At the end of the committee stage of the Finance Bill there is an opportunity for MPs to table new clauses to the Bill. Unlike an amendment, which seeks to change a provision already in the Bill, a new clause can introduce a new measure.
As such, the Conservative opposition proposed four new clauses: a proposal to repeal Labour’s measure from its first Finance Act to end the repayment of dividend tax credits to non-taxpaying individuals; a proposal to end the age limit of 75 for delaying the purchase of an annuity out of a private pension scheme; a proposal to protect the privileged status of tax advice; and a proposal to introduce tax relief at the basic rate of tax for donations up to £500 a year to political parties – a recommendation of the Neill report.
All very worthy measures and all soundly defeated because of Labour’s built-in majority on the committee.
However, it is the defeat of our new clause on annuities that most disappoints me. In 1995, the last Conservative government, responsive to falling interest rates, relaxed the rules which require the purchase of an annuity at age 65, to enable a pensioner to delay such a purchase for up to ten years, to age 75.
I represent Bognor Regis and Littlehampton, which have large retirement populations, and I have received a number of letters from constituents in their late 1960s who have taken advantage of this option. With annuity rates now at an historic low, £100,000 buying an income of £9,494 compared with £15,823 seven years ago, they are clearly concerned about making such a purchase in the current climate.
And they are right to be concerned as it is not just interest rates that affect annuity rates: the supply and demand of annuities and the price of 20-year gilts are also having a detrimental effect on annuity prices.
The government’s response is to ask the Inland Revenue to review the issue with its report this autumn. Now is the time to lobby hard for a relaxation of the rules.
Pensioners should be given the flexibility they need to maximise their income and not have the nanny state insisting on a course of action that may be financially extremely detrimental.
Nick Gibb is Conservative MP for Bognor Regis
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