Back to Home Page

BRITISH AUSTRALIAN PENSIONER ASSOCIATION INC.

Briefing on Discrimination by the United Kingdom against half its Expatriate Pensioners in breach of the basic principles of the International Consumer Protection and Enforcement Network (ICPEN)

             Part One: Background                     Part Two: Personal Complaint

Part one: Background

General

The UK operates a mandatory contributory ‘pension’ scheme which elsewhere would be defined as a state superannuation system. Everyone in employment in Britain whose income lies between specified limits has deducted from his pay an amount set by the Government and increased from time to time to compensate for inflation. Employers are obliged to make a matching contribution. Subject to there being sufficient ‘contribution years’, the contributor, on reaching pensionable age, acquires an entitlement to a Basic Pension whose amount is strictly proportionate to the number of contribution years and is uprated annually by the cost of living index. Further contributions above the maximum income for Basic Pension are calculated on earnings and become a supplement to the Basic Pension, sometimes called the ‘Second Pension’.

Having thus purchased their pensions, British pensioners are aptly described by DWP (the UK Department of Work and Pensions) as ‘customers’, which can only mean that the Department sees itself as the supplier of the service (the pension). Although participation is mandatory, the two parties - the consumer (being the contributor and eventual pensioner) and the Department (being the provider) - have nevertheless engaged in a commercial transaction, cash being paid for a service whose extent is quite properly proportionate to the cash received.

The UK National Consumers Council has expressed the view: "Market models for public services construct service recipients as customers, so that dealings with providers can resemble a contractual relationship." There clearly exists an implied contract, defined as an agreement which is found to exist based on the circumstances when to deny a contract would be unfair and/or result in unjust enrichment to one of the parties.

The DWP evidently sees the transaction as a contract too. Parliamentary Under Secretaries of State for Social Security Ann Widdecombe MP (21 Jan 1993 to Alistair Darling MP ) and James Arbuthnot MP (23 May 1995 to Julian Brazier MP) wrote: “The agreement between an individual and the State is that payment of contributions will give entitlement to benefit subject to certain conditions. The conditions are set out in our leaflets”. One was that women are pensioned at 60 which everyone knew, the other covering discrimination by country was unknown and is unfair.

Discrimination targeting certain expatriates

The legislation determining the payment of state retirement pensions to expatriates is tortuous. A Regulation permits annual uprating only if the Secretary of State for Work and Pensions has concluded a relevant reciprocal agreement with the pensioners’ host country. The legislation itself lists no countries by name nor is any guidance given as to the circumstances in which such agreements shall be concluded. In the comprehensive leaflet NP46 in a paragraph headed ‘Going Abroad’ are listed the countries with which the UK has a reciprocal agreement ‘which allows (sic) you to get the increased rate’. Thus the detailed implementation is arbitrary, not prescribed by legislation.

The legislation was first enacted fifty years ago at a time when the UK currency was under extreme pressure. A former Cabinet Minister, the late Peter Shore, wrote 18 May 1999: “My own view was that initially, in the early Post-War years when we were desperately short of foreign currency, a case could be made for using every available means to reduce payments across the exchanges. But I thought that argument ceased to be relevant when, in the first year of Mrs Thatcher’s premiership in 1979/80, the UK abandoned controls over capital movement along with all restrictions on expenditure by UK tourists abroad. That seemed to me to be the time for a change”.

House of Lords Hansard 11 October 1999 column 197 records how the Government goes beyond the legislative requirement for ‘reciprocity’ by demanding ‘symmetry’. After reciting the disparity in numbers between UK expatriate pensioners in the major Commonwealth countries and theirs in the UK, the Government spokesman said:” Therefore, though it might be reciprocal, any unfreezing would not be at all symmetrical. The costs would very heavily fall on the UK Government. . .   As is very clear from these figures, we are not talking about equality of spending between two countries. Our overall position is clear. . .We have much to do to improve the position of pensioners and indeed the very poor who are in the greatest need in the UK.”

The current uncompromising Government position is: ‘The Secretary of State up-rates pensions to those living abroad where there is a legal requirement to do so or where there is a reciprocal arrangement in place. However, the Government's priority is to help the poorest pensioners living in this country and it will continue to help them so that they are able to have a decent income in retirement.’ In fact, successive administrations have used the confiscated uprating in order to fund supplementary payments to those whose basic entitlement has already been met. Winter Fuel Allowance is paid to all UK resident pensioners, rich and poor alike, and even to some expatriates, at a total cost four times greater than the cost of uprating the frozen pensions. The ‘Sunday Times’ once quoted a Ministerial response to criticism of the cost of providing a free TV licence to the over 75’s: ‘cheap, given the number of voters who benefit'. Indeed domestic pensioners now constitute one third of those who vote.

Fundamental Unfairness

To deprive just 4% of pensioners on the basis of country of residence of the annual uprating which is rightly treated as part of the Basic Pension for 96% of UK pensioners including half the expatriates is clearly unfair.

The European Union has issued a Directive requiring member states to ensure that “adequate and effective means exist to prevent the continued use of unfair terms” and according to art 7.2 those means should include “provisions whereby persons or organisations, having a legitimate interest under national law in protecting consumers... may take action according to national law to challenge unfair terms”.

The National Consumers Council has stated: 'An ‘unfair commercial practice’ is an act, omission or course of conduct, whether or not it includes contravention of any enactment or rule of law, which contrary to the requirement of good faith, is unfair; and causes, or is likely to cause, detriment to the economic interests of consumers’. The world-wide supervisory body Consumers International asserts: “Consumers should be protected from such contractual abuses as one-sided standard contracts, exclusion of essential rights in contracts, and unconscionable conditions . . ." 

European Standard of Fairness in Expatriate Pensions

The standard implemented by all European countries with contributory state pension systems with the singular exception of Britain was established by the German Constitutional Court after hearing a case involving state discrimination against expatriate pensioners (1 BvR 111/74 and 283/78 20 March 1979):

- According to Article 3, Para 1 of the Basic Law, the Government must not arbitrarily treat unequally what is basically equal.

- The unequal treatment of insured people who, through equal contributions have achieved an equal legal foundation and an equal insurance entitlement, cannot be reconciled with the Basic Law.

- The Government cannot withhold an insured person's entitlement, resulting from payment of

contributions, in order to achieve other objectives.

- The question whether, when and for what reason a reciprocal social security agreement can be sought

or concluded, lies completely outside the sphere of the insured person.

-          What makes the regulation unconstitutional is its blatant unreasonableness.

Part Two: Personal Complaint