Overseas Pensioners

– in the House of Commons at 2:23 pm on 30th January 1987.

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Motion made, and Question proposed, That this House do now adjourn.—[Mr. Maude.]

Photo of Mr Neil Thorne Mr Neil Thorne , Ilford South 2:31 pm, 30th January 1987

As I am chairman of Ilford Age Concern, it will come as no surprise to my hon. and learned Friend the Parliamentary Under-Secretary of State that I should like to see a substantial increase in the national retirement pension.

Increasing numbers of my constituents are asking me why the Government are paying out unemployment and other benefits to unemployed school leavers who have never worked when other industrialised countries pay unemployment benefit only to those who have earned it through contributions made while in employment. Those countries which make it much harder by relating benefits to contributions then seem to be in a better position to be more generous with their retirement pensions for those who have regularly contributed throughout their working lives. I am not suggesting that young people should be left destitute, but I propose that it should be made much harder for any young person to exercise the option of drawing the dole and staying at home, particularly when there are now so many training schemes and opportunity programmes.

I was very pleased to meet one young man in my constituency earlier this week working on the test bench at Plessey Military Communications, who had first joined the company on a youth training scheme and is now an integral part of its work force. He is earning good money.

As I have said, countries that make it much harder by relating benefits to contributions seem to be in a better position to be more generous with their retirement pensions for those who have regularly contributed throughout their working lives. My suggestion would introduce a new concept. At present pensions are paid under the Social Security Act 1975. Instead of being a return on contributions made throughout the working life, they are paid out of current taxation. In my view, a good Conservative principle would relate much more closely to contributions and benefits.

Section 82(5)(a) of the Social Security Act 1975 provides Except where regulations otherwise provide, a person shall be disqualified from receiving any benefit, and an increase of benefit shall not be payable in respect of any person as the beneficiary's wife or husband, for any period during which the person—

  1. (a) is absent from Great Britain; or
  2. (b) is undergoing imprisonment or detention in legal custody."

I have no quarrel with the second of those two provisos. However, I feel that having contributed towards a pension scheme throughout a working life, sometimes for 40 years or more, it is only reasonable that the person who has made such contributions should be entitled to look forward to a pension which can allow for the ravages of inflation.

We appear to have double standards in that respect. Some countries have a reciprocal arrangement with us whereby increased provisions are catered for. Other countries, however, do not have such arrangements and people who retire to those lands find that they have to exist—I use the word exist intentionally—on that level of pension for the rest of their lives.

The only basis upon which the Social Security Act 1975 provides for payments to be made overseas is under the Social Security Benefit (Persons Abroad) Regulations 1975, Statutory Instrument No. 563, as amended. Regulation 4(1) of that statutory instrument states: Subject to the provisions of the regulation and regulation 5 below, a person shall not be disqualified for receiving widow's benefit, child's special allowance, a guardian's allowance or a retirement pension of any category by reason of being absent from Great Britain. The regulations go on to restrict the amount of pension payable to the level current at the date of retirement or the date when the pensioner was last ordinarily resident in Great Britain, whichever is the later. Reciprocal agreements made with other countries under section 143 of the Social Security Act 1975 can override that disqualification from benefit uprating.

In answer to a private notice question on 17 March last year, the countries in which pensions increases can be paid, apart from those in the European Community, were shown to be Austria, Cyprus, Finland, Iceland, Israel, Guernsey, Jersey, Malta, Mauritius, Sark, Switzerland, Turkey and Yugoslavia. These countries were listed in the reply given by my hon. Friend the Minister for Social Security and the Disabled. He went on to say that pensioners in a further group of countries receive increases which became payable after the date that an agreement was entered into force — Bermuda from 1 November 1969, Jamaica from 1 October 1972, and the United States of America from 26 September 1969.

Those are major concessions because substantial numbers of pensioners now live in those countries. I want to give some examples. The position on 31 December 1985 was that pensioners receiving pensions without increases received an average of only £13·32 a week. In Australia there were no fewer than 96,126 recipients. In Bangladesh there were 1,253; in Canada 54,388; in New Zealand 23,167; in Pakistan 3,369; in India 2,580; Nepal — I know that my hon. Friend the Minister would not expect me to omit Nepal—there were 14 recipients; and in the United States of America there were 32,077.

Arrangements are in force in a number of those countries, but there are no provisions in other countries. My hon. Friend the Minister will note that there are more Than 8,000 pensioners in Pakistan, Bangladesh and India. These pensioners have to live on the pension that they received when they first became titled as having left the country.

Although I have made no costings for the increased provision, I believe that other savings could be effected. My hon. Friend will know that the current retirement pension is £38·70 a week, to which a wife will add £23·25, making a total for a married couple of £61·95. But that is only part of the story, because people who retire are advancing in years and we must consider how much they cost the taxpayer by way of other services. Such people increase considerably the cost of the Health Service.

I shall give some examples. In 1983–84, the estimated gross current expenditure per head in England for those aged between 16 and 64 was £95 a year on hospital and community health services, £55 a year on family practitioner services and £20 a year on personal social services, making an average total of £170 a year. For those aged between 65 and 74, the figures are £370 for hospital and community health services, £85 for family practitioner services and £75 for personal social services, making a total of £530. For those aged over 75, the figures increase sharply to £875 for hospital and community health services, £135 for family practitioner services and £330 for personal social services, making a total of £1,340 a year. That is a substantial sum and one that we must take into account when we consider the money paid to the elderly.

We should consider seriously giving those who wish to leave these shores to seek sunnier climes on retirement—which, after a lifetime of service to the community they are entitled to do, provided that their passports are endorsed with a waiver to prevent them from making subsequent claims on the Health Service—a much more generous pension to allow them to live where they wish and to be responsible for their own health needs.

My figures do not include costs in relation to part III accommodation. Many people make that additional call upon ratepayers and the community. On current figures, one would expect to pay more than £200 a week on part III accommodation. That is a total of £10,000 or more a year, which is a substantial cost to the community and which is not taken into account in the Government's calculations on pensions.

In the past, the Government have been much more concerned about reciprocal arrangements with other countries. I understand that we are about to reach a reciprocal arrangement with Canada, and the same may apply to Australia. But there will be no similar provision in the foreseeable future for India, Pakistan or Bangladesh, to which many of my constituents wish to retire. We should consider the matter in the round and not too narrowly, as we have done in the past. Hon. Members have raised the matter before. On 23 April last year, my hon Friend the Member for Harborough (Sir J. Farr) asked about pensioners retiring to Canada. Many people retire to Canada, Australia and New Zealand because that is where their children have emigrated and they wish to join them. It is perfectly satisfactory and suitable that people should be able to do that and, although reciprocal arrangements were speedily organised between members of the European Community, we seem to be short of achieving with the Commonwealth an arrangement that takes into account a relationship that goes back a lot further. For historical reasons if for no other reason, that should be put right.

There is a real need in relation to the new Commonwealth, and I urge my hon. and learned Friend to look closely at the matter, not in the narrow way in which it has almost exclusively been examined in the past, but globally in order to ensure that taxpayers will be as well off if not better off. The Government should also try to find a way of giving people who have spent a lifetime working in Britain what they want, which is to spend their last few years in their chosen place of abode.

Photo of Sir Nicholas Lyell Sir Nicholas Lyell Parliamentary Under-Secretary (Department of Health and Social Security) 2:45 pm, 30th January 1987

I shall begin by congratulating my hon. Friend the Member for Ilford, South (Mr. Thorne) on raising the matter of pensions payable to those who choose to live abroad. We know that it is a significant and long-standing problem. As my hon. Friend knows, the retirement pension is today at its highest ever level in real terms. It is not widely recognised that, as a proportion of our gross national product, Britain spends the third highest amount of any country in the European Community. Only two countries, Denmark and France, spend more. If one looks at overall support, not only in terms of the retirement pension, but in terms of occupational pensions and other forms of support, one sees that we are third in the European league table. That is an honourable position.

I shall now deal with British pensioners living abroad. My hon. Friend will realise from his detailed study of this matter that the subject raises difficult issues. I shall set out the background, the nature of the problem, the way in which the Government approach it and the way in which we might, subject to the pre-eminent matter of financial constraint, which my hon. Friend recognised, hope in due course to make progress.

The general rule—and there are exceptions to this rule to which I shall return later — is that United Kingdom pensions paid overseas are paid at the rate in force when the pensioner leaves this country or when he first qualifies for a pension if he is abroad at that time. The pensions are not subsequently uprated. Until 1955, except for Commonwealth countries, United Kingdom pensions were not payable outside this country at all other than for short periods of absence. In July 1955 the law was changed and, for the first time, United Kingdom pensions became payable anywhere in the world. This was a major change in policy. There was, however, no provision for the pensions that were to be paid abroad to be uprated.

At the time that decision was reached it was considered that the social security system was primarily designed for people living in the United Kingdom. The purpose of the review and uprating of pensions was to ensure they retained their value for people living here in relation to the cost of living in this country. As the cost of increasing benefit falls mainly on contributors and employers in the United Kingdom, it was at that time considered unreasonable to ask them to bear the cost of increases paid to people who had voluntarily left the country.

The national insurance fund is run on a pay-as-you-go basis which means that we estimate expenditure each year and set the rate of national insurance contributions in order to produce an income which will broadly match expenditure. It is not always widely recognised that even. today the figures for contributory benefits, nearly £24 billion a year, and the amount raised by national insurance contributions, over £21·5 billion, show the same close correlation which has underlain the contributory principle for nearly 40 years. The estimates of expenditure allow for the fact that pensions paid overseas are, in general, not uprated and would clearly have to be amended were that to be changed. Successive Government have endorsed this policy.

On costs, out of the total £42·5 billion a year which we spend on pensions and benefits, some £338 million is paid to pensioners living outside the United Kingdom. That figure would increase by another £166 million—about 50 per cent. on its present figure at November 1985 rates — if we were to pay all United Kingdom pensions overseas at the same level as pensions paid in this country.

I would like to say something about the bilateral social security conventions that we have with some other countries. Most of them are with our close neighbours— the Isle of Man, the Channel Islands, and the countries of Europe and Scandanavia—but we also have long-standing agreements with Australia, Canada, New Zealand and the United States. They vary widely in scope but exist to protect the social security interests of people moving between the United Kingdom and those other countries. Many of the conventions provide for pensions to be uprated but not all do. In all, pension increases are paid to only about 40 per cent. of United Kingdom pensioners living abroad, leaving some 60 per cent.—over 220,000—who do not receive pension increases at all.

The United Kingdom pays pensions to over 376,000 pensioners overseas at a total cost of about £338 million a year. We have no accurate information on the total number of pensioners living in this country receiving pensions from overseas. From what we do know—there are, for example, some 4,500 people in this country receiving Australian pensions, something in excess of 3,000 people receiving Canadian pensions and 14,500 people receiving pensions from the United States — it would seem likely that the total amount of money returning to this country indirectly from those people is very substantially less than the amount of money which we are exporting. We cannot easily afford to increase that imbalance.

As I have said, to bring the pensions of those not already receiving increases up to the level of pensions paid in this country at November 1985 rates would cost about £166 million a year. To pay future costs of living increases alone, ignoring past increases and working again on November 1985 rates, would cost about £22 million in the first year. But that cost would rise significantly over the years until all pensions overseas are paid at the full United Kingdom rates. When that will be, or what the costs will then be, it is not possible to say. There is no comprehensive information on which we can make accurate forecasts. What we can say is that if the number of pensioners were to remain static then, based on the November 1985 rates of benefit, the ultimate extra cost would be that which I quoted earlier for fully uprating existing pensions—no less than £166 million a year.

Government spending is always subject to constraints and priorities. The strict constraints, including the cost of paying cost of living increases to all United Kingdom pensioners overseas, has to be assessed alongside the Government's priorities for other improvements to our social security system. The resources are simply not there to make all the improvements that we would wish.

As for the existing conventions, one may ask about the background to those cases where we have entered into commitments with various overseas countries which do provide for payment of pension increases. The reason is that the negotiations for the bilateral conventions that provide for pensions to be uprated were set in train a considerable time ago, at a time when Government spending, not only of this Government but of former Governments as well, was not subject to such strict constraints as now has to be the case and when the costs were, in any event, significantly lower. In principle, it remains our wish, in suitable circumstances, to negotiate further bilateral conventions which will make similar arrangements for people who retire in a country other than one where they have been working and earned pension rights. Because such arrangements are expensive, we have to hold back on them at present.

Leaving aside the question of financial constraint, whether a bilateral convention is entered into between ourselves and another country depends on a number of factors, including the benefits available under the other country's scheme, how far reciprocity is possible and the extent to which the advantages to be gained by an agreement outweigh the additional expenditure likely to be incurred by the United Kingdom.

As for Bangladesh, India and Pakistan, I listened with interest to the detailed research that my hon. Friend introduced into his speech. He mentioned United Kingdom pensioners living in Bangladesh, India and Pakistan—some 9,000 in all. The United Kingdom has no bilateral convention on social security with those countries and the United Kingdom pensions paid there are subject to the general rule and are not uprated.

My hon. Friend also mentioned United Kingdom pensioners living in Canada, and I should like also to refer to those who live in Australia and New Zealand. Nearly 179,000 United Kingdom pensioners live in those countries, the largest proportion — almost 99,000—in Australia, more than 56,000 in Canada and more than 23,000 in New Zealand. The United Kingdom has social security arrangements with all three countries dating from the 1950s.

The agreement with Canada is very limited in scope. Although the agreements with Australia and New Zealand are much more comprehensive, none provides for pensions to be uprated. In 1972, the United Kingdom Government proposed a comprehensive agreement with Canada which would have included pension upratings. The Canadian authorities, though, were unable to enter into negotiations.

Officials of my Department and their Canadian counterparts have done some work on preparatory technical matters for a comprehensive convention between the United Kingdom and Canada, but until the necessary finance is available it will not be possible to make any meaningful progress on it.

Officials of my Department have also had discussions with their Australian counterparts about the existing agreement between our two countries, but we have always made it clear that until the money is available, and that is unlikely to be in the foreseeable future, it is not possible for the United Kingdom to enter into negotiations for a revised convention which would include pension uprating. I am sorry to have to give my hon. Friend such disappointing information, but it is important to state that.

My hon. Friend suggested that, as pensioners who live overseas do not use the National Health Service or the social services in this country, there are consequent savings which should be set against the cost of uprating their pensions. I listened carefully to what he said about that, but I regret that it is not possible to quantify any savings of this kind, nor is it possible to trade one thing off against the other in this way.

The National Health Service and social services are part of the social structure available to residents here. They are financed on that basis. We could not give a cash benefit in lieu to people who decided to live overseas any more than we do to people here who opt for making private arrangements.

I am sorry that I cannot hold out hope of an early change in the present arrangements for the payment of United Kingdom pensions overseas, but I am pleased to remind my hon. Friend that we have arranged some improvements in the way in which pensions are paid to beneficiaries who live abroad. My Department has awarded a contract to the Bank of Scotland to make payments in local currency by overseas credit transfer.

When the new system of payment comes into operation—which I hope will be in the near future—we expect it to be generally more efficient and dependable than the present method. That will be of significant value in some countries. In addition, pensioners should get preferential exchange rates and a reduction in bank charges. The new arrangements will be offered to beneficiaries in countries where payment by automated credit transfer is a practicable and economic alternative.

Photo of Mr Neil Thorne Mr Neil Thorne , Ilford South

Would my hon. and learned Friend be kind enough to consult his Treasury colleagues to see whether they might be prepared to take a rather more global view? Such a view would be in the interests of taxpayers, ratepayers and the country.

Mr. LyeII:

I have listened with great care to what my hon. Friend said. He has raised some interesting points which I shall most certainly draw to the attention of my colleagues in the Treasury.

Question put and agreed to.

Adjourned accordingly at one minute to Three o'clock.