Nearly half a million British people retired abroad will be disappointed today as the House of Lords rejected a case by expat Ms Carson who claimed her pension was unfairly frozen while others are raised in line with prices.

The case could have landed the government with a bill for at least £400 million if Ms Carson had won. Almost 500,000 pensioners live in countries without the bilateral agreements that allow pensioners in some countries such as the EU and the US to continue receiving indexed payments.

Annette Carson, who emigrated from Britain to South Africa in 1989 and continued to make full contributions to her state pension in the UK but one year after she retired in 2000, the UK government refused to add on the indexation increases. Since than Ms carson's pension has been 'frozen' at £67.50 a week. Some pensioners have their pensions frozen at values as low as £7.00 a week and the Carson case has been seen as a test case for all such pensioners.

Ms Carson first brought her case in 2002 but lost. In 2003 she won the right to appeal against the decision in the House of Lords.

The judge in the case, Lord Hoffmann, said that, as the law stood, it would remain frozen. He added her sense of grievance "may be understandable, but it is not justified."

Some countries where pensions are 'frozen' are Australia, Canada, Hong Kong, South Africa, Zimbabwe , New Zealand, Trinidad & Tobago. The arrangements with these countries were drawn up before inflation became so much of an issue. Pensioners living in all of the EU, US, Barbados and Jamaica receive increases as normal.