A ruling upholding a freeze on pensions may force half a million commonwealth residents to return home

Thousands of expatriate pensioners may be forced to move back home following a ruling by the European Court of Human Rights last week that upheld a freeze on the pensions of half a million people. The group, made up of pensioners who retired to former Commonwealth countries, have fought the British government for eight years for their pension payments to rise in line with inflation.

As it is, someone who retired to a former Commonwealth country in 1995 receives just £59.20 a week, compared with the current basic state pension of £95.25 for UK residents. Pensioners who have retired to countries in the European Union or America, for example, which have reciprocal agreements with the UK, do receive rises in line with inflation. However, the court ruling stated: “The applicants did not contribute to the UK economy, in particular, they paid no UK tax to offset the cost of any increase in the pension.” It comes as a bitter disappointment to pensioners struggling to make ends meet. Annette Carson, one of the leaders of the case, who moved to South Africa in 1989 and retired in 2000, said she receives just £67.50 a week.

Advisers warned that the ruling, combined with the continuing weakness of sterling, is likely to convince many pensioners that they can no longer afford to live overseas. Many have seen their incomes decline by hundreds of pounds in the past two years . Furthermore, as the cost of sterling remains cheap, many will consider now is a good time to buy back into the currency. Mark Bodega at HiFX, the currency broker, said: “The cost of living for expats receiving a fixed income in sterling has already shot up in the past few years as sterling has depreciated. So this ruling that their income will not rise in line with inflation, as it does for pensioners in the UK, is a double blow for hundreds of thousands of pensioners who are already struggling.”

Bodega said those worst hit by the depreciation of sterling in the past two years were those who had retired to South Africa, New Zealand and Australia, where market volatility had slashed the real value of their pensions. The average pensioner living in Australia receiving a 1995 pension of £3,078.40 a year has seen the income fall by more than A$3,200 (just under £2,000) a year because of the collapse of sterling.

    More than half a million retired Britons living abroad could be in line for Government payouts if a group fighting a legal battle over pension rights win their case. Skip related content

    After years of courtroom wrangling, 13 expatriates will learn on Tuesday if they have won their test case for the right to index-linked rises routinely paid to UK-based pensioners but denied to those who have settled abroad. The decision is being made by judges at the European Court of Human Rights.

    Under current rules, pensioners who retire abroad only get state pension increases in line with inflation if they live in countries with reciprocal arrangements - the other 26 EU countries, plus the US, Switzerland, Iceland, Norway, Turkey and Liechtenstein. So-called "up-rating" of the state pension does not apply to those opting to settle in Canada, South Africa, Australia or New Zealand. The 13 in the test case live in Canada, South Africa and Australia. They include Annette Carson, 78, who emigrated to South Africa in 1989 and whose example was cited in the original legal claims which were rejected in the High Court, the Court of Appeal and the House of Lords.

    A subsequent claim in the European Court of Human Rights in Strasbourg was also lost, when all but one of the judges ruled that denying the 13 their pension increases did not breach a Human Rights Convention declaration that "the enjoyment of (convention) rights and freedoms shall be secured without discrimination on any ground such as sex, race, colour, language, religion, political or other opinion, national or social origin, association with a national minority, property, birth or other status". The 13 argued that the reference to "other status" covered their right to retire to the country of their choice without losing pension rights. In a hearing in the human rights court last September - effectively the last appeal stage - lawyers argued that pensioners who had made full national insurance contributions throughout their working lives should not have their pensions frozen and denied statutory increase just because of their country of residence. But Government lawyers said the priority had to be to target money on the poorest pensioners living at home, and that it could not apply increases to those opting to live in countries which have no reciprocal agreements with the UK.