APPENDIX 15
Memorandum from The Hon J J Bossano, Leader
of the Opposition, Gibraltar
SPANISH PENSIONS
BRIEF
July 2002
1. As requested by the Committee I am producing
a detailed brief on the Spanish Pensions issue and as suggested
by Andrew McKinlay, I am quite happy that this should be passed
on to the Foreign and Commonwealth Office for their comments.
There might be some slight inaccuracies of detail eg dates etc,
since I am relying on my memory and not on access to documents.
I am going over the ground I already covered on the Committee's
visit to Gibraltar and bringing the record up to date.
2. Social Insurance was started in Gibraltar
in 1954 for employment injuries and extended in 1955 to Old Age
Pension, Widows Benefit etc. At the time there was a large Spanish
workforce commuting daily from the Campo area which outnumbered
Gibraltarians by a factor of some three to one. The workforce
was needed to meet the labour demand of the very large MOD presence,
which could not be met from resident labour.
3. As a result of a Royal visit in 1954
by Her Majesty the Queen, the Franco Government imposed its first
restrictions on the Gibraltar economy by refusing new permits
to its own nationals to enter Gibraltar to obtain employment.
This meant that only Spanish workers who were already in Gibraltar
in 1955 joined the Social Insurance Scheme and contributed to
the fund. The workforce started to decline from 1954 as a result
of natural wastage but at the closure of the frontier in 1969
they had contributed 14 years.
4. The total amount contributed by each
worker was of the order of £38 (thirty eight pounds) in the
fourteen years. The global amount was some £250,000 for the
whole cross border workforce with another £250,000 paid by
employers making the total of £500,000 at the time of the
withdrawal of the Spanish workers by the Franco Government. This
accumulated fund was the amount they had contributed to finance
the liability to their future entitlement to pension. Based on
their contributions they had an entitlement of a maximum weekly
pension of around £1 (one pound) a week for a single person
and something like £1.50 (one pound fifty) for a married
pensioner. These were the benefits also payable to Gibraltarians
at the time.
POST 1969 DEVELOPMENTS
5. In 1973 the Social Insurance Ordinance
was amended to give annual pension increases for those contributors
who continued to do work in Gibraltar and pay Social Insurance.
The contribution rates and the pension payable for this second
category was raised every year. The Spanish workers did not contribute
because they had been withdrawn by the Franco Government.
6. The Government of Sir Robert Peliza offered
to transfer the accumulated fund of the Spanish workforce and
their accrued rights to the Spanish Government but this offer
was rejected by Franco.
7. The 1973 amendment however, provided
for pension increases for residents of Gibraltar who had not contributed
to the pension fund at the new increased rates post 1969 and this
was the offending clause that permitted Spain to claim higher
pensions in 1986. The number of Gibraltarian pensioners in this
category claiming on the basis of residence rather than contributions
was minute.
8. In 1985 the Frontier was re-opened following
implementations of the Brussels Agreement. The Spanish Government
informed Spanish pensioners at the time that they would be able
to collect their Social Insurance Pensions at 1969 rates from
February 1985 and that this would be re-valued to the level payable
to resident pensioners in January 1986.
9. The GSLP in Opposition proposed that
the Social Insurance Ordinance be restructured to avoid the liability
that would arise and which the fund was incapable of meeting.
It needs to be pointed out that Social Insurance Pensions were
and are fully funded by contributions from employers and employees
and receive no subvention from general revenues. The number of
Spanish Pensioners vastly out-numbered Gibraltarian Pensioners
and they had not made higher level contributions payable after
the Frontier closure.
10. The Gibraltar Government under Sir Joshua
Hassan rejected the solution on the advice of Sir David Hanney
who said it was contrary to EU Law. This advice was incorrect.
11. In December 1985 at the Brussels Negotiating
sessions in Madrid Sir Geoffrey Howe agreed with his Spanish counterpart
to pay re-valued pensions to former Spanish workers from 1 January
1986. This had not been previously cleared with Sir Joshua Hassan
who was present at the negotiations and who issued a public statement
refusing to accept this liability.
12. An agreement was reached with UK under
which consultants were engaged to produce a report to examine
how the Gibraltar Social Insurance Scheme could be re-financed
to meet the liability and the ODA contributed some £15 million
to meet the payments for the period 1986 to 1988. The Spanish
sub fund which was half a million pounds in 1969 had grown to
£5 million by 1986 as a result of re invested income and
no expenditure. The £20 million of the total of this fund
plus the ODA contribution was expected to last three years.
POST 1988 EVENTS
13. The GSLP included a Manifesto commitment
that it would not contribute one penny of Gibraltar's money to
finance Spanish re-valued pensions in the 1988 elections and won
on this basis.
14. The Consultants Report commissioned
by the UK simply came up with the self-evident conclusion that
the liability running at £8 million a year could be met by
large increases in Income Tax or Social Insurance contributions
or a combination of both raised from the existing workforce in
1988 to pay those who had worked prior to 1969 but had been unable
to contribute because of the Frontier closure and the fact that
they had lost their jobs in Gibraltar as a result of a decision
by their Government.
15. Immediately after the election I held
meetings with Baroness Chalker the minister responsible for Gibraltar
and this was the first policy conflict with the UK Government.
The Spanish sub-fund including ODA contribution and the accumulated
£5 million of Spanish workers pre 1969 contributions was
exhausted by July 1988. UK diverted ODA funds allocated by Parliament
in 1984 to assist Gibraltar's infra-structure projects, which
remained unspent and used it to avoid the ending of payment to
Spanish Pensioners in August 1988. This was done without the agreement
of the GSLP Government. After difficult and lengthy negotiations
UK agreed to provide further grants to finance Spanish Pensions
from 1 January 1989 to December 1993. This five-year transition
was intended to give ample warning to Spanish Pensioners that
payments were not for life. A contribution of the order of £40
million to the Spanish sub-fund was made by the UK in November
1988.
16. The UK attached two conditions:
(1) Pension levels would be frozen at January
1989 levels for all pensioners, including all local pensioners
who had made vastly larger contributions than the Spanish Pensioners.
(2) The Social Security System would be dissolved
and the balance accumulated in the fund distributed to contributors
with the UK paying pro-rata lump sum payments to Spanish pensioners
when this happened post December 1993.
17. UK informed the Spanish Government and
the EU Commission of these arrangements.
POST 1994 EVENTS
18. The GSLP Government implemented the
agreement as required by the UK. This meant having to freeze not
only Old Age Pensions but also all other Social Security and Social
Assistance means tested benefits, as the levels of all of these
were inter-linked. The revaluation of benefits in line with wage
or price inflation had to be ended and the policy of reducing
the male age of entitlement to Old Age Pension from 65 to 60 years
had to be abandoned. All this had to be implemented in 1989 for
the five year period when the United Kingdom was paying Spanish
Pensions, but was due to end in 1994 when the scheme was to be
replaced by alternative arrangements.
19. In 1989 the Government established a
Social Assistance Fund which was entirely funded from the proceeds
of import duty. This was done under the provisions of the existing
law, the Public Finance (Control and Audit Ordinance).
20. The Fund's objectives included the making
of grants to charitable organisations. The United Kingdom Government
was fully aware of this since the Social Assistance Fund created
was gazetted and made public. The power to create this special
Fund in the Constitution and the Law is held by the Financial
and Development Secretary who, as part of his duty, informs the
Governor's office and London. Moreover the accounts of this fund
are prepared by the Accountant General and audited by the Principal
Auditor and included in the audited Annual Accounts of the Government.
These were and are submitted to His Excellency the Governor prior
to presentation in the House of Assembly and publication.
21. I will fax a copy of the relevant accounts
for 1990-91.[67]
Also in 1989 a Charitable Institution, Gibraltar
Community Care Limited was set up by a number of individuals as
a Company Limited by Guarantee. The Company gave employment to
male unemployed persons aged over 60 on community work on a part
time basis paying them a social wage in exchange for 80 hours
a month of social work. It also introduced a Household Cost Allowance
for assisting persons living in Gibraltar whose cost of living
was and is much higher than those across the border. The HCA was
paid in December 1989 at the rate of £26 (twenty six) pounds
per quarter for a single pensioner and £39 (thirty nine)
pounds per quarter for a pensioner couple, irrespective of the
existing level of pensions from the Frozen Social Security System.
That is to say that those getting the maximum pension and those
getting a minimum pension were paid the Household Cost Allowance
and there was no pro-rata relationship between one thing and the
other. These arrangements by a private entity were public knowledge
in Gibraltar. Furthermore since the charity obtained grants from
the Social Assistance Funds its accounts were audited by the Principal
Auditor and tabled in the House of Assembly and made public. The
Annual Grants from the Social Assistance Fund, funded from the
proceeds of import duty, were also public since they were reflected
in the publication of the Audited Accounts of the Government.
All these arrangements operated and all this information was in
the public domain until the Financial Year ending March 1996.
22. After the raising of benefits, long
and protracted negotiations began with UK as to the structure
that was to replace Gibraltar's Social Security System post 1993.
23. At first UK experts insisted that there
could not be a State run social insurance successor based on Social
Security legislation as this would be caught by EU regulations
and be seen to be a devise to discriminate against Spanish Pensioners
by ending their Pension entitlement but re-instating them for
Gibraltar Pensioners. They insisted that each pensioner and each
worker contributing to the scheme up to December 1993 would receive
a lump sum after the dissolution of the Gibraltar Social Security
System. This lump sum would be transferred to an occupational
private sector Pension Scheme which would be a money purchase
scheme. The Gibraltar government could not top up the level of
benefits that would become payable if the lump sum proved to be
too low.
24. After innumerable meetings and considerable
work to try and meet UK's demands the advice was reversed. The
UK experts then decided that a private sector Occupational Scheme
would not do as it would be in breach of UK requirements which
require the aggregation and apportionment of Social Insurance
Pension rights based on contributions made in different Member
States and the Gibraltar Government was told it had to replace
the existing system with a State Run public sector successor scheme
which would operate only on the basis of contributions made from
January 1994 without any credits for persons who had not retired
but had been contributing under the scheme up to 1993. In December
1993 the Social Security Funds were dissolved as required by UK
and transitional payments was put in place to tide persons over
until the new scheme was functioning and to ensure no gaps in
contribution records of the existing workforce. On the suspension
of the Pension payments the Spanish Pensioners were informed that
in accordance with the 1989 UK-Gibraltar agreement accepted by
the Spanish Government at the time they would receive lump sum
payments. On instructions from the Junta de Andalucia, the Spanish
regional government, the bulk of these pensioners refused their
payments and the existing level of pensions were provided to them
by the Spanish Andalucian Government as loans in anticipation
of forcing UK to resume Pension payments.
25. UK argued that there was no obligation
under EU Law to keep paying Social Insurance pensions for life
or at any given level. Spanish pensioners argued that there was
a legitimate expectation of life payments. The Gibraltar Government
maintained substitute payments equivalent to the previous Social
Insurance Pensions to Gibraltarian and Moroccan pensioners from
the money transferred to a temporary fund from the suspended Social
Insurance Fund. These were called Transitional Interim Payments
and featured as loans at the existing level of previous pension
payments for each individual. The arrangements were the same as
the Andalucian Government was carrying out for Spanish pensioners.
For those reaching retirement age after 1 January 1994 the payments
were called pre-occupational loan payments in anticipation of
the eventual occupational pension scheme which UK at the time
that this was introduced was demanding should be the successor
scheme. The source of the money to make these payments was a pre-occupational
payments levy collected in place of the Social Insurance Contributions
which had disappeared because of the dissolution and repeal of
the relevant Social Insurance provisions in the Ordinance.
26. The Spanish Pensioners commenced legal
action against the Gibraltar Government funded by the Andalucian
Government using the Chambers of Messrs Triay and Triay, which
at the time had Mr Peter Caruana as partner. The Gibraltar Government
was alleged to be discriminating against the Spanish workers on
the grounds that Community Care Limited was continuing to pay
Social Security pensions which had been suspended in the case
of Spanish workers. The case never went to hearing, but the matter
was aired in the House of Assembly in a Motion in which the Government
made clear that there was absolutely no substance in this allegation
since the Pension had been suspended for both Gibraltarian and
Spanish Pensioners and Community Care Limited had been making
Household Cost Allowance Payments from 1989 and not from January
1994, the time of the suspension of the Pensions.
27. In all this period between 1989 and
1994 the UK Government was fully aware of all these issues both
because it was debated in the public domain and reported in the
Gibraltar Media which is monitored by the United Kingdom through
its presence here and because it was reflected in the Audited
accounts of the Government and the audited accounts of the charitable
institution which were tabled in the House of Assembly, published
and copies of which were available to the Foreign Office through
the Convent. At no stage in this period was the position of Gibraltar
Community Care or the Household Cost Allowance challenged by the
United Kingdom Government. In all the arguments with London post
the dissolution of the fund in December 1993, what the UK was
objecting to was the fact that the delay in agreeing a successor
scheme meant that the transition interim payments which were being
made through the Gibraltar Development Corporation from the balance
of the dissolved Social Insurance Fund and the pre-occupational
payments which were being made to persons reaching pensionable
age from 1 January 1994, meant that as far as London was concerned,
the position of frozen payments was being perpetuated and could
be extended indefinitely. The fact that all that the Gibraltar
Government was doing for local pensioners was giving them anticipatory
loans on exactly the same terms ie the subsequent repayment when
a final agreement on the successor scheme was reached, as the
Junta de Andalucia was doing for Spanish Pensioners, was not an
argument that people in the Foreign and Commonwealth Office accepted.
They simply said that they were not concerned with what the Spanish
Government was doing, only with what the Gibraltar Government
was doing, even though it would have been discriminatory in the
reverse direction, to have allowed a position where Gibraltarian
Pensioners were left destitute, while the Spanish Government provided
temporary support to their own.
POST 1995 EVENTS
28. In 1994 the EU Commission took up the
question of the dissolution of the Social Insurance Fund with
the UK Government as a result of receiving complaints from Spanish
Pensioners who at the time were in receipt of temporary loan payments
from the Junta de Andalucia. The UK Government refused to provide
the Gibraltar Government with details of its exchanges with the
Commission and copies of the correspondence claiming that these
matters were confidential. By October 1995 the Commission issued
a Reasoned Opinion against UK on the grounds that the decision
to dissolve the Social Insurance Fund was in breach of EU law.
The initial position of UK on the replacement being an Occupational
Private Sector Pension System was also considered by the Commission
to be against EU Law. This information was provided by Spanish
sources to the GSLP Government.
29. UK's position at first was that they
would defend the decision before the European Court of Justice
on the basis that there was no obligation to have a state ran
statutory Social Insurance Pension System or to have a given level
of Pension Rates, that this was up to each member state. However,
early in 1996 the UK capitulated when faced with imminent infraction
proceedings and decided to restore the frozen pension system which
had been terminated in 1993 and which had operated since 1989.
The Gibraltar Government was told then that although UK still
considered they were legally right, a political decision had been
taken not to test the issue in court because of other considerations
unrelated to Gibraltar. These were general considerations of the
extent to which EU decisions would dictate to member states on
Policy matters which they did not particularly want aired in the
European Court of Justice.
30. In the course of meetings with officials
I was asked to agree to restore the Frozen Social Security Pensions
back-dated to 1 January 1994 (it should be noted that the UK decision
to limit the Scheme to five years, 1988 to 1993 was to contain
the cost to £50 (fifty) million as opposed to the estimated
£250 (two hundred and fifty) million for keeping the system
going for the lifetime of all Spanish Pensioners.) Given that
this requirement was for pensions continuing frozen, for perhaps
another twenty years, I was asked to agree that no additional
payments would be introduced for Gibraltar residents other than
means tested Social Assistance, which already applied. The access
to the Social Assistance System for pensioners was that pensioners
with deficient contribution records, whose pension payments fell
from the £48 (forty eight) weekly maximum pension to below
£38 (thirty eight) pounds, had the gap met from non-contributory
discretionary social assistance, a system operated by the Government,
up to the £38 (thirty eight) pound level. I agreed that we
would not alter these arrangements. I also took the opportunity
of reminding officials that Gibraltar Community Care Limited,
an independent charity, had since 1989 been paying Household Cost
Allowance, which was up-rated annually and that this would continue
as the Charity had substantial cash resources.
31. When this was reported back to London
I was called in by the Governor Sir Hugo White. He told me that
UK Ministers were very upset because they had just learnt of the
existence of Household Cost Allowance and that they considered
it was politically challengeable. I was in fact accused of having
introduced this at the last minute. My position was that the existence
of Community Care had been debated at great length in public,
that it had never been questioned previously the UK and that the
accounts were audited and public and provided to them.
32. I was told UK would not proceed with
restoring the frozen pension arrangements and pick up the extra
£200 (two hundred) million bill unless I gave a commitment
that Community Care Payments would be terminated at the latest
by June. The General Election was due in May. Given the electoral
consequences of this action which UK recognised, I was asked to
give a written undertaking that payment by Community Care Limited
would cease and that the Gibraltar Government would indemnify
the United Kingdom for any claims rising from past or future payments.
This undertaking would be a secret agreement, which I was supposed
to withhold from the electorate in the election campaign. Naturally
I refused to give any such undertaking. The United Kingdom position
was that they would not proceed with paying for the restoration
of Frozen Pension payments until this matter was cleared up. I
had agreed to a text of a letter provided by them as to the commitments
that they required prior to this question of the Household Cost
Allowance being raised, but would not accept that the letter should
be amended to include any reference to the payments by Community
Care. My position was that since they were saying there was no
legal obligation to continue with the frozen pensions they should
go ahead and let the Commission commence infraction proceedings
and defend themselves in the European Court of Justice using the
arguments they had used to persuade me in 1988 to agree to the
dissolution of our Social Insurance system in 1993. Following
the General Election, in the Official Opening of the House of
Assembly, in my statements as Leader of the Opposition, I made
this public. (I am faxing separately the relevant part of my speech.)
33. When later in 1996 the new government
brought legislation to the House of Assembly to restore the Frozen
Pensions backdated to 1 January 1994, it claimed that they had
not had any negotiations on this matter with the British Government
and that they were simply giving effect to what had been agreed
with me. As far as I am concerned I took that to mean that what
had been agreed with me which made no reference whatsoever to
discontinuing Community Care ie the position that I took early
in 1996, had post the election been accepted by the United Kingdom
Government who had nonetheless given up their demands on the Household
Cost Allowance and decided to proceed with funding the restoration
payments to Spanish Nationals. I have to admit that it struck
me that this shift in position by the UK Government before and
after the election seemed to indicate that the stance on the Household
Cost Allowance was designed to create difficulties for my administration
given my unwillingness to go along with their plans for negotiations
with Spain under the Brussels process. It will be recalled that
Mr Caruana's election in 1996 was hailed as a shift towards a
more conciliatory attitude to Spain, that the electorate on polling
day were being urged by a Times editorial not to support
the GSLP and that the loss of the election by the GSLP was labelled
by the national press in the United Kingdom as the emergence of
the most pro-Spanish Government in Gibraltar's history. Given
all these factors, which were generally thought to have increased
the possibilities of striking a deal with Spain, and made it more
likely in the perception of those sitting in London, could conceivably
have been reflected in the UK dropping its demands on the Household
Cost Allowance at the time of Mr Caruana's election in 1996 in
the expectation that he might prove to be a better ally in future
dealings with Spain. I need to point out that this is simply a
speculation on my part given the dramatic change before and after
the election on the part of the UK Government which was saying
that unless an undertaking was given to provide an indemnity they
would not be proceeding with funding the restored fund and that
in fact what they said they would not do, is exactly what they
did after the General Election.
34. Since 1996 Community Care Limited has
continued paying Household Cost Allowance and increased their
value annually, but as accounts have not been produced I cannot
say what is the present financial situation. But they had assets
of around £62.5 (sixty two point five) million as at the
end of June 1996 with some £60 (sixty) million in cash. It
was considered by Mr Caruana to be so well provided with resources
that a £3 (three) million pound payment from the Social Assistance
Fund authorised by the GSLP Government before the General Election,
but which had not actually been physically paid over by June 1996,
was not proceeded with by the incoming government on these grounds.
I have limited this brief, except for the above paragraph, where
I speculate as to why the United Kingdom gave up their demands
on Household Cost Allowance after the May 96 Elections, to my
recollection of the facts, and I have no knowledge of what has
happened between May 1996 and June 2002 in terms of the respective
positions of the United Kingdom Government and the Gibraltar Government
regarding this issue.
Joe Bossano
July 2002
67 Ev 74-75 Back
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