Clause 20 - Overseas residents

Pensions Bill – in a Public Bill Committee on 4th July 2013.

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Amendment proposed (this day): 6, in clause 20, page 10, line 12, at end add—

‘(5) A review of overseas residents’ up-rating entitlement shall be conducted on a cross-departmental basis within six months of Royal Assent to this Act. It shall consider in particular whether the savings attributable to non-entitlement could be more effectively made in other areas of health and social care, and whether there are potential economic benefits to uprating the pensions entitlements of overseas residents in line with UK-resident pensioner’s entitlements. The review shall report to the Secretary of State for Work and Pensions, and a copy of the report shall be laid before Parliament.’.—(Gregg McClymont.)

Question again proposed, That the amendment be made.

Photo of Steve Webb Steve Webb The Minister of State, Department for Work and Pensions

I am happy to respond to amendment 6, which was tabled by the hon. Member for Cumbernauld, Kilsyth and Kirkintilloch East. As arranged, I shall also address clause 20 stand part to avoid a repetition of that debate.

Clause 20 replicates the current arrangements for the state pension for the single-tier pension. It has absolute continuity and simply leaves things as they are. The review that the hon. Gentleman’s amendment proposes would be a review of the whole policy, which would of course apply to all existing pensioners as well. Clearly, the single-tier pensioners will initially be a very small proportion of the people affected by the policy.

Quite properly, the question was raised this morning about telling people whether their pensions are not going to be uprated if they go to certain countries. I was confident that we did and I happen to have the information that we provide. When people are planning to retire and they ask us for a statement of what they are going to get, we issue them with leaflet DWP40, which goes out with the state pension statement. The leaflet is called “Your State Pension statement explained”. I can confirm that on page 21 there is a section headed “UK State Pension payments outside the UK”, which explains that, although someone can get their UK state pension anywhere they live, if they live outside the UK and get a UK state pension, they will not get annual increases unless they live in—there are various categories—European economic area countries, Switzerland, or

“a country that has an agreement with the UK to allow these increases.”

So we are clear that unless one of those categories applies, people will not get increases.

Similarly, when we issue the claim pack four months before people reach state pension age, we issue them with form DWP23, which also has a section headed “UK State Pension payments outside the UK”. The  text is similar to the text I just read out and it also points out that what happens when people come back to the UK:

“If you live in a country where your UK State Pension is not increased, your UK State Pension may be increased for the time when you visit the UK or certain of the countries where the annual increase is paid.”

So, at two very important points, when people ask for a forecast—or a statement as we now call them—or when people are told four months before state pension age about their pension, we flag up that important information. It is also on the www.gov.uk website; it is in leaflet PM2, the general guide to state pensions; and in leaflet NI38, “Social Security abroad”, issued by our colleagues at HMRC. If someone asks for a leaflet about social security abroad, they get that information. So we seek to provide the information quite extensively.

As for those who are abroad, it is important to understand that two countries dominate: I understand that just short of three in four of the people we are talking about are in Canada or Australia. It was suggested that the Canadian and Australian Governments would like us to increase pensions in such cases, and indeed they would. That is because they have means-tested state pension systems. If we were to increase state pensions in Canada and Australia—for nearly three quarters of the people we are talking about—that would be a saving to the Canadian and Australian Exchequers at the cost of the British taxpayer, not necessarily to the benefit of the British citizen living abroad. There would be British citizens whose incomes would be above the level at which they qualify for the means-tested pension in those countries, but they are not the folk whom people are most concerned about—the folk who have nothing else to live on. They are by definition the folk who have something else to live on, as my hon. Friend the Member for Plymouth, Sutton pointed out. People will go abroad—

D

Perhaps the Hon Gentleman is too young to remember the leaflet NP34 1978 that declared that "your SERP will be increased in line with inflation unless you live outside the EU and in a country that does not have a reciprocal agreement with the UK".
At that time in 1978 the UK did have an agreement with Australia but it failed to mention that the pension would be frozen!Now of course Leaflet DWP40 corrects that error. But far to late for those who decided to join their families in those countries who at the toss of a political coin are frozen! I would be grateful to the Minister if he would now rectify that error and award those living with a frozen SERP their correct entitlements,

Submitted by Derrick Prance

Photo of Steve Webb Steve Webb The Minister of State, Department for Work and Pensions

The people of Devonport will also go abroad with occupational pensions and savings and so on, so it is the whole picture that matters.

Photo of Heather Wheeler Heather Wheeler Conservative, South Derbyshire

I have spoken on the issue in the Chamber, and I am grateful to the Minister for explaining the differential between means-tested benefits in those countries that constituents and ex-constituents have written to me about. It is helpful to have such information on the record.

Photo of Steve Webb Steve Webb The Minister of State, Department for Work and Pensions

Clearly, that is true of those two countries; it is not true in all countries. If people have other pension income, they might not receive the means-tested pension but, if they do have other pension income, only part of their total income will not be uprated.

It would be a mistake to think it is always the case that people live their working lives in Britain, retire and draw pensions, and then emigrate. I am tempted to hold a sweepstake because, in fact, the Committee might be startled to learn that, of United Kingdom pensioners overseas, the proportion of those who moved as pensioners is 2%. The remainder all moved at a working age. Some  of them might have moved just before drawing their state pension, but quite a number of them moved well before that time.

It is important to be aware that countries such as Australia have, in the past, sought properly to recruit skilled British workers of significantly below pension age. It is an incorrect picture to imagine that all British pensioners overseas worked all their life in Britain, retired just before or at pension age and are now on a pension. A significant number of British pensioners overseas went to Australia to work when they were in their 30s or 40s, for example, and have lived there for a significant part of their lives. They will have been building up pension rights under the Australian system; they will have only part of their income based on the British system, and only that part will not be uprated.

Photo of Oliver Colvile Oliver Colvile Conservative, Plymouth, Sutton and Devonport

Will my hon. Friend clarify that such people will have ended up also paying into the Canadian, Australian or, for that matter, American national insurance systems? They would end up receiving moneys under those systems, as well as from the British Government.

Photo of Steve Webb Steve Webb The Minister of State, Department for Work and Pensions

Yes, my hon. Friend is entirely correct.

There is clearly a diversity of circumstances, but we are not talking about a million people all wholly dependent on the British state pension who would all benefit if we were to uprate it. It is a much more mixed pattern than that. To be fair, if I were the Opposition and the shadow Chancellor had told me that I could not spend money, but I wanted to sound sympathetic, I would have asked for a review. We understand the thinking behind the amendment.

The hon. Member for Edinburgh East suggested earlier that I had been sympathetic in the past to those covered by the clause. In fact, I have a sympathetic view towards them today. I understand their argument. She referred to an amendment that I had tabled in 2004. It was less than perfectly drafted. It would have constantly uprated the pension of everyone throughout the world, so I did not quite get it right. The fiscal environment in 2004 was a bit different from what it is now. Our estimated cost of uprating from now on and dealing with the non-uprating that has happened to date is £695 million a year. There is a danger when calculating pensions that we stop noticing zeros, but that is a serious sum and, as I have said, some of it would not even benefit those for whom it is intended.

Such cases have indeed been to the House of Lords and the European courts, all of which have found in the Government’s favour, saying that our action was lawful. There is a danger that, as soon as we say that we should uprate going forward, someone would say, “Hang on a minute, I retired 20 years ago. Not only should you pay me the pension that I would now be getting if it had always been uprated, but I want all the money for the period since I left the country for all those years in the interim period when it was not uprated. If it’s right to uprate it now, why didn’t you uprate it last year, the year before and the year before that?”

We are talking about billions of pounds. There is a real risk to the Exchequer with such a proposal. If we accepted amendment 6, and said, “What harm could a review do?”, we would raise expectations in a way that would disappoint. The hon. Lady said that I had been sympathetic in the past, but that I am now somewhere  adjacent to the levers of power. I would not put it stronger than that. She said that I had let people down by failing to deliver. I want to make it clear that all three political parties—probably all four, if the hon. Member for Upper Bann (David Simpson) were here—went into the 2010 election with manifestos that promised this group of people precisely nothing. It is important to put it on the record that nobody who voted in the 2010 general election and took the trouble to read our manifestos should have thought that anyone was promising them action on this point. I did not promise it in my manifesto, and I do not think that anybody else did. Although I understand, having been sympathetic to the case over the years—I remain so—I was quite explicit when I asked for people’s vote that I was not promising action on this point. The worry is that a review would just raise expectations again; we have seen the results of that, so I would be very reluctant to do so.

To get a sense of scale here, the majority of the money that we pay in state pensions outside the UK is in non-frozen-rate countries. We pay around £3 billion a year outside the UK, of which about £2 billion is in non-frozen-rate countries. The majority of the money that we pay outside the country is uprated, but clearly, for historical reasons, in some cases it is not, as we have discovered.

It was suggested that a review would settle matters once and for all. I think that is naive. If the review found that there was not a significant Exchequer saving, or something like that, we would go back to another campaign and another set of posters. It would not settle matters once and for all. We owe pensioners consistency and clarity of legislation. The position has been the same under successive Governments over decades. The Bill, with the new single tier pensions, proposes exact continuity with the existing regime. On that basis, I do not believe that the time and cost of a review would actually achieve anything. Such a review could look at a lot of issues. However, as has already been pointed out in arguments about people going overseas and so not using the NHS, we could change the rules, but we would have no guarantee that folk would not come back and use the NHS anyway. Some of the arguments about hypothetical long-term saving are a bit thin.

D

We have made it quite clear to MR Webb that we do not claim back pay should our pensions be uprated in line with inflation.If it were offered of course we would accept.
The billions of back pay quoted is about four Billion. An enormous sum.
But that is money that pension ministers of all colours have legally stolen from us over the years. I think the minister is clutching at straws.

Submitted by Derrick Prance

Photo of Gregg McClymont Gregg McClymont Shadow Minister (Work and Pensions)

The Minister is speaking about potential benefits, or otherwise, and I take his point that there is no guarantee that pensioners would not come back to use the NHS. Am I right in remembering that a study was undertaken on behalf of the International Consortium of British Pensioners by an economics consultancy, and would he care to comment on that? I remember that he analysed it quite closely at the time.

Photo of Steve Webb Steve Webb The Minister of State, Department for Work and Pensions

Yes, I believe that an organisation called Oxford Economics was paid by the International Consortium of British Pensioners and, interestingly enough, came up with a report that the ICBP felt supported its case. I read the report in full, and it makes some pretty heroic assumptions about future behaviour—there is some polling and so on—and to call it highly speculative would be charitable. We do not know how people’s behaviour will change, but, as we have discussed, a lot of people have retired or moved many years ago, so even if we thought that there was some impact on  movement, there would be a huge amount of dead-weight in economic terms. That is to say, we would pay extra pension to people who had absolutely no intention of coming back anyway in the assumption that we would save a bit of money from people who might otherwise have come back but did not. It is very unconvincing. Does the hon. Gentleman want to intervene? No, he is just scratching his head.

D

What it all boils down to Mr Webb is, along with our Employers, we have all paid the same contribution,and according to the William Beveridge Report of 1942 we should all enjoy the same reward for doing so.I kept my side of the bargaion for 49 years and I will not accept any trumped up excuse that denies it me.

Submitted by Derrick Prance

Photo of Steve Webb Steve Webb The Minister of State, Department for Work and Pensions

I do apologise; he is stroking his head.

I have lost count, but I think this is the fourth review that we have been asked for so far. I am not convinced that this one would add any more than the first three. Our position is clear, and at this point clarity is what people need. I recognise the concerns of the affected groups, but at a cost of £700 million, with a possible knock-on into billions if backdating was pursued, I do not believe that it is a priority for the Government. On that basis, it would be wrong to have a review to raise expectations, and it is right that clause 20 should stand part of the Bill.

G

Mr Webb said that it would be wrong to have a review to raise expectations. Surely it it wrong not to have a review because it is obviously discriminatory and illogical with the minister admitting that it is an anomaly. An anomaly is something that should be dealt with and not brushed under the carpet because it shows a lack of morality and integrity to do nothing about...

Submitted by George Morley Continue reading

Photo of Gregg McClymont Gregg McClymont Shadow Minister (Work and Pensions)

It is a pleasure to serve under your chairmanship once again, Mrs Main. I thank the Minister for his response. I was struck by what I took to be his position—he said that he remains sympathetic to this case, but I was not clear about whether his view was that if financial circumstances allowed, he would wish to uprate these pensions. That was a little ambiguous.

I was also struck by the Minister’s comments on the Oxford Economics report. From the little he said about it, I take him to be saying that its assumptions about movement are that pensioners who might otherwise not be able to move abroad would be encouraged to fulfil their desires and do so. The Minister’s case seems to be—I remember this from his response at the time—that the study’s assumptions are not credible enough for the Government to base policy on them. That is not an entirely unfair position.

I have one question. The Minister talked about raising expectations unfairly. Is it his view that a review would raise expectations unfairly? I am not clear whether his view is that an analysis would be difficult to undertake. I think he was saying that a study would be possible on a cross-departmental basis, but he is concerned about consistency and he does not want to raise pensioners’ expectations unfairly. I do not think we should dismiss the question of expectations out of hand.

I was struck by the Minister’s observation that only 2% of British pensioners move overseas as pensioners; that is a striking figure. He went on to say that a significant number move just before retiring. It would be interesting to find out whether that is the case. Does he have a figure on that? I take his point that a significant number move well before retirement; however, they will have made contributions into the UK system, and the issue of uprating remains for them.

My hon. Friend the Member for Edinburgh East quoted a 2004 amendment. I was not aware that the Minister tabled that 2004 amendment, but he has given  us full disclosure. Of course, it is not a crime to change one’s mind, but I am not clear from his response whether he changed his mind because he no longer supports the principle of uprating frozen pensions, or whether he retains the principle but cannot support uprating due to the country’s financial circumstances and the continuing deterioration of the economy. I am not 100% sure about that.

Our amendment would call on the Government to conduct a cross-departmental study of the costs and benefits to the Treasury of uprating pensions. It is a financially focused measure. However, I take the point that uprating pensions would potentially have a significant financial cost. I have listened to the Minister’s reply and, although I would welcome further clarity on his position on the principle of this matter, I do not intend to press the amendment. I beg to ask leave to withdraw the amendment.

D

I am a member of the British Australian Pensioner Association.I think the Government has gotten used to the 650/700 million pounds that it legally steals from we "frozens" each year,and are loath to relinquish such an easy form of revenue. It, the government, should be ashamed of its policy.Those of us in our late eighties and nineties spent time in WW2 hoping for a better deal when it was finished. We got one. The William Beveridge National Health and Pension Plan was born during the war in 1942 assuring us that everybody, rich or poor alike would receive the same pension for the same contribution no matter where they lived.Successive Governments between them have succeeded completely in stuffing it up! Perhaps in a future debate you will invite one of us. Just to put you right.

Submitted by Derrick Prance

Amendment, by leave, withdrawn.

Clause 20 ordered to stand part of the Bill.