British frozen pension issue back on agenda

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Some 550,000 British pensioners who reside abroad and who have had their state pension payments ‘frozen’ could at last be about to receive at least some of the additional pension income that they have been arguing for years they’re entitled to.

The thaw, such as it is thus far, apparently began last November, when Oliver Letwin, Cabinet minister for government policy, met with representatives from the International Consortium of British Pensioners (ICBP), a group representing the frozen pensioners, to discuss a new “partial up-rating”  proposal aimed at dealing with the long-running frozen pension issue.

The partial up-rating plan was originally proposed by another organisation fighting the frozen pensioners’ cause – from inside Westminster: the All Party Parliamentary Group on Frozen British Pensions (APPG), headed up by  Sir Roger Gale, a septuagenarian MP for North Thanet.

Within the last few weeks, sources say, confirmation came that the UK’s Department for Work & Pensions (DWP) was studying the true net cost of a partial up-rating of the frozen pensions, compared to the real savings that the UK currently realises from the fact that British pensioners who live abroad cost the government nothing in terms of use of the National Health Service and other benefits.

The argument that the UK actually saves money when pensioners move overseas is one that the frozen pensioners have long cited as a case for up-rating.

According to Sheila Telford, the Canada-based director of the ICBP, a “significant” breakthrough in the battle for the up-rating of all now-frozen UK state pensions may be imminent, although she and others cautioned against assuming anything would definitely happen.

But even though the partial up-rating solution  “is not the basis of the ICBP’s campaign, as it would not really help the oldest and most vulnerable pensioners  –  who would receive a percentage increase [on their current frozen pension payments] on a very small base – we would welcome it as a step forward”,  Telford told International Investment.

‘Frozen at commencement rate’

At issue is whether expatriates and others currently residing in such countries as Australia, South Africa, Hong Kong and Canada – who receive UK state pensions as a result of having paid National Insurance contributions while still living in Britain – are entitled to receive the same annual inflation-linked increases that those still resident in the UK, or in certain other countries, receive.

Those whose pensions are “frozen” only receive the weekly amount they got when they first commenced taking their state pension benefits.

The partial up-rating is believed to have traction where previous efforts, which focused on a full-uprating, did not, because it would be cheaper, and because it is thought that it would reduce the potentially costly risk of overseas pensioners looking to collect retrospectively on amounts they failed to receive in the past, owing to the frozen pension situation.

Under the proposal, frozen pensions would be increased by the same percentage increase that unfrozen pensioners receive, except that it would be from the current level, rather than from what it ought to be based on when the individual began taking his or her pension. (The exact amount each pensioner would receive would vary, based on the individuals’ total NI contributions while working in the UK; when they retired; and when they began taking their pension.)

Initial estimates are that this plan would cost the Government £30m in the first year, rising to £60.8m in the second year, and £92.3m in the third year. The fourth and fifth years it would rise to £124.6m and £157.7m respectively.

Seventy-year battle

If the proposed deal succeeds, it will end a battle to “un-freeze” the pensions of certain UK expats that dates back almost 70 years. The first recorded failure of expat pensioners to receive the same increase in their pension as those resident in the UK is reported to have taken place in 1946, when UK pensioners saw their weekly amount increase to £1.30 from 50p, but those abroad did not, according to the ICBP.

Some of the most popular overseas retirement destinations for British pensioners are on the frozen-pension list, including New Zealand, South Africa, Canada, Australia, Singapore and Hong Kong.

The freeze also has had an “extremely negative” impact on those individuals, mainly of black, Asian and other minority groups but especially from the Caribbean, who have spent their working lives in the UK, but who, as they approach retirement, find that their pension prospects would be negatively affected if they returned to their countries of origin, the ICBP has pointed out.

The US, meanwhile, is not on the list, which is understood to be a point of some annoyance to many UK pensioners now living in Canada, who must cope with roughly similar costs of living and inflation to their counterparts in the States, while who receiving less in their monthly UK state pension packet – and in spite of the fact that Canada is a UK Commonwealth country, while the US is not.

Traditionally those in the UK who have opposed up-rating the 550,000 expat pensions have argued that it is fair to favour the 630,000  pensioners who reside in countries with which the UK has reciprocal agreements – even though, it is claimed, this policy is seen to discriminate against those British nationals who have retired to countries with whom the UK refuses to negotiate such bilateral agreements, based on the excuse of the cost of doing so.

Britain currently has such ‘reciprocal’ arrangements with its 28 fellow EU countries as well as with 16 other countries throughout the world, including the Philippines, Israel, Turkey, Iceland, Bermuda, and, as mentioned, the US.