Bahamas: Pension Rates (Hansard, 16 January 1996)

§ The Minister of State, Department of Social Security (Lord Mackay of Ardbrecknish)
My Lords, we have no plans to pay annual increases to United Kingdom pensioners in the Bahamas. The uprating of state pensions paid overseas was debated at some length in both Houses during consideration of the Pensions Bill last year. Amendments to the Bill, intended to pave the way for the uprating of state pensions in those countries where they cannot be increased, were defeated by large majorities.

§ Lord Campbell of Alloway
My Lords, I thank my noble friend the Minister for his reply and accept the rectitude of everything that he said. Nonetheless perhaps I may ask whether the contributors to those pensions were ever informed that if they lived abroad in some place where no reciprocal arrangements could be made their entitlement would be limited to the original rate of entitlement. If they were so informed, will my noble friend say when and by what means? Having regard to the retroactive effect on the contributions, surely there is a case for reconsideration of the disparity between original rate and current rate.

§ Lord Mackay of Ardbrecknish
My Lords, the current policy has been in place almost since the beginning. Going back to 1946, when the rate of pension was increased, that increase was not paid to pensioners abroad under the National Insurance (Increase of Contributory Pensions) Regulations of that year. The position remained the same after the National Insurance Act 1946 came into force. That Act contained a general disqualification from payment of benefits for persons 458 absent from Great Britain. Later legislation brought in the policy that the upratings would not be paid to those pensioners who lived abroad.
As regards informing people, since 1953 a leaflet has been available. Any pensioner or person making inquiries about their pension provision should they go abroad would have received the leaflet and the advice I have given today which I also gave during the debates on what became the Pensions Act.

§ Lord Boyd-Carpenter
My Lords, is it not difficult to defend paying a different rate of pension to someone because of the locality in which they live? Some will receive it because they are in the right place, others will not because they are in the wrong place. Surely it is difficult to defend that.

§ Lord Mackay of Ardbrecknish
My Lords, my noble friend must have defended that policy when he held the position as Minister of Pensions and National Insurance. I therefore find it as easy to defend as he did. It is clear to anyone going abroad, when they inquire and are given leaflets, that there is no general uprating for every country abroad. The simple fact is that to give a general uprating to all United Kingdom pensioners—that is, an uprating on the United Kingdom inflation rates—would cost the social security budget this year £¼ billion. I do not have to tell your Lordships that with a £90 billion social security budget that kind of pressure would be unsustainable.

§ Lord Clark of Kempston
My Lords, does my noble friend agree that pensioners in this country who pay VAT and, in many cases, British income tax are different from pensioners living abroad and it would be wrong to increase overseas pensions lo the same limit as for domestic pensioners?

§ Lord Mackay of Ardbrecknish
My Lords, my noble friend makes a valid point. The social security system and pensions arrangements in this country are pay-as-you-go. The pensions and payments today are paid for by the contributions of people in work who pay national insurance and income tax today. So the situation is a great deal different from what one might find in a properly funded pension scheme.

§ Lord Stallard
My Lords, will the Minister accept that it is strange and, to many of us, an injustice—that is why the last question was totally out of order—that we have negotiated agreements with 33 countries where there are pensioners who have not paid what the Minister stated but who receive all the increases and upratings? That is because we have negotiated reciprocal agreements. Why do we not recommence negotiations that were started with Canada? Why do we not recommence negotiations for reciprocal agreements with Commonwealth countries where the upratings do not apply? The figures the Minister quoted have long since been denied and put right by many experts in the pensions field.

§ Lord Mackay of Ardbrecknish
My Lords, I can confirm that we have reciprocal arrangements, some of many years' standing, with some countries—for example our fellow members of the European Union— 459 to pay the upratings. However, as I said, if we were to arrange that the uprating should be widely paid to pensioners, wherever they are in the world, it would cost £¼ billion. I am sorry that the noble Lord disagrees but we had that disagreement when we were dealing with the Pensions Bill. I believe that my figures still stand and that £¼ billion would be extremely difficult to find out of the social security budget.

§ Baroness Gardner of Parkes
My Lords, will the Minister agree that although the Question refers to only a small number of people, the problem is much wider? The parallels drawn in the Question do not include countries like Australia, Canada, New Zealand and places with a much larger population which are covered in the amount of money the Minister mentioned as the cost.

§ Lord Mackay of Ardbrecknish
My Lords, my noble friend is right. I am treating the Question as involving not only the Bahamas but on the principle that, if one were to concede the point for the Bahamas, in logic one would have to come to agreement with the other countries, many of which have more United Kingdom pensioners than the Bahamas.

§ Lord Mackie of Benshie
My Lords, can the Minister say whether it would be right to pay the money, as per contract, if we could afford it?

§ Lord Mackay of Ardbrecknish
My Lords, that question is totally hypothetical. We cannot afford the money. The budget for social security is already £90 billion and, as I said in the debate on the Pensions Bill, if the Treasury were kind enough to give my department £¼ billion more to spend we might have higher priorities for it.

§ Lord Campbell of Alloway
My Lords, if we cannot afford the money, perhaps the Minister will try to reopen negotiations with the Bahamas in order to arrive at some reciprocal agreement so that that aspect of the disparity—it has nothing to do with the £¼ billion—might be alleviated.

§ Lord Mackay of Ardbrecknish
My Lords, I might be tempted to accept my noble friend's suggestion and go to the Bahamas to conduct negotiations with the authorities there. However, the reality is that if one had reciprocal arrangements with the Bahamas, in logic one would have to extend the negotiations to other countries. We would come to the inevitable conclusion that we would pay the uprating and the cost would be the £¼ billion I mentioned.

§ Lord Stallard
My Lords, the noble Lord did not answer the question I put. Why have we reciprocal agreements with America, Jerusalem, Spain, Greece, Turkey, the Soviet Union and Czechoslovakia, not just our European partners, but, according to the Minister, we cannot come to reciprocal arrangements with the others? The Minister says that they were long ago, but about 18 months ago we made a reciprocal agreement with Finland. He is not really answering the question.

§ Lord Mackay of Ardbrecknish
My Lords, most of the agreements are of long-standing, for example, a 460 clutch going back to 1955 if my memory serves me rightly. I have little doubt that the cost of a reciprocal agreement with Finland does not come to much, but Finland is now part of the European Union. When 18 months ago we negotiated with that country's authorities, it was part of the European Economic Area, about to become a member of the Union. All the members of the Union have reciprocal agreements with us and each other. That is the difference. However, the cost remains a serious problem.