Retirement Annuities (Hansard, 11 February 2002)

§ The Parliamentary Under-Secretary of State, Department for Work and Pensions (Baroness Hollis of Heigham)
My Lords, current legislation already requires annuity providers to provide a unisex annuity in respect of any protected rights in occupational and personal pensions. This reflects the provisions of SERPS and. for the future, the state second pension, where benefit levels are equal for men and women. For other retirement annuities, the annual rates for women are lower, reflecting their longer life expectancy.

§ Baroness Howe of Idlicote
My Lords, I thank the Minister for that reply. Does she agree that the sum payable for the same price continues to discriminate against women? They get on average some 10 to 20 per cent less for the same price. As the Minister says, this continues to be based on the certainly different but significantly narrowing life expectancy rates. Does she agree that increased rates to purchase pensions further compounds the disadvantage of women whose lower hourly earnings-82 per cent of men's—and interrupted work life mean that they get a lower overall pension? Given the government commitment to action against all forms of discrimination against women, is it not high time to put an end to this injustice by requiring life expectancy risk to be shared equally now, or, at the very least, to see that the legal requirement to purchase annuity is removed'?

§ Baroness Hollis of Heigham
My Lords, it is certainly true, as the noble Baroness said, that women have lower earnings. She is right therefore to focus on the fact that having a job and a sustained pension over many years is the best protection against poverty in old age. I entirely agree with the noble Baroness on that point. But do not agree with her on the rest. It is certainly the case that annuity rates produce lower rates for women, as they do, for example, under some schemes, if so chosen, in instances of impaired life expectancy or according to types of occupation or where one lives. But over their lifetime, women, given the standard life expectancy for the same annuity rate, are likely to get £9,007 more than men from the same annuity sums of money.
878 The second point is that women gain disproportionately from both the state second pension and the pension credit—two-thirds of the gainers are women—and of course from retirement pension. In all of these women are aided by the fact that because inflation under this Government is so low, women continue to protect the value of their pension for much longer than they would have done under the previous Conservative government.

§ Baroness Turner of Camden
My Lords, is the Minister aware—she more or less said so in her response to the previous question—that women tend to lose out at every stage in pension provision throughout their working lives? We are now moving in the direction of equal pension ages. Is it not right that the imbalance which affects women should be redressed by introducing unisex actuarial valuations?

§ Baroness Hollis of Heigham
My Lords, I hope that the House will forgive me. I am a little puzzled because I thought I had answered precisely that question as raised by the noble Baroness, Lady Howe. No, I disagree because it was confirmed by both the European Court of Justice and the Neath judgment in 1993 and by the European directive 86 that gender considerations were a proper factor to take into account under annuitisation. That we have done. I made the point—I hoped that my noble friend would take it—that overall women do better than men, given standard life expectancy, from their annuity investment, as they do from other forms of pension provision. But the key issue—I go back to the point raised by the noble Baroness, Lady Howe—is that women get good jobs and contribute to pension schemes during their working lives. That is the best basis for women enjoying a decent pension in old age.

§ The Earl of Northesk
My Lords, the published consultation document on annuities—I am somewhat surprised that the noble Baroness did not mention it in her answer—is welcome so far as it goes. But is it not merely tinkering with the problem rather than initiating the kinds of reforms that consumers need, particularly with respect to compulsory annuitisation? Viewed more broadly, how do the Government respond to growing evidence that their policy towards annuities is a contributory factor to the low take-up of stakeholder pensions?

§ Baroness Hollis of Heigham
My Lords, the Modernising Annuities document has much to offer those people with more modest sums, including better information, the ability to take limited period annuities, and so on. I accept that the noble Earl is correct; some people will be disappointed that the report does not abolish the "75" rule. Those who will be disappointed are people with pension pots of £250,000 or more, which would be the sum of money required to float them off means tested benefits. Those people will also be disappointed because they cannot leave that money to their heirs, courtesy of the contribution from other taxpayers.
879 The point about annuities is that they are an insurance against living too long. They are a retirement vehicle not an inheritance device. If one were to remove the "75" rule, as the noble Lord suggests, it would mean that poorer taxpayers who currently contribute 30 per cent of the build-up of those annuities would be subsidising the better off to leave money to their well-to-do offspring.

§ Baroness Strange
My Lords, does my noble friend agree that death appears to discriminate against men?

§ Baroness Hollis of Heigham
My Lords, I agree, and I suggest that my noble friend takes that up with the Bishops' Bench to see whether they will intercede with the Almighty.

§ Baroness Barker
My Lords, does the noble Baroness agree that standardisation of annuities on grounds of gender leads to administrative simplicity and therefore to cheaper products for both men and women? What are the Government doing to encourage that?

§ Baroness Hollis of Heigham
Obviously, my Lords, we want cheaper products, which is why the Government are doing so well with stakeholder pensions—bringing the fees down to 1 per cent and so on. But I must repeat that it is not only legitimate under European law but proper that annuity providers should take account of such considerations as gender and, if they wish, occupation, impaired life expectancy, and the like. I repeat that over their average lifetime, women get a better deal from annuities than do men.

§ Lord Varley
My Lords, would my noble friend like to comment on something that applies equally to men and women annuitants, namely, the application of the Inland Revenue rules, which at present on the one hand prevent the annuity contract being honoured and on the other deny to the Treasury millions of pounds in revenue? My noble friend has a quizzical look on her face, but those are the facts. If she cannot answer the question today, will she ask her officials to consider how those capricious rules are working to deny the Treasury a great deal of revenue? I declare an interest as an annuitant who, like thousands of others, is the victim of those capricious rules.

§ Baroness Hollis of Heigham
My Lords, I am at a disadvantage because my noble friend has not specified what he means by "capricious rules". Only if I knew what were the rules that he thinks capricious could I attempt to persuade him of the deep rationality that, I am confident, lies behind them.

§ Lord Brookman
My Lords, is my noble friend aware of a study in America which took 20 years and found that left-handed men die seven years earlier than right-handed men? I am left-handed myself. Taking 880 into account that women tend to live about six or seven years longer than men, does my noble friend have any sympathy for left-handed retirees?

§ Baroness Hollis of Heigham
My Lords, being left-handed may for most men have cast a blight over their lives, but I am confident that in no sense has it impaired my noble friend's life or opportunities.

§ Baroness Greengross
My Lords, does the Minister agree that one is hopeful of a move towards fairness? It is still obvious that women die poorer than men but even if at present they have a few more years to live, the gap is closing. Would not a system of pooling life expectancy risk be much fairer?

§ Baroness Hollis of Heigham
My Lords, I return to the point that I made in response to the Question asked by the noble Baroness, Lady Howe of Idlicote. The problem is not so much that the annuity rates are not fair—they are—but that women generally have lower wages and interrupted career patterns and, for the most part, have long regarded their husband as their pension provider rather than taking out their own pension. In all decency, that is the core of the problem and that is precisely why the Government introduced the state second pension and the pension credit scheme, both of which will largely benefit women. I fully take the substance behind the point made by the noble Baroness, but it is not a question of tinkering with annuity rates. There is a deeper issue about the relation of women to the labour market.