The government is under renewed pressure to change its policy of “freezing” state pension payments to Britons who retire to many popular overseas destinations.

Currently, individuals who paid national insurance contributions, but emigrate to 120 countries, such as Australia and Canada, don’t receive regular increases to their basic state pension to ensure it maintains its real spending power.

This contrasts with the situation for expats who have emigrated to the US and within the European Union, whose income is uplifted by at least 2.5 per cent each year, just as if they were living in the UK.

This anomaly occurs because some countries, such as Australia, Canada and New Zealand, do not have reciprocal agreements with the UK, leaving expats in these countries with “frozen” pensions.

Of the 1.18m recipients of the state pension who live outside the UK, an estimated 565,000 do not have their income uprated.

Countries such as Australia have been lobbying the UK government to change its policy. The Canberra government claims it has to pick up a $100m benefits tab each year for British expats whose income has fallen short.

“The pensioners affected are struggling to live on as little as £30 a week – or £6 a week in the case of 100-year-old Annie Carr in Australia [whose pension was frozen at this level in the 1970s],” says John Markham, director of the International Consortium of British Pensioners, which is campaigning for change.

“All these expats worked in the UK and paid mandatory national insurance contributions, as did their employers. Existing arrangements are a product of history as opposed to rationality.”

Australia continues to exert political pressure, with parliamentarians in Canberra last month calling on the British government to “treat recipients of a British pension equally by fairly indexing entitlements regardless of where they choose to retire”.

The UK government has so far resisted change on the grounds of cost. It estimates that the annual bill for uprating existing frozen pension to be £655m, considered “unaffordable” in the current economic climate.

It is sticking to its position even as arguments were presented suggesting that uprating frozen pensions could benefit UK taxpayers in the long term.

Last year a report by Oxford Economics, which was presented to the Treasury, estimated that expat pensioners were saving the country about £2.3bn a year by not being a drain on the NHS and social care systems.

The study also suggeststhat if there were to be “pension parity”, there would be an increase in numbers emigrating to currently frozen countries resulting in a further saving to the UK economy of £7.2bn by 2031.

However, the government is not persuaded and says it will not be opening formal discussions on the policy. “The UK state pension is payable worldwide, but is only uprated abroad where we have a legal requirement or reciprocal agreement,” said Iain Duncan Smith, the secretary for state for pensions.

“This has always been the case and people who are considering emigrating abroad should always consider the impact the move could have on their future state pension entitlement.”

In spite of the lack of political progress, campaigners say they will step up their efforts to get the government to change its mind.

The International Consortium of British Pensioners recently undertook a survey of its members to try and put together a comprehensive picture of the impact of this issue.

“We are in the process of collating up to 3,000 responses and expect to uncover more case studies which will highlight the injustice currently experienced by these pensioners,” says Markham.

“We also want to get the Australian and Canadian governments working together to give the British government a kick in the knee.”

With these destinations likely to become more popular, the issue has gained traction in parliament with a number asking questions in the house.

While saying it has no plans currently to review the issue, the Labour party is challenging the coalition, and its Liberal Democrat pensions minister, Steve Webb, over his historical stand on the issue.

“They are clear that the current pensions minister supported their cause in opposition but in government has refused to act,” says Gregg McClymont, shadow minister for pensions. “The minister should clarify his position.”

“The International Consortium of British Pensioners insists that unfreezing the affected pensions would save taxpayers money in the long run but further evidence is needed to establish whether this is in fact the case.”

Meanwhile, a white paper on reforms to the state pension is expected to be published before Christmas.

Source Financial Times.