In its decision, the court said the UK authorities’ refusal to index-link pensions of some former British residents was “not discriminatory”.

The long-awaited judgment will be a blow for many UK pensioners, who have long argued that they are unfairly treated by a pension system that they paid into, in good faith, when they were still working back in the UK. For them, the European Court of Human Rights in Strasbourg was their last hope.

The ruling will be welcomed by the UK Treasury, however, which could have had to pay out at least an extra £500m per year if the decision had gone against it.

Some of these expat pensioners  living in those other countries where the UK “freezes” pensions at the rate at which the individual first starts to take them currently receive pensions that are half what they would be if they lived in the UK. A few, who retired back in the early 1970s, are said to receive as little as £6 a week, even though the current basic state pension in the UK is £95.25 a week.

The decision is available on the European Court of Human Rights (ECHR) website, where it is referred to as the Case of Carson and Others v. the United Kingdom.

‘Part of complex benefits system’

In the 11 to 6 judgment, the Strasbourg judges said they “did not consider that it sufficed” for the 13 British nationals who had brought the case to be “in a relevantly similar position to all other pensioners, regardless of their country of residence” merely because they paid National Insurance contributions while working in the UK. 

Such contributions form part of the revenue which pays for a whole range of social security benefits, the court observed, as part of a “complex and interlocking system of the benefits and taxation systems” which “made it impossible to isolate the payment of National Insurance contributions as sufficient ground for equating the position of pensioners who received up-rating and those, like the applicants, who did not”.    

“Moreover, the pension system was primarily designed to serve the needs of and ensure certain minimum standards for those resident in the United Kingdom”, the court said. 

Reciprocal agreements

As International Adviser reported on Sunday, the issue was whether expatriates living in such countries as Australia, South Africa, Hong Kong and Canada – who receive UK pensions after having paid National Insurance contributions when they were still living in Britain – should receive the same inflation-linked increases, even though the countries in which they live do not have reciprocal agreements with the UK.

Britain has such arrangements with its 26 fellow EU countries as well as with the US, Iceland, Liechtenstein, Norway, Switzerland and Turkey. Officials  with the UK’s Department for Work and Pensions have argued that it is not unfair to discriminate in favour of pensioners living in these countries with which the UK has reciprocal agreements, because the governments of these countries have agreed to boost the pensions of their nationals who have retired to the UK.

Seven of the 12 most popular overseas retirement destinations among British retirees are on .the UK’s frozen-pension list, an Alliance & Leicester International study found last year. They are New Zealand, South Africa, Dubai, Canada, Australia, Singapore and Hong Kong.

Pensioners in such countries have argued for years that it was unfair for them to receive less than others who paid the same amount into the pension system.

A website that identifies itself as representing the interests of British expats whose pensions are frozen, www.Pension-Parity-UK.com, estimates that approximately half of the 1.1m UK expatriate pensioners worldwide have their pensions frozen.

The case went to the European Court of Human Rights (ECHR) in 2009, but dates back years and has its origins in a suit brought by Annette Carson, a British national who lives in South Africa. Carson’s claim got as far as the House of Lords before it was dismissed on appeal in May 2005.

Later that year, she and 12 other expat pensioners moved on to the ECHR, where last year their application was referred to the final appellate stage, the Grand Chamber, after a lower ECHR court rejected it in November 2008 by 6 to 1.

UK pension ‘£95.25’

Although the basic UK state pension for 2009-10 for a single person is £95.25 a week, according to Skandia International’s head of tax and product law Rachel Griffin, Carson currently receives only £67.50 weekly in basic state pension, which she began to take in 2000.

Carson also receives £32.17 in SERPS (the State Earnings Related Pension Scheme) benefits and £3.95 graduated pension.

‘UK benefits when expats go abroad’

The Pension-Parity.UK website, meanwhile, argues that the UK benefits financially in having pensioners move abroad and stay abroad for the remainder of their lives, and notes that concerns about having to make do with a frozen pension actually causes many to stay in Britain.

“The UK Government’s own figures reveal that “every individual resident in the UK over the age of 60 costs the UK taxpayer £7,000 per [year] in terms of added benefits and a share of National Health Service costs, [which is] seven times…the estimated [added] cost per capita” of index-linking those frozen expat pensions,” the site notes.

A complete list of countries where expat UK retirees’ pensions are frozen is at the Pension-Parity website at: http://www.pension-parity-uk.com/pension-rights.htm#Are YOU frozen or are you not .

From International advisor; 16 March 2010 by Helen Burggraf