The State makes promises, but turns its back on them

The Immoral Dimension
With the compliments of British Age Pensioner Alliance

Civil Servants who retire to a "frozen" country get special treatment which partly exempts them from the "freezing" regime. This treatment is also available to Members of Parliament, judges, and many other public sector employees.

The clue to this "rort" first appeared in the magazine of the Civil Service Pensioner Alliance. It referred to retirees living in frozen countries.

"What does happen, and there may be some confusion about this, is that those in receipt of an occupational pension, like the civil service pension, which is contracted out of the State Earnings Related Pension Scheme, will receive the increase to their Guaranteed Minimum Pension element with their occupational pension. In the case of civil service pensioners, in addition to the increase to their civil service pension in April, in line with the RPI increase as at the previous September, they will also have their GMP element increased."

A word of explanation. The GMP is not an extra pension, but is part of the pension from the occupational scheme. All contracted out schemes had to provide such a pension for service prior to 1997. The rules have since been changed, but GMP still exists for present and future pensioners if they were in an occupational scheme before 1997.

The GMP is not usually indexed by the scheme. Instead, the DWP calculates the amount of indexation and pays it with the state pension. Sounds crazy, but that is the way it is done.

Pensioners who live in a "frozen" country do not get the indexation of the GMP from the national insurance fund. The state promises that they will, but the state turns its back on its promises. However, if they are public sector pensioners, they get it from the pension scheme instead.

This was confirmed by officers of the DWP;

"You asked whether civil service pensioners who retire to a frozen country will have their full GMP indexed.

We have liased with colleagues in the Cabinet Office which has responsibility for Civil Service Pensions. Cabinet Office have confirmed that the article that appeared in the Civil Service Pensioners Alliance magazine is correct in stating that where a civil servant moves permanently abroad to a country with no reciprocal arrangement, the Principal Civil Service Pension Scheme takes responsibility for paying the GMP element uprated in line with inflation."

It is evident from this reply that the writer was previously unaware of the special arrangements, and had to ask colleagues at the cabinet office. The next writer also, it seems, was previously unaware, and had to ask colleagues in the Treasury

"It seems that your enquiry relates mainly to the arrangements which the Civil Service scheme applies to its pensioners, which is strictly speaking a matter for HM Treasury. I have, however, checked the position for you and can say that the Civil Service scheme uprates the entire occupational pension, including the GMP element, where the pensioner is living in a country which does not have a reciprocal agreement to uprate the state retirement pension. I understand the authority for this treatment is contained in a "Treasury Direction". If you wished to go into further detail about the policy on Civil Service pensions, you would need to contact the Treasury as the responsible Department."

A further enquiry to the same source elicited the following

"As regards the Civil Service scheme, this ties in with the state additional pension position in the way which you would expect. In other words, as I understand it (and I would say again that I'm not responsible for the Civil Service scheme's rules and arrangements), the CS scheme generally pays indexation only on the excess-of-GMP pension, plus up to 3% pa on the post-88 GMP. Indexation on the pre-88 GMP, and any indexation over 3% on the post-88 GMP, is then effectively paid through the state additional pension (SERPS). As an exception, if there is no entitlement to an indexation increase through SERPS - perhaps because the COD eliminates any SERPS entitlement, or in the case with which you are concerned, because the state pension including SERPS is frozen - then the National Insurance computer system sends a notification to the CS scheme which then does pay indexation on the whole pension (ie including the GMP element)."

We then asked a Member of Parliament, one who happens to be on our side. He is the Liberal Democrat spokesman on pension matters. Here is an extract from Hansard.

"Expatriate Retired Civil Servants
Mr. Webb: To ask the Minister for the Cabinet Office whether civil
servants who retire abroad to a country where pensions are frozen for
expatriates continue to have their guaranteed minimum pension uprated; and
if he will make a statement. [182040]
8 Jul 2004 : Column 862W
Mr. Alexander: When a pensioner covered by the Principal Civil Service
Pension Scheme (PCSPS) becomes permanently resident in a country where
state pensions are frozen for expatriates, the Inland Revenue advises the
PCSPS that the state pension will not attract uprating increases. The
PCSPS will then uprate the Guaranteed Minimum Pension element of the
PCSPS pension in line with increases under the Pensions Increase Orders."

This is all done in secret. Most civil servants will be unaware of it.

And this is how it was done.

It was accomplished by passing a special Act of Parliament. The Social Security Pensions Act of 1975 contains, in Section 59 (dealing with "offficial pensions") an instruction that the GMP component is not to be indexed by the scheme. It is indexed by the National Insurance Fund, as explained at some length in a Treasury document we found on the Internet. But this same document reveals that, when they found that some of their own would be affected by freezing, they added another section to the Act, section 59A, which overrides Section 59. This section is not in the copy of the SSP Act in our possession.

The document gives full details of the procedures used to bring about what Mr Alexander revealed in the above answer.

Members of parliament enjoy the same privileges, as do judges and many other public sector pensioners.

This is hypocritical. Top civil servants in the DWP advise the Minister on the continuation of the freezing regime. Like Sir Humphrey Appleby, they see no inconsistency between what they advise and what they enjoy. And the Minister, just like Jim Hacker, has his snout in the same trough.

This is the "Immoral Dimension"

Footnote

In later correspondence from the Cabinet Office, they have suggested that private sector schemes could extend the same treatment to their pensioners. When challenged, the only scheme they could cite is the British Telecom pension scheme. In doing so, they overlook the fact that BT is a privatised operation, which took over all the pension conditions for the employees it took over from the government.

Sir Richard Mottram (the current "Appleby" of the DWP) wrote:

I have no idea whether what you say is or is not correct. I do not spend any of my time investigating the small print of the PCSPS. (Principal Civil Service Pension Scheme).

So he does not know that he himself is a beneficiary.

For an example of how BAPA fought on behalf of a local government retiree, see Public sector pension victory