Pensions Bill

[back to previous text]

Malcolm Wicks: I will reflect on that point.

Mr. Webb: I am grateful. The fact that the Minister will consider the issue of going back is encouraging. I would be happy to meet him informally to talk through the options relating to what going back might mean. I am heartened by the spirit and content of today's debate, and because things might be moving, I beg to ask leave to withdraw the motion.

Motion and clause, by leave, withdrawn.

New clause 6

Indexation of overseas pensions

    '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.

10.45 am

Mr. Webb: 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?

The Chairman: Is this ''Round Britain Quiz''?

Mr. Webb: 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

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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.

Mr. Osborne: 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.

Mr. Webb: 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

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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

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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''?

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