Replies from MPs and Ministers
and how to deal with them.

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        Our Ref: TO/07/06737   
         Date: 2 May 2007       
 

Dear Mr Stoner                                                 

Your email of 16 April to Gordon Brown about the UK State Pension entitlements of people resident abroad has been passed to this Department as we have responsibility for social security issues, I have been asked to reply.

Ministers never reply. The only way you can get a reply from a minister is to ask your own MP to ask the minister. For this reason, your queries in reply should be addressed to the mindless mandarin who wrote the letter. The aim is to shame them into realising that they are being asked to write twaddle.

The State Pension has been payable worldwide since 1955, but the annual index-linked increases are only paid to people living outside the UK where this is a legal requirement, or where there is a reciprocal arrangement in place which allows for uprating. There is no such agreement between the UK and Australia.

Ask the Minister if  the reciprocal arrangement with Canada has a clause that disallows uprating. If not, then surely the arrangement does already allow uprating without any change to the agreement.

Before entering into a new agreement, any Government would need to consider whether the advantages to be gained outweigh the cost of negotiating and administering the agreement.

Ask the Minister to explain what advantages the UK would gain from an agreement.

Successive governments have taken the view that it would be unfair to impose an extra burden on contributors and taxpayers in the UK to fund additional State Pension for those who have chosen to live abroad. Current estimates show that it would cost around £420 million a year to unfreeze the State Pensions paid to UK pensioners overseas and bring them up to the rate they would have been had the individuals concerned remained in the UK. The Government is accountable to Parliament and the taxpayer for the way in which it raises and spends taxes.

This is not about spending of taxes. The National Insurance Fund is acknowledged to be separate from the Consolidated Fund, and is based on contributions, not taxes.

I note the point you make about the surplus in the National Insurance Fund but it is not as simple as using the money in that Fund to meet the cost of up-rating all pensions paid abroad. Crucially the Government Actuary makes a number of assumptions; for example, the employment and unemployment rates, and earnings level, in determining the surplus and any change to those assumptions could have a marked impact on the level of the Fund.

Changes in the assumptions regarding employment and unemployment rates would not cause such large variations as to eliminate the huge surplus of £35 billion. The cost of uprating pensions for us is less than 1% of the total annual outlay on pensions - hardly a bank-breaking amount.

The Fund is used to pay contributory benefits including State Pension and any surplus in it (less the working balance) is invested in gilts. The Government issues gilts to invest in public services such as schools and hospitals. The National Insurance Fund operates within the wider fiscal framework and it gives the Government the flexibility to determine its spending priorities in light of the overall economic conditions prevailing in the UK. If this were not the case, the Chancellor would need to raise the equivalent through other means such as raising taxes from primarily UK residents, including possibly pensioners.

You can't dismiss the surplus by saying "any surplus in it". There is always a surplus, and it does not happen just by chance.

Nevertheless it is comforting to know that our money is being used for worthy purposes.

Perhaps the hospital should be called:

 

THE CARSON GENERAL HOSPITAL

 

Founded by the generosity of frozen pensioners, who voluntarily surrendered part of their pensions so that Ministers of the Crown did not have to forfeit the right to have their offices refurbished.

 

The standard basic pension is less than the personal allowance, with the result that many resident pensioners do not pay income tax.

You point out that UK pensioners living overseas are not able to make use of medical and welfare services here. However, against this argument, these pensioners would still be contributing to the UK economy if they lived in this country.

What kind of contribution does a resident pensioner make to the UK economy? Does it amount to keeping doctors and nurses in employment to look after people suffering the inevitable effects of aging? Surely pensioners consume more than they contribute.

As you may be aware, the Government’s policy has been challenged in the courts. The Appellate Committee of the House of Lords delivered its judgment on 26 May 2005, in the case of Ms Annette Carson, a British pensioner living in South Africa. The Committee found by a majority in favour of the Government. The Government is aware that Ms Carson, along with 12 others, subsequently made an application to the European Court of Human Rights.

Surprise, surprise!

The Government continues to take its obligations under the terms of the European Convention on Human Rights seriously and is satisfied that it is complying. The Government has no plans to make any changes to the current arrangements which allow for the exportability and uprating of UK State Pensions.

Yours sincerely

Mrs J Tracey-Benoit

Comment from an "adopter"

Another "spin" on this is from James Purnell, who is quoted as stating:
 
"The National Insurance Fund (NIF) is not a fund in the normal sense of having a pot of money to invest in stocks and securities. It is essentially an accounting system, where current income from contributions pays for current benefits (on a pay-as-you-go basis). If there is a ‘surplus’ it must be used to buy Gilts. In practice by buying Gilts it means that we would borrow less from elsewhere. Therefore if the money were to be spent on increased benefits we would have to raise the equivalent through other means, for example, by raising taxes."
 
His "accounting system" sounds like a pot of money to me!
 
Anyway, according the National Audit Office "The National Insurance Fund was originally established in 1948 to pay Social Security benefits to individuals who had paid qualifying National Insurance contributions.  It was established in its present form on 1 April 1975 (Social Security Act 1975) from the merger of the National Insurance and Industrial Injuries Funds and the National Insurance (Reserve) Fund. In 1989, the Redundancy Fund was also merged with the National Insurance Fund.  The purpose of the Fund is to meet the cost of retirement and widows' pensions, the contributory element of the job seekers' allowance and incapacity benefits as well as the cost to government departments of the administration of the Fund."
 
However, as I understand it, contributions paid into the Fund have recently significantly exceeded the cost of benefits paid (partly due to the fact that successive Governments have refused to uprate *see note below* pensions fairly). This has allowed the Government, in a clever and sly manner over the recent years, to dip its hands into the “till” of income generated from the ever-increasing surplus within the NI Fund’s in order to fund other areas of spending, thus deviating from the original objective and purpose of the Fund.
 
Perhaps we could suggest that the Minister should consider adopting a revised definition of the NI Fund to include in future replies, something like:
 
“Thanks to the creative thinking of the Government, the current purpose of the National Insurance Fund is not only to meet the cost of contribution-based benefits including state pensions but also to fund other areas of the Government's spending priorities which range from health and education to the equally important refurbishment of MPs offices, provision of extra paper clips and staples for civil service departments and the installation of extractor fans to cope with the increased hot air in the corridors of power generated by frantic creative thinking."

An additional explanation could be:

"The Government is proud of its new policy which permits it to cunningly divert the Fund from its original objective and purpose, thereby allowing the continuance of the unfair practice of “freezing” the pensions of the small proportion of overseas pensioners who should be entitled to fully uprated pensions."

Note: Uprating here refers not only to the pension freezing policy but also to indexing contributions to average earnings while indexing the pension to the lower price index. [Editor]