. Friend for that response, which could not be called anything other than positive. Mindful of the care that the Government are taking to ensure informed choice, and cheered by their determination to use pension provison to close the inequality between men and women—a large commitment, but I was pleased to hear it—I beg to ask leave to withdraw the amendment.
§ Amendment, by leave, withdrawn.