Thousands of retired Britons living abroad receive just £3,000 on average each year from a “frozen state pension” - £7,000 less than retirees living in the UK - according to new analysis.
While British pensioners that move abroad still receive a UK state pension, only some of them benefit from the triple lock. This uprates the state pension each year in line with earnings, inflation or 2.5%, whichever is higher.
The new full state pension is likely to increase by more than £400 next April, taking the annual payment to about £12,000.
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According to the investment platform Interactive Investor, the average state pension for a pensioner living in the UK is currently £10,099.
However, this drops to just £2,946 for someone who retired abroad to a “frozen country”. Countries where British pensioners do not benefit from having their state benefit increased each year include Australia, Canada and South Africa.
The International Consortium of British Pensioners (ICBP) says that 453,000 pensioners do not receive annual upratings.
It has spent years lobbying for a change in government policy so that all British expat pensioners get their state pensions uprated.
But could the new Labour government be sympathetic to their cause? The #EndFrozenPensions Canada account on X (formerly Twitter) mentioned pensions minister Emma Reynolds in a post on 25 September. It said: "Thank you @EmmaforWycombe for being the first senior UK politician in a very long time to take the trouble to meet with a frozen pensioner and hear their concerns."
Thank you @EmmaforWycombe for being the first senior UK politician in a very long time to take the trouble to meet with a frozen pensioner and hear their concerns.We're hopeful we can soon #EndFrozenPensionsSeptember 25, 2024
We look into which countries are affected by frozen state pensions, how much British expats receive - and what the government thinks about the policy.
Which countries are affected by frozen state pensions - and why?
More than 40% of the 1.12 million pensioners living overseas are affected by frozen state pensions, according to Department for Work and Pensions (DWP) data. This equates to just under 4% of the 12.7 million people receiving state pension payments.
British citizens who move to a country in the European Economic Area, Gibraltar, Switzerland, and other countries including the USA and Jamaica receive annual increases to their state pension.
However, countries including Australia, Canada, New Zealand, India, Pakistan, Bangladesh, many Caribbean islands, and all African countries do not benefit from any kind of uprating.
The ICBP says there is “no reason other than this situation has existed for over 70 years”.
The UK government says the reason is due to which countries have reciprocal social security agreements with the UK.
A petition to end “frozen pensions” has attracted more than 172,000 signatures.
It claims that the “UK government continues to refuse to enter into any new agreements – agreements that would end this pension injustice for all”, adding: “This policy can have a devastating impact on the lives of those affected and, for some, the income lost can mean a retirement of poverty.”
How much money do expats receive from their frozen state pensions?
Interactive Investor's calculations, based on data from the DWP, show that those living overseas with a frozen state pension receive £7,153 less on average than retirees living in the UK.
The payment gap widens significantly with age as the impact of the freeze compounds over time. Those in their 90s with a frozen state pension receive just £1,896 each year, compared to £10,809 for a pensioner living in Britain - a difference of £8,913.
Myron Jobson, senior personal finance analyst at Interactive Investor, comments: “Moving abroad can be a dream come true for many Britons, especially as they approach their golden years. However, it is crucial to keep an eye on the finer details, particularly when it comes to your state pension.
“If you're planning to retire in a country where the UK state pension is frozen, it means you won't benefit from the annual increases that help keep up with inflation, and as such, your payments will decline in real terms throughout your retirement. This could significantly impact your financial comfort in later years, leaving some facing poverty in old age.”
Could the Labour government end the frozen pensions?
MoneyWeek asked the DWP about the social media post that mentioned a meeting with pensions minister Emma Reynolds.
A government spokesperson said: “We understand that people move abroad for many reasons, and we provide clear information on gov.uk about how this can impact their finances in retirement. The International Pension Centre is a source of advice for people who are already retired.
“The government’s policy on the uprating of the UK state pension for recipients living overseas is a longstanding one of more than 70 years and we continue to uprate state pensions overseas where there is a legal requirement to do so.”
The ICBP claims the policy is “anachronistic, inconsistent and out of touch with British values”. It says the cost of ending the frozen pensions policy is £307 million over five years.
However, it says the DWP estimates that the cost of ending the frozen pensions policy as £4.59 billion over five years, because it assumes that all pensioners who currently receive a frozen state pension will start receiving a pension as if it had never been frozen.
“This would be unprecedented. ICBP believes the DWP is being disingenuous and selective in presenting a grossly misleading headline number.
“ICBP is asking for state pensions in the remaining countries where they continue to be frozen, to be unfrozen in the same way as pensions have been unfrozen in other countries. We are not asking for special treatment or for a retrospective adjustment to anyone’s pension,” says the consortium.
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