The British Government's Failure to Honour Its Commitments to Overseas Pensioners under the Pensions (Increase) Act 1971
Introduction
by R. B. Blanche
I have recently concluded a two-year correspondence with the Overseas Development Administration (ODA) about the underpayment of pension supplement (SPOS) on certain overseas, mainly Hong Kong, pensions. The ODA have refused to move from what I regard as a rigid and unreasonable position. Their position is that the ODA will supple- ment the pension increases paid by the Hong Kong Government if they are less than the increases paid to UK Civil Service pensioners but will not, through SPOS, make up any fall in the basic pension itself. For a number of years inflation in Hong Kong has been higher than in the UK and the value of the HK dollar against sterling has depreciated correspondingly until September 1992. Therefore, the Hong Kong Government has been paying higher pension increases than the British Government has been paying to its pensioners. Consequently, no SPOS was paid to Hong Kong pensioners even though the value of the Hong Kong pension as a whole had depreciated in sterling terms. This failure to pay SPOS is contrary to the main principle of the Pensions (Increase) Act 1971 which is that the original purchasing power of the pension should be maintained in sterling terms.
This main principle of the Act is clearly set out in a number of official British Government documents and was acknowledged by the ODA in a letter to me as recently as November 1992, but their present practice of not paying SPOS on the basic pension contradicts this principle. The ODA has not explained this contradiction.
The Intentions of the Act
A "Guide to the Pensions (Increase) Act 1971 and the Overseas Service (Pensions Supplement) Regulations 1972 to 1975" was issued in or about 1975 by the Ministry of Overseas Development setting out the policy and intentions of the Act together with the principles for the payment of SPOS, extracts of which are quoted below:
"The 1971 Act contains provisions which ensure that supplements payable to over- seas pensioners are of amounts consonant with the policy of "topping up" and which produce the same total income regardless of the manner in which overseas pensions are paid.... Its main principle is that the original purchasing power of pensions should be restored and then maintained at that level through the award of increases in step with increases in the cost of living in Britain ...."
The main principle of the Act is also referred to in paragraph 12 of the Memorandum on the Public Officers' Pensions (Tanzania) Agreement 1976, concluded between the British and Tanzanian Governments, which states:
"The supplement payable under the Pensions (Increase) Act 1971 is in broad terms the increase in pension necessary to maintain the original (sterling) purchasing power of the Tanzania pension.”
The intentions of the Act are repeated again in a Crown Agents' letter dated 6 July 1987:
"Pension supplements are intended to maintain the original purchasing power of overseas service pensions, and to supplement overseas pensions to the level of
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United Kingdom public service pensions For those pensioners therefore whose pensions are paid at a current rate of exchange, their supplements will justed from one payment period to another to take account of currency fluctuations, so that the total of pensions and supplement payable in any period will be more or less constant."
Therefore, there is no doubt that the intention was for the Act to provide a sterling guarantee for overseas pensions.
The Regulations
The problem and the ODA's contradictory position originated from drafting mistakes made in the 1972 to 1975 regulations.
In order to give effect to the main principle of the Act, it was necessary to establish for an overseas pension a sterling base at the time it was awarded. Also, to calculate the amount of SPOS payable each month, account had to be taken of the pension actually paid by the overseas Government in that month by converting it to sterling at the current rate of exchange. The 1972 to 1975 regulations failed to provide for a sterling base for the pension at the time it was awarded. On the other hand these regulations correctly provided for the monthly pension payments by the overseas government to be converted to sterling at current exchange rates for the purpose of calculating the amount of SPOS payable but, in the absence of a sterling base at the time the pension was awarded, a moving sterling base using monthly (amended in 1973 to annual) exchange rates was applied to the pre-determined percentage increase to give the total pension due.
In the early 1970s sterling fell in relation to the Hong Kong dollar and, because of the drafting mistakes in the regulations which allowed a moving base. Hong Kong pensioners were receiving more SPOS than necessary to maintain the original purchasing power of their pensions, contrary to the main principle of the Act.
The ODA must have been aware that they were paying SPOS in excess of what was originally intended but they did nothing about it until the Comptroller and Auditor General pointed out the conflict in the regulations with the main principle of the Act. The ODA then set about amending the regulations, "reluctantly" they told me, to correct their mistakes. Thus the 1977 Regulations came into force, but similar mistakes were made in the drafting of these new regulations, this time to the pensioners' disadvantage. In the 1980s and up to September 1992, when sterling rose in relation to the HK dollar, Hong Kong pensioners were receiving less SPOS than was necessary to maintain the original purchasing power of their pensions, again contrary to the main principle of the Act. Correctly, the sterling base for the pension at the time it was awarded was introduced into the new regulations; but incorrectly, they provided for the monthly basic pension payments by the overseas government to be converted into sterling at historical, instead of current, exchange rates for the purpose of calculating the amount of SPOS payable. Thus false surpluses were deemed to have been received.
The ODA has admitted the drafting mistakes in the early regulations but has not yet admitted those in the 1977 Regulations. However, there remain the contradictory state- ments in the official records which the ODA cannot/has refused to explain. They say only that those statements that they have made which contradict what they are doing are erro- neous and have no authority,
A regulation that conflicts with its enabling Act is ultra vires. All that is needed to correct the mistakes and bring the regulations into line with the Act's intentions is for Regulation 17(1) to be amended so that the monthly pension payments from Hong Kong are converted to ster-
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