Q. My elderly parents migrated from the UK five years ago to live with us.  We have just discovered that their UK State Pension, paid to them on a monthly basis has not been indexed since they arrived here.  Can you please explain why?  They spent their entire working life in the UK paying tax and National Insurance.  They have migrated to Australia to be with their children and grandchildren.  Why should they be disadvantaged?

A. To be entitled to receive a British State Pension, you need to have reached pension age, have worked in the United Kingdom and made contributions to the compulsory UK National Insurance.  The amount of pension you are entitled to is determined by the number of years of contributions received for National Insurance.

Of the 12.5 million people receiving the basic British State Pension, more than 1 million live outside the UK.  More than 242,000 reside in Australia.

Regrettably your parents State Pension is frozen and was frozen from the time they took residency in Australia.

It is hard to see how the existing UK Government policy is fair or can be justified.  Your parents made National Insurance contributions their entire working life.  Their obligation to fund their State Pension entitlements was met.  The UK Government’s obligation to provide health care or Aged Care housing ceased when your parents left the UK.

Unless they are self-funded retirees, the funding gap or disadvantage will grow each year with the impact of inflation.

The UK government claim that the cost of indexing the Pensions places an unacceptable burden on the system. However if your parents were to take residency back in the UK or in another country fortunate enough to have signed a bilateral agreement, their pension would no longer be frozen. More than 500,000 British expat pension recipients are in this situation.

Do Commonwealth countries receive special treatment?  Well no, amongst the nations impacted, if you reside in the big 4 Commonwealth countries;  Australia, Canada, India and South Africa your pension is frozen.  If you are fortunate to live in non-Commonwealth countries such as the USA, Israel, Bosnia or Turkey you are ok as they have a bilateral treaty.

The Australian Government has unsuccessfully lobbied the UK Government and the European Court of Human Rights on this issue on behalf of UK Pensioners living in Australia.

There are a number of global organisations representing British Expats in this battle. “British Pensions in Australia”  www.bpia.org.au represent Australian resident UK expats and have lobbied extensively for change.  I would encourage you to make contact with this organisation to gain a greater understanding of this issue and your options to force a policy review.


Follow Andrew on Twitter @AndrewHeavenFP.  This article was originally published in The Australian.