Taxpayers¹ are funding state pensions for hundreds of thousands of people who live abroad and have never paid tax in this country, a minister has disclosed.

 

Steve Webb, the pensions minister, said that those receiving British pensions overseas include many foreign citizens who have "never set foot in Britain at all".

 

The pensions can be worth £3,500 a year for the entire length of a person's retirement², and are costing taxpayers £410 million a year — a rise of more than a third over the past decade.

 

Mr Webb revealed the figures ahead of this week's Queen's Speech, which will include a proposed law that will stop new claims for such pensions.

 

The situation arises because of rules that allow spouses⁴ to claim a "married person's allowance" based on their husband or wife's history of National Insurance contributions. The working spouse³ can receive their state entitlement too.

 

While claims for a "married person's pension" are falling in the UK, the number of such pensions paid to people abroad has risen steadily⁵.

 

There are 220,000 people living outside the UK who receive some sort of state pension based solely⁶ on their spouse's British work history. That is unacceptable, the minister said.

 

He said: "Most people would think, you pay National Insurance, you get a pension. But folk who have never been here but happen to be married to someone who has are getting pensions."

 

Mr Webb also warned that many middle-class workers are not saving enough for retirement and face a steep drop in their living standards after they stop work. In response, he said, employees should sign up to "automatic escalation⁷" deals where they commit money from future pay rises to their pensions.

 

Mr Webb spoke⁸ to The Daily Telegraph as the Coalition⁹ prepares to publish the Pensions Bill in the Queen's Speech.

 

Wednesday's speech will be the Coalition's first set-piece opportunity to respond to the political concerns raised by the rise of the UK Independence Party in last week's local elections. Insiders say the speech will contain a modest package of measures.

 

The Pensions Bill will create a new flat-rate state pension of about £7,000 a year for everyone in Britain who spends at least 35 years working or caring for children or the elderly. The new pension system, in place from 2016, will do away with several aspects of the current regime, including rules allowing people to claim a pension based on their spouse's history.

 

The new flat-rate pension "is for individuals, it's not based on your spouse, it's just for you", Mr Webb said. Existing pensions will be unaffected, but the change will prevent new claims for pensions that cannot be justified¹⁰, he said.

 

"Women married to British men, we are getting more of them claiming a pension based on his record. In some cases, they have never set foot in Britain at all.

 

"There are women who have never been to Britain claiming on their husband's record. There are also men who have never been to Britain claiming on their wife's record."

 

He added: "Say you are an American man and you marry a British woman, you can claim, if she has a full record of contributions, a pension of £3,500 a year for your entire retirement having never paid a penny in National Insurance.

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