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Finance (No. 2) Bill

No, the pot, because a person would transfer their pot into purchase of the annuity. Over and above the already generous tax incentives for saving for pensions on the way in, we have introduced flexibility in a number of ways over the last few years, through the Finance Act 2004 and also through the new tax regime that we introduced on 6 April, which gives much greater flexibility and simplicity for pensions saving. We have added flexibility to saving for retirement provision in several ways. First, as the hon. Member for Fareham (Mr. Hoban) mentioned earlier, we are continuing in the new regime the facility to defer taking an annuity and instead to take income withdrawal. Annuities often represent the most efficient way of turning a capital sum into income, but there could be circumstances—perhaps when the scheme member was relatively young and there was a reasonable expectation that the underlying investments of the pension scheme would perform well—when some people might benefit from not being tied into the then prevailing annuity and gilt rates paid later in life. As Members know, the income draw-down rules introduced by the Government allow people to take an income and defer taking an annuity until a more opportune occasion. The hon. Gentleman gave the impression, perhaps inadvertently, that there are no limits on the degree of draw-down. That is not correct; there are clear rules that allow, in the new regime, a maximum amount to be drawn down for income withdrawal, while allowing resource to remain for the purchase of the annuity—the income guarantee, which is the prime motivation for the existence of the tax reliefs. By contrast, the facilities offered under new clauses 3 and 7 would actually allow the whole amount—way beyond the maximum level we have set in the draw-down legislation—to be taken in draw-down without the need to buy an annuity. Only a small minority of people have sufficient wealth to benefit from those opportunities in a way that sensibly assesses risk. Only those individuals could take the risk of not making provision through an annuity. Our view is that providing a substantial tax advantage to allow that, as the new clauses would do, for one in 20 of the population with a pension pot at age 75 would not be the right way to spend taxpayers’ money. A second way in which we have added flexibility is that tax rules now allow a new product, a limited period annuity, which enables someone vesting their pension fund to use part of the fund to provide an annuity for a maximum period of up to five years. We have also made a change to allow value-protected annuities to be offered, to allow a return of capital on an annuity where a member dies before reaching age 75. As the hon. Member for Fareham reminded us, we have also introduced an alternatively secured pension—ASP—for pension scheme members who have not secured their pension benefits by age 75, where the member has a principled religious objection to the pooling of insurance and mortality risk. As the hon. Gentleman knows, and as the quotation from my right hon. Friend the Member for Bolton, West (Ruth Kelly) to which he referred makes clear, it was always our intention that the rules would apply in the specific and narrow case of individuals with such principled religious objections such as the Christian Brethren. It has always been our intention to replicate the secure lifelong income obtainable from an annuity through those measures, but not to allow that to become a way in which a small and wealthy minority could benefit substantially from tax advantages to the cost of taxpayers overall. We have always made it clear that we shall not allow those concessions to be taken up more broadly to get round the annuity rules. This is not a mainstream product and it must not become a tax avoidance measure. We shall not be going down that road. Finally, we have taken steps to ensure that more people with small retirement funds can avoid the need to purchase an annuity which, although secure and guaranteed, is neither cost-effective to pay or to receive, because the amount in the pension pot is so small. The hon. Member for Fareham mentioned the Turner commission report and we shall be setting out a detailed paper in response later in the year. The Turner report looked at pensions policy 20 or 30 years ahead and the commission advises us to look at all the issues in the round over time, including limits and ages. We shall certainly do that. Following publication of the first Turner report, we took up the suggestion that we should examine the case for not requiring the full purchase of an annuity at 75. Our view is that our policy is right for the present and that to follow that suggestion would be complex and bureaucratic and benefit only a small minority at wider expense to the taxpayer, all as a result of substantial increases in tax rates. That would be the wrong road for us to take.