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Finance (No. 2) Bill

The hon. Gentleman makes an important point. It is difficult to legislate on such matters. The minimum retirement income is aimed to achieve, in time, the right amount of income to be purchased for the rest of people’s lives. In circumstances in which a person’s income might fluctuate, the minimum will fluctuate over the course of that person’s retirement. We are considering a floor for use in later life. The subject is complex, and I am the first to acknowledge that. The process is not entirely straightforward but we should explore it to ensure some flexibility in the way in which people can use their retirement funds. It is worth considering the views of the Turner commission on annuitisation. Its report highlighted the strains that the move to defined contribution schemes would place on the annuity market. It asks whether there are any limits to the capacity of the annuity market to play a greatly expanded role in post-retirement longevity risk absorption, as the state exits from pay-as-you-go earnings-related pension provision, and as private pension provision shifts from defined benefit to defined contribution. It therefore asked whether there would be a sufficient supply of annuities for people to acquire to enable them to achieve certainty about their income throughout their retirement. Two points emerge from that analysis. First, the shorter the period of the annuity, the lower the inherent risk, the lower the risk premium priced in the product and, therefore, the higher the income that people can secure for their retirement. That is an argument for later annuitisation. The commission contends that policies need to be in place to encourage later annuitisation. One policy option is the proposal that the requirement for annuitisation at any age should be limited. That is similar to the proposal in the new clause. The report states:"““The Pension Commission is not convinced by the arguments that annuitisation requirements should be waived entirely. Since the whole objective of either compelling or encouraging people to save, and of providing tax relief as an incentive, is to ensure that people make adequate provision, it is reasonable to require that pension savings are turned into regular pension income at some time. But this objective could be pursued via requiring annuitisation up to some defined level of income. And tax relief given on contributions can be reclaimed via the tax treatment of pension funds at point of inheritance or drawdown. While only a minority of people would use this freedom, anything which removes demand from the annuity market will at the margin improve ease of supply and pricing for others.””" The Turner commission highlighted two matters that are vital to our debate. First, it supports the idea of minimum annuitisation, reflecting the provision for the minimum income requirement in the new clause. Secondly, it tackles head-on one of the arguments that the Government have used persistently—the fact that the measures will directly benefit only a minority. Yes, that may well be the case, but that relieves the pressure on the annuity market and, indirectly, helps the remaining population, who wish to buy annuities. It is therefore short-sighted of the Government to reject the Turner report’s approach.