New clause 6 - Indexation of overseas pensions

Pensions Bill – in a Public Bill Committee at 10:30 am on 18th March 2004.

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'From the date of coming into force of this Act, all state retirement pensions in payment to pensioners living outside the United Kingdom shall be subject to annual uprating by the same percentage rate as is applied to such pensions payable to pensioners living in the United Kingdom.'.—[Mr. Webb.]

Brought up, and read the First time.

Photo of Steve Webb Steve Webb Shadow Secretary of State for Work and Pensions 10:45 am, 18th March 2004

I beg to move, That the clause be read a Second time.

As if the Committee had not heard enough from me this morning, I shall make another contribution, but hon. Members will be relieved to hear that because I know far less about this issue, this one will be shorter. For reasons that will quickly become apparent, I want to set the Committee a challenge that is germane to my remarks. Can anyone tell me what links Jamaica and Bermuda, but not Grenada and St. Kitts and Nevis?

Photo of Steve Webb Steve Webb Shadow Secretary of State for Work and Pensions

Round the Commonwealth quiz. In case attention wanders while I am talking, perhaps the Committee would like to reflect on that puzzle and I shall come to the answer at the end.

The purpose of the new clause is to provide that the pensions of those who now live overseas should be annually uprated, wherever they live. As it stands, the new clause is astonishingly modest, although I am not

sure that one should boast about that. The proposals are limited in scope and do not say that people with frozen pensions should have their pensions immediately raised to the full basic pension and then indexed. The new clause simply says that from now on pensions will be uprated annually, wherever they are in payment. The proposals offer far less than many overseas pensioners demand—that is for sure. The purpose is simply to ask the Government whether there is an issue about justice, fairness and equity, to use the Minister's word, and whether we should address it as we move forward.

To put the matter in context, according to a Library briefing note, roughly 900,000 state pensions, of which about half are frozen, are paid to UK pensioners living abroad. The principal countries are Australia and Canada—they are by far the largest—as well as South Africa, New Zealand and many others. British citizens who work and pay national insurance all their life and then move to those countries receive a frozen pension. For a year or two, that probably does not matter very much, but over a long period it can make a huge difference. There was a recent case of a lady in her 90s who had gone, I think, to live in South Africa. She still draws a pension of £6.75 a week, which was the rate in 1974 or thereabouts. From one year to the next, a frozen pension probably does not make a big difference, but, owing to the fact that people now live longer, as we have heard, the cumulative effect of freezing pensions makes a big difference.

In the European Union, in certain other European countries and in countries with which we have a bilateral agreement, pensions are not frozen. However, most of those agreements were signed in the 1950s, many decades ago. In the case of countries such as Australia, there seems to have been an oversight in the reciprocal agreements, in that the payment of pensions was covered but uprating of pensions was not. We are now in an extraordinary situation. British citizens who have paid national insurance all their life, accrued entitlement to a state pension and committed the misdemeanour, as it were, of moving to Australia, New Zealand or Canada, but not to the United States, do not receive an uprated pension.

Photo of George Osborne George Osborne Shadow Minister (Treasury)

I wonder whether the hon. Gentleman is right that what he described was an oversight. Unfortunately, none of us, with the possible exception of the Minister, has done the homework that we should have done, but most émigrés in the 1950s surely went to countries such as Australia and Canada, not to countries with which we have reciprocal arrangements. Emigration to those countries might have picked up recently. However, I would imagine that the Governments who agreed such arrangements knew exactly what they were doing, because literally hundreds of thousands of people were emigrating to Australia and Canada at the time.

Photo of Steve Webb Steve Webb Shadow Secretary of State for Work and Pensions

Some of the principal agreements were signed in the 1950s, when our culture as regards inflation was different. That is a key point. In the 1950s, domestic benefits were sometimes not uprated from one year to the next. Inflation was so low that the

levels could be left for a few years before introducing an ad hoc uprating. That point mirrors the previous debate somewhat. It is important not to look at the world at the time of such decisions through modern spectacles. Inflation was not much of an issue then. That might be partly why uprating was not covered by such arrangements.

The consequences of not uprating pensions can be quite severe. In some cases, the individuals concerned find themselves dependent on the means-tested welfare of the country in which they are living. Interestingly enough, that has created ill will between this country and some of our Commonwealth partners, including Australia—which terminated the reciprocal agreement—Canada and other countries. I understand that the Canadian high commissioner has made representations to hon. Members on the matter. The British Government are essentially free riding on the welfare states of countries that British citizens are moving to. The pensions of British citizens go down and down in real terms, and they fall into the net of the welfare state in those countries. We are asking other countries' taxpayers to support our pensioners.

Two essential arguments are advanced for not dealing with that issue. The first concerns cost: it would cost a lot of money. Fairness has a cost. My new clause probably would not cost a great deal of money, because it does not call for everyone's pension to be hiked up to the rate of the full pension and then indexed. I gather that that would cost £400 million a year. I do not know whether the Minister has a costing of my new clause, but I imagine it would cost a fraction of that. Indexing the £6.75 pension would not cost very much. New clause 6 is trying to correct an injustice.

I do not think that the new clause can be objected to on the grounds of cost, certainly in the short term. The key question is whether a price tag is attached when tackling an unfairness. There will be a price tag attached, which will grow over time. Where such issues have been considered in court, judges have said—although they felt that the person concerned did not have a legal claim—that the whole system is pretty arbitrary and random. The composition of the list of countries where one does have uprating, and the list of those where one does not, is pretty odd. If one looks at those lists and tries to find what connects the Philippines with a Caribbean country, it is hard to understand the logic. The Minister's predecessor Lord Rooker said that the entire pattern was arbitrary. There is no logic to it, and it is hard to justify the situation we are in. The question relates to cost, but sorting out an unfairness does have a cost.

The other question concerns choice. It is argued that people knew what they were doing. The Parliamentary Private Secretary, the hon. Member for Greenock and Inverclyde (David Cairns), intimated from a sedentary position that people chose to go to those countries. If they want to live in Canada rather than the USA, they should lump it—they will have a poor pension. I have a couple of observations to make on that point. First, there is a danger of seeing such people as being ''the rich''. Given that the Minister did not put up straw men

during our debate on my previous proposals, I will not do that now.

There are those who have argued that the issue is just making a noise for the rich few who can afford to live in sunny climes, and that, frankly, they can look after themselves. Some of those people are well off—I cannot deny that—but some are not. Some have ceased to be well off because they have been retired for a long time on a frozen pension. We are not talking about feathering the nest of the favoured few, but justice. It is said that they knew what they were doing. Probably some did and some did not, but it is known that pensions are frozen if one goes to certain countries. I have met overseas pensioners who say that that was far from clear at the time.

The question is moral rather than legal. I do not think that anyone doubts that the Government have the legal right, based on 1955 legislation, not to pay upratings to some countries, but is there a moral claim? The moral claim rests on the fact that we have a contributory pension system. We ask people to make contributions all their life to accrue an entitlement. Why should that accrued entitlement vary according to where they choose to live? Much of the Bill concerns choices, flexibility, and people gaining new sorts of retirement, but the system arbitrarily says that one's entitlement is greatly reduced if one chooses to live in such places, rather than a few miles down the road. That does not sit well with the idea of a contributory system. I accept that there is not a pot. I accept that it is not like the case of a stakeholder pension, where people have access to a pot of money they can take with them, but why should an accrued entitlement not be treated in the same way?

I have made my key point. The list of countries that the system applies to is very arbitrary. I am sure that the Committee will be desperate to know that Bermuda and Jamaica are not frozen, but Grenada and St. Kitts and Nevis are. Different Caribbean islands have different rules, which seems crazy. I know that the Caribbean is not generally thought of as frozen. None the less, the provisions seem odd and they are hard to justify. In accepting new clause 6, we would be taking a small step towards recognising that it is hard to justify the existence of such irrational situations in the 21st century. The world has moved on, and people's lives are much more global. People are more likely to work overseas, and their parents may want to go and live with them in retirement. Should we penalise those who retire overseas to be with their children, or should we say, ''You've worked hard and paid hard. It's your pension—take it with our blessing''?

Photo of Piara S Khabra Piara S Khabra Labour, Ealing, Southall

I should like to make a small contribution, because this is an issue in my constituency. The new clause is reasonable, and there is definitely an anomaly in the law, because some people are deprived of the right to uprate their pensions while others are not.

Many ethnic minority pensioners from India, Pakistan and other Commonwealth countries have lived in this country for 40 or 50 years. They have worked hard and they are entitled to pensions when they retire. Some would like to spend their last years in

their country of origin, and they are bitter about the current law, which deprives them of the opportunity to uprate their pensions, while making it available to people in other countries.

I do not know how much the new clause would cost the Treasury, but the Bill does not do justice to people who have lived in this country and contributed to the economy but who are deprived of the fundamental right to uprating. I hope that the Minister will take account of my point, which I make on behalf of ethnic minority communities in particular. I know that people living in other parts of the world are also deprived of the right to uprating, but the issue is particularly relevant to ethnic minority communities.

Photo of Adam Price Adam Price Spokesperson (Economy and Taxation; Education & Skills; Miner's Compensation; Regeneration; Trade & Industry) 11:00 am, 18th March 2004

I had not expected to speak on the new clause, but could the Under-Secretary respond to a point about European convention law? It is very important that the Government have accepted in the explanatory notes that a contributory pension, including one based on social security contributions, constitutes a property under article 1 of the first protocol of the European convention on human rights and a civil right under article 6. As a result, article 14, which prohibits discrimination in relation to the rights and freedoms in the convention, comes into play. Case law bears out the fact that rights under a pension scheme are civil rights, so discrimination is prohibited. Would discrimination based on residence therefore constitute discrimination under article 14?

Photo of George Osborne George Osborne Shadow Minister (Treasury)

The hon. Members for Northavon and for Ealing, Southall (Mr. Khabra) made good points in the sense that the issue before us exposes the myth that one pays into national insurance and gets one's benefits at the end. If the system worked in the way that most people think, it would not matter where a person lived, because they would have built up an entitlement. Sadly, that is not so. Sometimes logic in government runs into the buffers of cost. It concerned me that the hon. Member for Northavon could not provide an estimate of what his proposed change would cost. He cannot ask Parliament and the Committee, which could in theory agree the new clause—although that is unlikely—to agree it unless he has a clearer idea of what the cost to the taxpayer would be. The upper-end estimate of paying full pensions to these people is £400 million, which is a large sum of money—although I accept that that is not what he is proposing and his proposal is less costly. Presumably, however, in a world in which people are probably moving around, and will do so increasingly, that would be a rising burden on Government. The hon. Gentleman should have said something about cost.

The hon. Gentleman also made the slightly spurious point that it is unfair that the other countries—like Canada and Australia—have to pick up the welfare costs. Of course, we are picking up the welfare costs of a large number of people who emigrated here. All countries have to pick the costs of people who come to live in them.

I am almost certain that the EU accession countries will automatically come into these reciprocal arrangements. I am interested principally because I have a Hungarian grandmother who lives in London.

Photo of George Osborne George Osborne Shadow Minister (Treasury)

I suppose that if she chose to move to Budapest—[Interruption.] Not that I am trying to send her there. I add that in case she reads the Committee proceedings.

I assume that what the hon. Gentleman said is so. Many eastern and central European countries have quite large ex-pat communities in Britain, which move to and fro. It would be interesting to know whether the Government are aware of the cost and the numbers of people. Perhaps he would say something about whether new bilateral social security agreements are being struck, or whether such things are a legacy of the past. It is strange that the former Yugoslavia and its republics are included in the apparently random list of countries.

The House of Lords as a court is considering the case of Annette Carson, which the Government won in the Court of Appeal. However, given the experience of Equitable Life, and the fact that the House of Lords cannot be relied on to uphold the decision of the Court of Appeal on such matters, have the Government made any contingency plans for what would happen if Annette Carson won her case?

Photo of Mr Chris Pond Mr Chris Pond Parliamentary Under-Secretary, Department for Work and Pensions

This is the second of two good debates we have had this morning. In the first I had to sit quietly. I admit to a certain degree of embarrassment as the hon. Member for Monmouth reminded me of the work that he and I had done together on the minimum wage. I remember publishing a report at the Low Pay Unit, ''The case for £4 an hour'', which is the source of my embarrassment because, as Committee members know, the minimum wage is about to go up to £4.85 an hour in October. That makes the proposals made by my hon. Friend and I look rather modest.

The hon. Member for Northavon also described his proposal this morning as ''astonishingly modest''. A pedantic reading of new clause 6 would imply that the UK Government would have the responsibility to uprate the pensions of anyone living anywhere, regardless of whether they were UK citizens. I am not suggesting that that is the true meaning of the hon. Gentleman's proposal. In fact, I am sure that not even the Liberal Democrats are as expansive in their public spending proposals as that. Although new clause 6 would be expensive, it would not be that expensive.

We need first to clear out the issue that was raised by a number of hon. Members about what is the actual cost. The hon. Gentleman is right in one sense. The initial cost may be considered to be modest, if £20 million a year is considered to be modest; I suppose that in Liberal Democrat terms it is rather modest. The key point is that over time the cost rises to about £400 million; to be fair to the hon. Gentleman,

he did acknowledge that. That is about the same cost as the extra £100 to help pensioners over 70 pay their council tax bills that the Chancellor announced yesterday. In the longer term, the sums are substantial.

The new clause would require the Government to uprate the state pension of all UK citizens who are living abroad and drawing their pensions. The hon. Gentleman argued a reasoned case as always, but this matter is about choosing priorities and our priority is to ensure that we help the poorest pensioners living in this country. We want to continue to give them a decent retirement income. That is why we have to make judgments about where the priorities should lie. There is—and has been under successive Governments for several decades—a legal obligation on the Secretary of State to uprate pensions for those living abroad where there is a legal requirement to do so or where a reciprocal arrangement is in place, and we do that.

The hon. Member for Northavon began his presentation by giving the Committee a sort of Christmas cracker quiz about the different treatment of different countries. The answer to the question raised by that quiz is that we will meet our obligations to pay the uprating where there is a legal requirement on us to do so, either because there is a bilateral agreement or because the countries concerned are members of the European economic area—or members of the European Union after the accession of the 10 new countries on 1 May. Elsewhere, there is no requirement on us to pay, and we will not do so; indeed, in the current circumstances, it would be wrong of us to do so.

The hon. Members for Tatton (Mr. Osborne) and for East Carmarthen and Dinefwr raised the question whether what we are doing is in breach of the European convention on human rights. The hon. Member for Tatton referred to the case of Annette Carson, which is before the courts; it takes us into difficult legal territory. That case went to the High Court and the Court of Appeal but both of them found in favour of the Department for Work and Pensions. It was confirmed that the Government are not required to uprate state pensions payable to those living abroad where there is no legal requirement to do so or where there is no reciprocal agreement. Annette Carson has been given leave to appeal to the House of Lords and we will respond at the hearing to the points that she makes. However, as this matter is going through the courts, it would be unwise of me to comment further on the issues raised by the appeal.

We are spending £10 billion more on pensioner incomes than we would have spent if we had left matters as they were in 1997. We want to ensure that we concentrate resources on pensioners living in the UK—and on the poorest of them—and on those living in EU countries and those with which we have bilateral agreements. We do not have a legal requirement to pay elsewhere, and it would be wrong of us to do so, as that is not a priority.

I have considerable sympathy with the case made by my hon. Friend the Member for Ealing, Southall, in part because there is a significant Sikh population in my constituency who might also in theory benefit from

our having an arrangement to pay upratings to people who move back to the Indian subcontinent so that they can spend their last years in what they consider to be their home. However, as far as I can remember, I have not received a single constituency complaint. Perhaps I should ask the Sikh community in Gravesham explicitly about that.

Photo of Sally Keeble Sally Keeble Labour, Northampton North

The Minister for Pensions has had constituents of mine raise that issue because it is a real grievance with people who want to retire to some of the Caribbean islands and cannot get their pension uprated. It is a very active concern.

Photo of Mr Chris Pond Mr Chris Pond Parliamentary Under-Secretary, Department for Work and Pensions

That will be a concern to some communities. All I can say to my hon. Friend is that we are dealing with a situation whereby we meet our legal obligations. The hon. Member for Tatton asked whether the situation was historical, with most of the agreements determined in the '50s. They were, and after about 1981 there were no new bilateral agreements. One way forward may be to argue for a bilateral agreement between those countries and the United Kingdom that would allow us to work out how to meet the reciprocal costs of such an arrangement. As things stand, we must prioritise the resources that we have. They are considerably increased but we must prioritise them, especially on the poorest pensioners living in the UK.

There is choice. People know the options that are available to them when they retire to another country. There is no debate about whether people know their circumstances—perhaps there was in the previous new clause. People know exactly where they stand. If they move to a particular country, they will be entitled to uprating; if they move to another, they will not.

The hon. Member for Tatton made the point about the 10 new member states joining the United Kingdom in the European Union on 1 May. As they will become part of the Union there will be an automatic reciprocal arrangement, and where we are discussing insurance-based benefits, such as the state pension, the entitlement will be on the same basis as it is throughout the European Union. Therefore, where people have a contribution record in their own country that entitles them in part, in addition to working in the UK, to build up a pension, that will give them the entitlement in their own country, but it will be very much based on their contributions. Owing to the fact that we do not currently have a legal responsibility to do that and because the issue is currently progressing through the courts, I ask the hon. Member for Northavon to withdraw the motion.

I hope that other hon. Members will reflect on whether further pressure should be exerted to examine whether other bilateral agreements would benefit the interests of the particular communities mentioned today.

Photo of Steve Webb Steve Webb Shadow Secretary of State for Work and Pensions

That was another quite an encouraging reply. I had anticipated the dead bat reply of, ''These people are not as important as people who live on these shores; they are not our priority.'' We had that. We also had the cost, and I had anticipated the amount of £20 million. It is true that the cost would grow. Just to provide an idea of the scale of what we

are discussing, however, I think that the Department for Work and Pensions has spent that much money since the sitting started this morning.

The hon. Member for Ealing, Southall mentioned his constituents who are unhappy about the situation. It will not go away, however, because the desire of people to retire to live with family abroad will become increasingly common. They will want to stay where their family are. It was suggested that when one chooses one's country, one chooses one that uprates or one that does not. That is not how people live; they go where their family are, irrespective of whether the country is an uprater.

The most interesting aspect of the Minister's reply was the suggestion that although there have been no new reciprocal arrangements perhaps there could and should be. If we can obtain a reciprocal arrangement in which another Government offer to pay something in return, it would be better than the proposed new clause, which puts the onus on the United Kingdom. Accepting the point that I seem to want to uprate the pensions of everyone in the world, which is beyond the scope of even my ambitions, I beg to ask leave to withdraw the motion.

Motion and clause, by leave, withdrawn.