This piece first appeared in The Daily Telegraph on 20 January  2001
The text here may not be identical to the published text

The Government has stepped in to save the pensions paid to thousands of people living in the UK who have spent some time in Australia. More than 1000 newly-retired people each year were facing the loss of part of their state pension because of a diplomatic row between Britain and Australia.

Under a social security agreement between the two countries dating back to 1958, anyone who spends time in Australia can count those years towards their National Insurance contribution record. Every year spent in Australia counts as a year in which full National Insurance contributions were paid – even though the Australian pensions system is non-contributory. The arrangements were made in the 1950s so that people who emigrated to Australia did not suffer a disadvantage if they subsequently returned to the UK.

However, the agreement has become the symbol of a major row about the UK government’s policy on paying retirement pensions to people living in Australia. Although it will pay the pensions to them, they are never increased with inflation. There are nearly 220,000 people in Australia claiming a UK retirement or widow’s pension. Some people in their 80s still receive just a few pounds a week and the Australian government claims it costs nearly £40 million a year to top up some of these pensions to the Australian equivalent of the minimum income guarantee – currently A$197.05 (£74) a week or £123.50 for a couple.

The UK Government says it would cost more than £120 million to ‘unfreeze’ the pensions paid to people in Australia and closer to £300 million to extend the policy to the rest of the world. It has consistently refused to find the money to do so. After more than 20 diplomatic attempts to resolve the issue, the Australian Minister for Family and Community Services Jocelyn Newman gave 12 months notice last March to end the agreement with the UK. She said

"The Australian Government is taking this action because of the United Kingdom's continued refusal to index the payments it makes to its pensioners living in Australia, even though it indexes its payments for pensioners in many other countries. Over 200,000 individuals now living in Australia who receive a UK pension are being seriously disadvantaged because of the United Kingdom's decision not to index their pensions. It is also unfair for Australian taxpayers to continue to meet a cost that should rightly be met by the United Kingdom Government."

As a result, all reciprocal social security arrangements between the two Governments will come to an end from March 1. That would have meant that people living in the UK who claimed a retirement pension after the end of February would not have been able to count time in Australia as part of their National Insurance record. Some people would have found their pension half what it would have been – costing them more than £30 a week.

But on the last day that Parliament sat before Christmas Pensions Minister Jeff Rooker told a Labour MP that he would not let that happen.

Anyone who returns to live in the UK and has had time in Australia will be able to count every year living there up to 2000/01 as if they had paid full National Insurance contributions in the UK. More than 1000 people a year are expected to benefit from the change of heart. He stressed that ‘there will be no extra cost to public funds as we would have made such payments if the Agreement with Australia had continued.’

One Your Money reader from Essex, who wishes to remain anonymous, was threatened with the loss of nearly £1100 a year from his pension when he reached 65 in October. He had spent 16 years in Australia before returning in 1990. Three months ago (Money Go Round 14 October 2000) he told us ‘it is outrageous that a benefit I was entitled to one day is taken away the next’. So he was thrilled to hear the good news.

"I am sure the Telegraph has played a part in bringing about this change. It is eminently sensible because it ends the threat of penalising people for something that they couldn’t do anything about. I am 65 in October and would have lost around £20 a week so from what you say it is great news yes. But I wonder if the imminence of an Election had anything to do with the change of heart?"

Although this change of heart is good news for the people affected – who would have totalled tens of thousands over the next generation of pensioners – it does not help hundreds of thousands of UK citizens who have emigrated to Australia in the past who will now find the Australian social security system much less friendly to them. People in their first ten years residence in Australia will find it much harder to claim benefits and pensions from March 1^st.

And it still leaves the Government with the continuing problems of nearly half a million UK pensioners who live in ‘frozen’ countries around the world. New figures from the Department of Social Security show that more than 475,000 pensioners live in these ‘frozen’ countries – almost all of them in the ‘old’ Commonwealth states such as Australia, Canada, South Africa, New Zealand and Zimbabwe. Another 12,500 live in non-Commonwealth countries. Many of them live on just a few pounds a week. For example someone who retired abroad 25 years ago would get just £13 a week. People living in the European Union and in 25 other countries – including the United States of America – have their pensions uprated each April.

20 January 2001

e-mail Paul Lewis on paul@paullewis.co.uk