The cost of ending discrimination

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A correction of the Government's cost assumptions

In December 1996, the Social Security Select Committee chaired by Mr Frank Field MP conducted an enquiry into "Uprating of State Retirement Pensions Payable to People Resident Abroad". In his evidence to that enquiry, the then Pensions Minister Oliver Heald MP revealed that the arrangement whereby Australia supplements the UK pension up to the higher local level was made in a bilateral agreement. He could only have been referring to the 1954 Menzies/MacMillan negotiations when Britain apparently obtained the concession on pensions in return for its agreement to encourage the mass emigration Australia so desperately needed to populate its vast empty spaces.

The records show that Australia already had in place a means test to determine qualification for the local pension. The British negotiators were therefore aware that many UK pensioners would be excluded from the local pension, though a means test had never been part of the UK system. The agreement contained no commitment by Britain to index the pensions paid to its pensioners in Australia. Mr Heald seemed to imply a bargain is a bargain – Britain had fulfilled its promise of sending tens of thousands of emigrants, and Australia must pick up the tab for uplifting the UK pension including the missing indexation.

But Mr Heald failed to mention that, of 190,000 UK pensioners here, only 130,000 who satisfied the means test benefit from the higher Australian pension. While they can be fairly regarded as receiving pensions uprating by proxy, the uprating of 60,000 who receive no Australian pension, remains the absolute responsibility of Britain. Similarly, in New Zealand almost all 30,000 British pensioners receive a state pension to uplift their (un-indexed) UK pension to the higher local amount. The breakdown is:    

Those (in EU, USA, etc) receiving uprating & indexation directly from UK 330,000
plus those (in Australia and NZ) uprated & indexed by proxy * 160,000
subtotal of those benefiting from uprating & indexation (67%) 490,000
Victims of pensions discrimination denied uprating & indexation (33%) 240,000
Total number of affected pensioners  730,000

  * uprated by proxy - the cost of uprating falls on the taxpayers in
the country where the frozen pensioners live.

Cost

Frozen pensioners simply claim parity of treatment under the same rules which apply to all other pensioners. This sharing of the total pensions budget, strictly according to contributions, contains no concept of extra cost. It is the Government which estimates an additional cost of £255m based on 400,000 pensioners denied uprating. The above figures show the cost would be in fact about £153m, an amount so small compared with the total pensions budget as to lie within forecasting error – to say nothing of the savings from exposed social security fraud, from raising the pension age for women to 65, from applying lottery funds – all of which are calculated in billions. UK pensioners already benefit from a winter fuel allowance and a Christmas bonus; the media have reported plans to raise the minimum pension for an individual to £100 weekly and of £500m to help pay for TV licences. Frozen pensioners wish them well, claiming none of these things, nor the vastly expensive health and social security benefits, far exceeding the uprating cost.

But they do demand what they have paid for - parity, pensions relating directly to contributions.  

WE SEEK PARITY NOT CHARITY
An "Early Day Motion" dated 15th February 1999 noted that the Government Actuary estimated that the National Insurance Fund would have a surplus at the end of the year 1999-2000 of £5.9 billion. According to a later motion, dated 17th November 1999, this surplus would be £8.43 billion in April 2002. The annual growth in the surplus is five times the annual amount needed to unfreeze all pensions.

Here is another letter from the DSS and our reply.

You have commented about the National Insurance Fund. The Government Actuary's advice is that the minimum level of the balance in the National Insurance Fund at the end of each financial year should be not less than one sixth (16.7%) of the benefit expenditure from the Fund that year. On this basis and in light of the latest estimates from the Actuary's Department of benefit expenditure from the Fund for 1999/00, the minimum level of the end-of-year balance for that year should be around £7.8 billion.

The Government Actuary's Department's latest estimate of the year balance in the Fund for 1999/00 is some £13.8 billion which equates to around 29.35% of the latest estimates of benefit expenditure for the year.

The difference between the recommended minimum balance (£7.8 billion) and the estimated balance (13.8 billion) is £6 billion.
Our response

Now let's just do a little arithmetic. It is said that the cost that would be incurred in unfreezing all overseas pensions is £300 million, though Archy Kirkwood said it was between £400 and £500 million - a trifle overstated. Let's take a worst case scenario and say it is £450 million. So if the benefit expenditure were raised by this amount, the minimum level of the balance in the NIF would have to be increased by one sixth (16.7%) of £450 million = £75 million.

Of course the NIF balance would be depleted by £450 million each year, which is not a problem in view of its remarkable growth. The excess of the estimated balance over the recommended minimum balance is £6 billion which is 13 times the yearly amount needed to unfreeze pensions. And this is even after allowing for the one-time cost of increasing the recommended balance.

In his speech to parliament on 7th February Archy Kirkwood talked about "finding" the money. That would be like standing in Trafalgar square and asking someone to point out Nelson's column. The money is there, staring you in the face.