A billion dollars over four years: that’s the benefit Australia could reap if the federal government was willing to take the gloves off in negotiations with the United Kingdom over its frozen pensions policy, according to the chief lobbyist of the cause.

The policy penalises Britons who retire to Australia and most other Commonwealth countries — while they contributed to the UK’s mandatory national pension scheme during their working lives in Britain, their pensions are not uprated each year in line with inflation. The policy does not penalise Britons who retire to most non-Commonwealth countries.

About half of the 550,000 Britons penalised by the policy are living in retirement in Australia, with most leaving the UK to join family here. Their British pensions have not been increased since their arrival, which in some cases was 20 years ago, when the basic British weekly pension was about 58 pounds a week (about $107). It is now roughly twice that sum. Tens of thousands of these “frozen pensioners” are currently dependent on means-tested Centrelink assistance because they can’t survive on their long-frozen British pensions.

The British policy dates back over 50 years. Jim Tilley, chairman of the British Pensions in Australia organisation, has written to the federal government’s National Committee of Audit calling for an investigation into the current cost. He argues that if the UK granted immediate parity to all its pensioners in Australia they would no longer be in need of a partial Australian supplementary pension — with estimates of the benefit to Australia over four years, conservatively, at around $1 billion:

“With the eventual success of our combined fight in Britain to force the UK Government to uprate annually our UK pensions as they do for about 96% of Britain’s pensioners, including over 630,000 living abroad in other countries, this will inject into the Australian economy about $590 million each year, and lead to an annual reduction of Centrelink pension payments by approximately A$220 million or approaching A$1 billion over a four-year budget period.”

Tilley, the Australia-based member of the International Consortium of British Pensioners, made international headlines last year when he proposed Britain be suspended from the Commonwealth until it revoked its frozen pensions policy. The consortium later formally called on the Queen and Prince Charles to support the sanction. The policy, however, remains in force. Furthermore, British Foreign Secretary William Hague, Secretary of State for Work and Pensions Iain Duncan Smith and Pensions Minister Steve Webb are all on record as insisting the policy will remain.

It not only penalises contributors to the UK’s mandatory national pension fund, but those who also contributed to a range of so-called “optional extra” British government retirement schemes. Derrick Prance, 88, of Perth is a World War II British veteran who went on to work for 50 years in the UK. He told Crikey that during that time he contributed to a total of three British government pension funds, two of them in tandem with his employers, which were promoted as “optional extra” government funds. But not one of the three funds has been indexed against inflation since he and his wife arrived in 1996 to join family in Perth.

Steve Webb insists the UK can’t afford the cost of granting parity to expats in Australia, Canada, New Zealand and most other Commonwealth countries, even just for those over 80. Tilley argues the penalised expats are saving the UK billions in healthcare and aged care costs.