NO.888
Mr McDonald
alilaz
Copy to:
Solicitor Mr Fish
Mr Cassidy
From: George C Duke
Solicitor's Office 9 November 1992
PENSIONS SUPPLEMENT REGULATIONS: EXCHANGE RATES
1. I enclose a draft of Regulations prepared on the basis of your minute of 29 June 1992 to Mrs McFee.
2. The effective provision is Regulation 5, which provides for the deduction of the exchange rate loss from the (aggregate) overseas increase. Regulation 4 restricts the scope of the change to pensions paid by overseas governments, excluding those which the United Kingdom has taken over and now paye in sterling at a fixed rate. it struck me that Regulation 17(2) and (3) should also logically be disapplied to pensions taken over by the United Kingdom and I have suggested inclusion of such provision. i imagine The point has never arisen in practice. Regulations 2 and 3 are consequential.
3. As mentioned, I have discussed with the Solicitor the legal basis for making these changes. While we think that in practice you may well succeed in making and operating such Regulations without challenge, we think that there are serious doubts concerning the legal vires of what is proposed. Moreover, the logic of what is being done seems questionable, and it may set a bad precedent.
4. It seems reasonably plain from the terms of Section 11 of the Pensions (Increase) Act 1971 that the aim of the legislation is to give overseas pensioners a hedge against inflation of sterling comparable to that given to official pensioners in the United Kingdom. The legislation is not at all concerned with compensation for changes in exchange rates between Sterling and other currencies. I think you could be reasonably confident of resisting any claim by Mr Blanche or other pensioners that it is unreasonable not to compensate them for exchange rate losses.
5. You have, however, taken the view that a
a pensioner who has received an exchange rate bonus does not in practice require so much supplement to keep him up with his United Kingdom equivalent. Hence Regulation 17(2). Section 11(4)(b) of the 1971 Act, which allows you to take into account additions to the value of pensions, can be seen as giving statutory cover for this provision.
6. As I understand it, you want to maintain the basic principle that the 1971 Act is not used to compensate for exchange rate losses. You do not want positively to give extra supplement, for this purpose.
7.
On the other hand, you now take the view that where you deduct Overseas increases from a pension it is fair to set off against these the decrease in value of the pension resulting from exchange rate losses, so that only the net increase is deducted. This is considered not to breach the principle mentioned in paragraph 6, since the pensioner will never get
HMC00109.112
1.