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Pensions Bill

Indeed; I am with the noble Lord, Lord Oakeshott, on this. Perhaps I may recap the situation. First, I think that the question is: if I pay the tax back, why cannot I access my retirement savings as I wish? There is no reason for an individual to put substantial funds into a pension and claim the tax relief that goes with it if he does not want a retirement income at the other end. Tax relief on pension savings is not designed as a means of accumulating general savings. That is not the proposition. Secondly, it would be very hard to work out the exact value of tax relief in any particular case, as it would depend on the profile of a person’s earnings and his tax and pension contributions over the years, plus tax regrowth on his pension investments. Therefore, this option would involve either very complex and expensive processes to work out individual figures—even if it were possible to do so—or a very high flat-rate level of tax recovery to avoid tax abuse. It would lead to the bizarre scenario where an individual saved in a pension vehicle to enjoy the tax relief but then faced the trouble of paying back the tax relief when he could have avoided all the inconvenience in the first place by saving in a savings vehicle such as an ISA, subject to the limits properly referred to by the noble Lord. Those who advocate this approach invariably want to access their pension fund taxed at their marginal income-tax rate, but that would greatly undervalue the tax relief previously enjoyed and would amount to a generous taxpayer subsidy. I move on to Amendment No. 140. Although the amendment does not directly relate to the RIF, it nevertheless results in the same outcome—that of enabling those with the greatest means to use pension saving for a purpose other than providing an income in retirement. The amendment would remove the upper-age restriction on the payment of an annuity protection lump sum benefit. An annuity protection lump sum death benefit was a concept introduced by the Government in the Finance Act 2004. It allows a return of pension savings used to secure an annuity, less any payments already made, to be made on a person’s death before age 75. The intention behind an annuity protection lump sum death benefit is to ensure that, should the member die early in his retirement, his family gets something back from the retirement provision that he has made. Removing the upper-age restriction would go beyond that intention. The provision of this type of death benefit would make it attractive as an inheritance tax planning vehicle, due to the tax relief. An annuity with this form of protection typically costs more than one without it, reducing the income received in exchange for the protection offered. The extra cost of extending that protection beyond age 75 would be significantly more than under the current rules. That would make this option primarily suitable for those who could afford to take the reduced income and wished to use their pension savings for another purpose, such as inheritance planning. The restriction on the payment of annuity protection lump sum death benefit beyond age 75 is consistent with other lump sum payments on death from pension arrangements and provides consistency between defined contribution and defined benefit pension schemes. The noble Lord, Lord Hunt, asked me about alternatively secured pensions and referred to the Christian Brethren. For those with specific objections to pooled mortality risks in annuities, ASPs provide an option in drawing a pension. ASPs are not, and have never been, limited by legislation to specific religious groups such as the Christian Brethren. Although they are not a mainstream product, the Finance Bill 2007 allows that for a small minority, and if well advised, ASPs exist for people to draw an income in retirement consistent with the principle that pension tax relief should be used to provide an income in retirement and not tax-favoured inheritances. Therefore, in ASPs a product already exists to give people an alternative to annuities from age 75 consistent with our principle of tax-advantaged savings being used to secure an income in retirement. I have been speaking for some while on this issue and I know that I have disappointed those in favour of the proposition, although I suspect that I have not surprised them. I hope that the Government’s position is very clear on this. It is important to be clear that the amendments all share a common theme: they allow those who are able to afford it to utilise the tax relief available on pension savings for purposes other than providing an income in retirement. Although innovation in the pension market is to be welcomed, and indeed encouraged, the Government are clear that it should not allow the well-off to take advantage of the system at the cost of the taxpayer. I therefore ask the noble Lord to withdraw the amendment.