Pensions Bill

This is my first run at this debate and I very much hope that I shall not be thought of as yet another brick in the political brick wall. However, I think that I shall disappoint the noble Lord who moved the amendment and those who spoke in support of it. John Markham seems to have been a very effective campaigner. He has put a great deal of work into this issue and I am sure that he has met my honourable friend, the Minister for Pension Reform. I wish to clarify the intention behind the amendment. I have assumed that, as was the case regarding a similar amendment moved in another place, the noble Lord’s intention was for the amendment to cover all categories of state pension for those living abroad who are entitled to a UK state pension—in other words, to bring in those countries where the pension is currently frozen. As I am sure noble Lords are aware, UK pensions can be claimed anywhere in the world, and that has been the case since 1955. The UK arrangement ensures that those who have worked in the UK and built up entitlement to the state pension here should get it, irrespective of how long they lived in the UK or where they choose to reside in retirement, and we do not plan to change that. We currently uprate state pensions abroad where we have a legal obligation or a reciprocal agreement to do so. During Second Reading, my noble friend outlined our policy for not uprating all UK pensions abroad and I will reiterate it today. It is a fact that we have limited resources and we need to prioritise our spending. Our main priority must be to pensioners living here: we want to ensure that they continue to see an improvement in their living standards. Of course, we must discharge our obligations to pensioners living in the European economic area and in countries with which we have a reciprocal agreement. Perhaps I may put the uprating of the state pension abroad in context. As we have heard, just over1 million pensioners living abroad currently receive a UK state pension at an annual cost of around£2 billion. Of those 1 million, around 530,000 live in countries where we do not uprate the state pension in payment. These pensions cost around £830 million a year. The cost of uprating the pensions of all those living abroad who are entitled to the UK state pension would be considerable. As my noble friend said at Second Reading, it would initially cost an extra £420 million per annum to unfreeze pensions in frozen-rate countries and pay them at the rate that they would have been paid had the individuals concerned remained in the UK. This figure would rise year on year. Furthermore, if pensions in frozen-rate countries were to be fully unfrozen and backdated, with arrears paid so that each person with a frozen pension were treated as if he or she had never left the UK, it would cost in the region of £3 billion in 2007-08. I understand that that is not what we are talking about but I want to put it in context. To uprate only the amount of pension currently in payment would cost an additional £30 million if uprated by prices or an additional £35 million if uprated by earnings. These costs would of course rise year on year, and this option would not end the inconsistencies that have been described today. The differential between the pensioners who moved abroad many years ago and those who moved recently would remain the same. For example, if we decided to uprate the pension of someone receiving a pension of, say, £40 by last September’s retail prices index, he would get £41.45. Those who moved last year and were receiving the full pension of £84.25 would receive the current full rate of £87.30. We would be open to exactly the same accusations as we face today if we adopted such an approach. As I am sure the Committee is aware, an application on this issue is before the European Court of Human Rights. We expect to hear from the court later this summer. However, we are firmly of the view that it is right to prioritise our spending on UK pensioners, pensioners in the European economic area and those in countries with which we have a reciprocal agreement. I am aware that the noble Lord, Lord Jones of Cheltenham, has tabled three Parliamentary Questions and that he has made a tremendous commitment to raising this issue and the concerns of overseas pensioners. I assure him that he will receive Answers to those Questions shortly. However, it should be noted that these territories do not form part of the United Kingdom, although they are under the sovereignty and formal control of the UK and have varying degrees of autonomy. With the exception of Gibraltar and the sovereign bases on Cyprus, the British Overseas Territories are not subject to EU law, but we have a reciprocal agreement with Bermuda to uprate UK state pensions. A major consideration in deciding whether to enter into a reciprocal agreement is the extent to which the advantages to be gained outweigh the cost of negotiating and administering the agreement. If we were to enter into a reciprocal agreement with other overseas territories, we would have to ensure that they had a broadly equivalent pension scheme to enable true reciprocity to occur. Given the relatively small populations of some of the territories, that simply would not be practicable. Additionally, we do not think it appropriate to single out the residents of British Overseas Territories with UK pensions as being any more deserving of the uprating provisions than those living in former colonies or Commonwealth countries. If we were to make an exception on the basis of a link or a former link with the UK, it would be extremely difficult to justify not doing the same for former colonies and Commonwealth countries where we do not currently apply the uprating provisions. Indeed, it would probably require us to uprate UK pensions globally. The noble Lord, Lord Jones, asked for additional information regarding the potential costs of uprating specific territories. I do not have the details to hand but I am very happy to continue the dialogue on this issue in whatever way will be of help. I appreciate that this is a disappointing response but I hope that the noble Lord, Lord Oakeshott, will consider withdrawing his amendment.