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Frozen British pensions

Volume 745: debated on Monday 19 February 2024

The petition of residents of the constituency of Linlithgow and East Falkirk,

Declares the UK pensioners deserve a full uprated state pension wherever they choose to live; further that UK pensioners who have paid their fair share of NI contributions should not suffer the consequences of successive UK Governments’ failure to establish bilateral agreements with certain countries; notes the new report “UK-Canada: An Unequal Partnership” that highlights the stark contrast in engagement between the UK and Canada on the frozen pensions policy, which impacts half a million British citizens worldwide and 127,000 in Canada alone; and further declares that despite Canada formally requesting negotiations on the policy four times between 2013 and 2022, the UK has refused to engage.

The petitioners therefore request that the House of Commons urge the Government to engage with the Canadian Government on the issue and finally remedy this injustice and reflect respect and courtesy for our British citizens and our Commonwealth neighbours. —[Presented by Martyn Day, Official Report, 12 December 2023; Vol. 742, c. 866 .]


Observations from The Parliamentary Under-Secretary of State for Work and Pensions (Paul Maynard):

The United Kingdom state pension system is primarily intended to provide support for pensioners who ordinarily reside in the UK. State pensions are, however, up-rated overseas where there is a legal requirement to do so, such as a reciprocal social security agreement. This long- standing policy has been supported by successive Governments of all political persuasions for over 70 years. It has been the subject of parliamentary debates and has been approved by Parliament and the courts. This Government concurs with that position.

There are two separate social security agreements between the UK and Canada made in 1995 and 1998. Neither of these provide for state pension uprating in Canada and the UK Government has no plans to revisit the social security relationship with Canada.

A decision to move abroad is a voluntary one and will depend on an individual’s circumstances. Ultimately, individuals have a responsibility to fully understand the implications of their decision to move abroad. For a number of years, the UK Government has provided clear information for people moving to and living overseas, including Canada, which sets out that the UK state pension is not up-rated overseas except where there is a legal requirement to do. Therefore, any impact on state pension is just one factor in considering whether to move overseas.

Furthermore, the rate of national insurance contributions paid (or credited as paid) by an individual has never earned entitlement to the indexation of a state pension. The national insurance system is financed on a “pay-as-you-go” basis, which means that today’s contributions fund today’s expenditure. This means that the rates and levels of contributions are set each year to ensure that the overall income to the national insurance fund is enough to pay for the full range of contributory benefits.

An individual’s contributions provide a foundation for calculating entitlement to future personal entitlements. The contributions do not actually pay for those entitlements directly. Twenty per cent. of national insurance contributions go towards the national health service, the remainder fund contributory benefits, the vast majority of which goes to the state pension. National insurance contributions are pooled and people do not have an individual pot which funds their own state pension.

Cost has also been and remains an important factor in deciding whether state pension increases should be paid in overseas countries. In drawing up expenditure plans for pensioner benefits, the Government believes its responsibility is primarily toward pensioners living in this country. Uprating overseas state pensions to the rate payable in the UK would cost approximately £900 million a year.

Successive Governments have maintained the view that it would be unfair to place additional burdens on UK taxpayers to fund increased pensions for people who decide to live abroad. The Government have no plans to change the current arrangements for payment of the UK state pension overseas.