Personal Finance: Pensions in peril

BEING FREE to move abroad and enjoy your later years in the sun is one of the great pleasures of retirement. Every year, thousands of pensioners decide to up sticks and live in Spain or further afield, in search of a better lifestyle or because they want to live near their children and grandchildren.

As soon as you escape the constraints of work, there is nothing stopping you. Except, perhaps, money. Although the UK state pension can be paid worldwide, more than half of the 840,000 expatriate British pensioners receive only a fraction of the amount they would get if they had stayed here.

The UK state pension is uprated every year to keep pace with the cost of living, but 450,000 pensioners in Canada, Australia, South Africa and other countries have had their pensions frozen at the level when they left the UK. Some of them get as little as pounds 4 a week.

There are 40 countries where the pension is uprated annually. In the European Union and the European Economic Area, and some Commonwealth countries there are bilateral agreements which enable pensioners to get annual increases. But in 49 out of 51 Commonwealth countries, UK state pensions for expatriates are frozen.

"People are getting more and more angry about this," says Douglas Ross, president of the Canadian Alliance of British Pensioners. "No other developed country discriminates against the members of its contributory pension plan."

The Department of Social Security says this policy on pensions abroad has been followed since retirement pensions and widows benefits became payable worldwide in 1955. It would cost pounds 275m a year to uprate all frozen UK state pensions paid overseas to the rate paid to pensioners in the UK, the department says.

"This Government has made clear that changing this policy would not be a priority call on scarce resources ... it must be right to concentrate resources where they are needed most," a spokesperson adds.

But Mr Ross says there is no reason to believe expatriate pensioners are wealthy. "I am convinced pensions abroad have the same socio-economic level that pensioners in England have," says Mr Ross. "There are rich pensioners and there are poor pensioners." In some cases, the hardship faced by pensioners abroad is more severe than it would be in the UK. Many "frozen" pensioners live in countries with no social security net, and many are virtually destitute, says Mr Ross.

Someone who retired in 1967 and moved to a country where their pension was not eligible for annual upratings would still be getting just pounds 4.50 a week. But if they had chosen to live in Spain or the US, where yearly increases are granted, the pension would be the full pounds 66.75.

In Australia, where 187,000 pensioners receive the UK state pension, the situation has come to a head. At present, Australia tops up the pensions of those retired UK expatriates who have not been resident for the 10 years needed to qualify for the country's own means-tested pension scheme.

But the Australian government has now decided to terminate its social security agreement with the UK from July 2000. That would leave thousands of UK pensioners in Australia with an income doomed to erosion by inflation.

In some cases, the failure to uprate pensions abroad is keeping families apart. June Borsberry, a 75-year-old widow who lives in Cheltenham, wants to move to Canada to be near her only son and his children. But she does not want to become a financial burden to his family when the real value of her pension starts to dwindle.

"One doesn't want to spend the last years of one's life without your nearest and dearest," she says. "I worked up until I was 65 and paid all my dues. If a private pension plan were to try this, they'd be in trouble in no time at all, but the Government can do it."

Age Concern agrees annual increases should be given to those expatriates whose UK state pensions have been frozen. "It comes as a great surprise to some people living abroad or planning a move, that they are not entitled to something they believed they were entitled to," says Rhian Beynon of Age Concern.

Age Concern has a free factsheet on retiring abroad. Write to: Euro Link Age, c/o Age Concern, Astral House, 1268 London Road, London SW16 4ER