HL Deb 20 July 1994 vol 557 cc234-6

3.4 p.m.

Lord Mackie of Benshie asked Her Majesty's Government:

Whether they will now cease the practice of freezing the pensions of British nationals living overseas at their level on departure from the United Kingdom.

The Parliamentary Under-Secretary of State, Department of Social Security (Viscount Astor)

My Lords, it would cost some £230 million a year to unfreeze these pensions fully. In view of the continued need to contain public expenditure, we have no plans to change this longstanding policy.

Lord Mackie of Benshie

My Lords, I thank the Minister for his Answer, which I expected from the Government. Is he aware that the principle I raise arises from cases such as the following example? My ex-secretary was widowed early. She worked all her life and did not live in a subsidised house. When she retired she went to live in South Africa where her son was working. Now, 14 years or so later, she is £20 a week worse off. It appears to me that that is a case of gross injustice. Does the Minister agree that the £230 million of which he spoke would be better saved elsewhere?

Viscount Astor

My Lords, social security spending is running at more than £80 billion a year and is the Government's largest expenditure programme. We are committed to an efficient, effective and affordable social security system that is appropriate to modern needs and protects the most vulnerable. But we have to ensure that spending on social security does not outstrip the nation's ability to pay for it. My right honourable friend the Secretary of State announced some specific proposals for the reform of the social security system which are designed to help restrain the growth in cost. To achieve that aim, the control of spending must be tight. Payments to people resident overseas cannot be an exception. We cannot hold out any prospect of an increase in our expenditure by adding to spending on pensions overseas.

Lord Elton

My Lords, can my noble friend tell the House whether any of the people at present in receipt of frozen pensions left this country before the pensions were frozen? Is it a fact that all of them were aware of the rule at the time that they took the decision to leave this country?

Viscount Astor

My Lords, the answer is that probably most of them were aware of the rule when they decided to leave this country. We pay over £800 million a year to nearly 700,000 pensioners worldwide. Of those, about 300,000 receive annual uprating increases. That is largely because they are resident in the European Community or the wider EEA.

Lord Clark of Kempston

My Lords, apart from the cost to the British taxpayer of unfreezing those pensions, does my noble friend agree that a pensioner receiving a pension in this country pays UK taxes whereas pensioners living abroad do not pay any taxes to the United Kingdom Exchequer? Does he further agree that consequently it would be extremely unfair not to differentiate between the two pensions?

Viscount Astor

My Lords, my noble friend makes an important point. Many of the pensioners living abroad may also qualify for assistance in the countries in which they now live.

Baroness Hollis of Heigham

My Lords, will the Minister accept that in 33 countries (so I understand) where there are reciprocal relationships pensions are inflation-proofed? As the old age pension is a contributory benefit, will he tell the House why reciprocity is an issue? Why are inflation-proofed pensions paid to British people in Jamaica but not in Trinidad?

Viscount Astor

My Lords, the national insurance scheme works on a pay-as-you-go basis. That means that this year's contributions go to this year's pensioners. The funds that an individual pensioner contributes are not earmarked for that individual pensioner. The scheme has never been and is not a fully funded scheme. The noble Baroness is quite right. We have reciprocal arrangements with some 15 countries. Most of those arrangements were negotiated some years ago.

Earl Russell

My Lords, having made my apologies to my noble friend Lord Mackie of Benshie, does the Minister agree that the key principle is reciprocity? For example, Australians living in this country have their pensions uprated by the Australian Government. If that should not happen, the cost to his department could be considerable. Does he understand that the Australian Government believe that that policy is doing considerable harm to this country's international relations.

Viscount Astor

My Lords, with Canada, Australia and New Zealand we have a social security convention. That convention does not provide for pension increases to be paid. There are situations in which someone might receive a pension—for example, someone with, say, 20 years' residence in Australia, who has paid full Australian tax or national insurance equivalent, and who moved here prior to retirement, working here until retirement age. That person would qualify for full uprated UK pension while he was here or for a non-uprated pension if he moved back to Australia after retirement.

Lord Airedale

My Lords, can the noble Viscount tell the House the saving to the National Health Service in not looking after these people in their old age?

Viscount Astor

My Lords, we do not know what calls these people, as individuals, have on the National Health Service. Many went abroad long before reaching pension age and therefore for many years did not contribute to the national health cost. The pensioners concerned chose to live abroad, and to pay them unfrozen pensions would be an extra cost to the Exchequer.