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Rachael Griffin, head of tax and product law for Skandia International, highlights the plight of UK expat pensioners who have taken a case to the European Court of Human Rights, claiming discrimination on the grounds they are barred from receiving the same inflationary increases in their state allowance given to UK pensioners

You may have recently heard the tale of thirteen pensioners who have brought a case (Carson and Others v. The United Kingdom) to the European Court of Human Rights, based on the grounds of discrimination against the UK government.

The outcome holds interest for all British expats who have retired abroad, and are in receipt of a state pension but have chosen to live in a “non-inflation uplift” country.  Such countries where no inflation uplift would apply include Australia, Canada, Hong Kong and South Africa. 

Current legislation states that British expats who have retired abroad are not eligible to receive a yearly increase on their state pension in line with inflation.

The basic state pension is increased each year in April by at least the level of inflation.  People who are retiring abroad will continue to receive the UK state pension, however they will only be entitled to the yearly inflation increases if they move to a country within the European Economic Area (EEA) or a Country with a special UK agreement such as the United States.

The basic state pension for 2009-10 for a single person is £95.25.

One of the applicants Annette Carson was born in 1931.  She spent most of her working life in the UK, paying National Insurance contributions in full. She emigrated to South Africa in 1989 and has been regarded as a South African resident since 1990. From 1989 to 1999 Ms Carson continued to make voluntary National Insurance contributes to maintain her entitlement to a full state retirement pension. 

In 2000 Ms Carson became eligible for a state pension and an additional pension under the SERPS (the State Earnings Related Pension Scheme). She was paid a total of £103.62 per week.  This was made up of £67.50 basic state pension, £32.17 SERPS and £3.95 graduated pension. 

However, based on current legislation, her pension will remain frozen at this rate for the foreseeable future. 

If Ms Carson’s basic rate pension had benefited from inflation increases, it would now be worth £82.05 per week.  There is no state social security system in South Africa and therefore Ms Carson contends that she is reliant on her British pension to support her in her retirement.

Initially Ms Carson’s case was held at the House of Lords and was rejected.  At the conclusion of the hearing Lord Hoffman, who provided one of the majority opinions in the House of Lords, stated that: 

“The contention is that the law is discriminatory as the up lift is dependant on which country that you retire too.  The denial of a social security benefit to Ms Carson on the ground that she lives abroad cannot possibly be equated with discrimination on grounds of race or sex.  It is not a denial of respect for her as an individual.  She was under no obligation to move to South Africa….”

While it is up to the courts to decide if Ms Carson has suffered discrimination at the hands of the UK government, it is not hard to see how she, and other British expats may have been caught unawares by this legislation.  

Advisers with clients who aspire to retire abroad should be aware of the rules that surround pensions, domicile and residency in both their home and their chosen jurisdiction. 

The case further highlights the need for financial advice and advisers who are versed in this area will be able to provide an added service to clients.

We await the final outcome of the case but in the meantime, I encourage advisers to speak with their clients who are planning to retire abroad. 

Case of Carson and Others v The United Kingdom 42184/05 [2008] ECHR 119 (4 November 2008).  The case, heard in the Grand Chamber on the 2nd September 2009, is now in its final stages, although no judgement is expected until March or April 2010.

Rachael Griffin is head of tax and product law for Skandia International