Clause 5
Pensions Bill
9:45 am
David Laws (Shadow Secretary of State for Work and Pensions, Work & Pensions; Yeovil, Liberal Democrat)
Yes. The figures that I have probably go back a couple of years, but the Minister might have some more up-to-date figures. When the parliamentary answer to which I referred was received, some 478,000 pensioners’ pensions were frozen. There are now some 520,000, so the proportions will not be far off. Of those 478,000, about 288,000 were female and 191,000 male. Perhaps that reflects life expectancy issues to some extent, but it also underlines the fact that somebody moving abroad, of either sex, who ends up living for a long period after they move will end up feeling the squeeze from the failure to uprate. Not only will their pensions not only fall behind earnings and the income of the rest of the population, which is usually the issue of concern to this place when we talk about people living in this country, but potentially fall in real terms.
There is a long list of individual countries where uprating does not take place, because that is the case in the majority of countries; there are about 152 such countries. A great deal of frustration and mystification is caused by the fact that many of those countries are the Commonwealth countries, which we have close relationships with and which a lot of people move to. The latest figures that I have on that, from February 2006, which are from a parliamentary answer of December 2006, show that there are about 240,000 such pensioners living in Australia and 153,000 in Canada. We should bear it in mind that those who move over the border to the United States of America do have their pensions uprated, whereas people in Canada do not. There are also 46,000 such pensioners in New Zealand and 37,000 in South Africa. I understand that pensioners in those four countries make up 90 per cent. of the pensioners whose pensions are frozen.
There are some extraordinary anomalies, which people frequently raise. The hon. Member for Daventry, who spoke for the Conservatives during our debate on the issue last year, mentioned something that I had not spotted—the uprating in Guadeloupe and Martinique, which are both French overseas territories and therefore fall under the European Union rules. However, in other countries out in the Caribbean there is no uprating. Indeed, there are considerable differences even among the countries with which we have close links. For example, people living in Bermuda, Gibraltar and the sovereign-based area in Cyprus all have their UK state pensions uprated, but those on the British Virgin Islands, the Cayman Islands, the Falkland Islands, Montserrat, Pitcairn Island and St. Helena, and those in the dependencies, do not receive the uprating. That is an additional bizarre situation, in which pensioners in British overseas territories do not receive the uprating.
The Government’s excuse at times has been that they were not able to negotiate reciprocal arrangements with other countries. However, in this case they would be negotiating with themselves, so one would have thought that it would be quite easy to secure an agreement. Those in the know will also be aware that if there were any pensioners on the British Antarctic Territory and the British Indian Ocean Territory, they would also have their pensions frozen—frozen pensions in the Antarctic is one of the in-jokes of the frozen pension world, so I thought that I would give the hon. Member for Weston-super-Mare an opportunity to contribute on that point.
That is the current situation. The question is why we got there. My understanding from listening to the debates and the ministerial explanations to date is that we got there in part because when the situation first arose of significant numbers of people moving abroad from the UK, the basic state pension was not regularly uprated each year. As the helpful Library briefing note for the Bill confirms:
“A statutory duty to increase state pensions annually in line with inflation was first introduced by section 39 of the Social Security Act 1973”,
with the first uprating of that type in 1975. The briefing continues:
“Before this, pensions, and other National Insurance benefits, had been increased at irregular intervals by a series of National Insurance Acts.”
There was perhaps not the same assumption as exists today that prices would rise year on year in a way that necessitated an automatic annual uprating.
By the late ’60s and the early ’70s, when inflation rose to historically high levels, it became necessary to uprate social security benefits annually to prevent people from falling behind in real terms. The uprating was introduced, and the 1974 Labour Government linked pensions to earnings—a link that was broken in Lord Howe’s first Budget after the 1979 election.
That seems to be the explanation of how we got out of the habit of automatic upratings, although another explanation was given by a participant in one of the debates in the House of Lords. The issue was debated by the Cabinet in the 1970s, when there was concern about the outflow of foreign exchange from the United Kingdom. At that time, we had an unhealthy balance of payments and the exchange rate was constantly in the news, which was used as a further constraint and reservation in relation to annual upratings.
We are now in a very different situation, and Ministers have acknowledged that that situation does not have a strong logic. Indeed, in a debate initiated by the hon. Member for Thurrock (Andrew Mackinlay) in the Commons in 2000, Lord Rooker admitted that the existing situation was illogical. Referring to the issue of which countries are uprated and which are not, he said:
“I have already said that I am not prepared to defend the logic of the present situation. It is illogical. There is no consistent pattern.”—[Official Report, 13 November 2000; Vol. 356, c. 628.]
In the debate that we had relatively recently in Committee, the Under-Secretary, who is with us today, acknowledged that aspects of the existing situation were not necessarily logical. He also mentioned that upratings were less frequent in previous periods than they are now, which is partly why we are in the present situation.
As I mentioned earlier, my noble Friend Lord Jones of Cheltenham devoted part of his maiden speech to this issue in the Lords on 25 October 2005. I commend him on selecting the slightly unconventional subject of people living outside the United Kingdom for his speech. He made a powerful case against the unfairness of the existing system and recalled a constituent from his time as the Member for Cheltenham. She had wanted to move to Canada to be with her son and the rest of her family in the later period of her life. She then found out about the frozen pensions rule, but she initially thought that it was simply an administrative glitch and that it would be resolved in short order when the Government found out that it existed. After a while, however, she found that it simply would not be resolved. She told my noble Friend that if she did not move abroad, it would be too late and she would die. She therefore moved out to Canada, but she now lives in very straitened circumstances.
That demonstrates the point that we discussed earlier. For some people, this is not simply an issue of moving to a country where they can get an uprating and where the temperature averages above 80° F for most of the year. People have other links—often family links—with countries, which means that they cannot pick and choose which country to move to without severe personal consequences.
My noble Friend cited two other issues to highlight the potential injustice of the current provisions. One was the small number of British overseas territories. There is particular frustration about the way in which the current anomalies affect pensioners there. The small number of pensioners who live in those countries—at the time, it was about 572—are not covered. It is a great irony that successive Governments have voiced commitment to places such as the Falkland Islands and spent billions defending them in recent years for reasons that we all know, but that people who moved to such places from the United Kingdom do not have their pensions uprated. My noble Friend met the commissioner from the Pitcairn Islands, where, at the time, no individuals were affected by the regulations. However, the commissioner told my noble Friend that he would be retiring and would be caught by them. He was therefore a particularly strong supporter of my noble Friend’s suggestions. I shall return to the financial aspects of the issue later.