The Fry Group: British expats frozen out of the UK State Pension

The UK State Pension can be a useful top up to your retirement income. But if you’re living in some overseas countries, you might find your pension payments are frozen at lower rates, meaning you’re losing out on increasing amounts. George Howard, our Chartered Financial Planner in Dubai, takes a look at the facts.

Paying your National Insurance contributions during your working life should mean that you can enjoy a full UK State Pension. As of last year, the maximum amount for the new full pension reached circa £10,600 annually. One of the key benefits of the UK State Pension is that it’s index linked, benefitting from an annual increase due to the much publicised triple lock rule. This helps it reflect the cost of living; the rule dictates that the State Pension has to increase annually by the highest of three factors: CPI inflation from the previous September, earnings growth figures between May to July the previous year or 2.5%.

Given recent high inflation and wage boosts, the State Pension rose by a significant 10.1% last year, and in April could increase again by 8.5% – a rise of circa £900 to just over £11,500.

But if you live overseas, in a country which doesn’t have an agreement with the UK such as Hong Kong or Dubai, you’ll find that your State Pension doesn’t increase at all. This could mean that you’re missing thousands in payments already, and the gap will only rise in subsequent years.

Frozen State Pensions in action

Elizabeth, age 77, is currently receiving £4,381 in State Pension payments after retiring to Australia when she was 60. If she’d stayed in the UK, her payments would be increasing to £8,812 this April 2024.
Judy is planning to retire to Singapore this year. If she lives for 22 years, she’ll lose out on £78,930 in State Pension payments, assuming they increase by 2.5% each year.
How many expats are affected?
The issue affects almost half a million expats. It mainly impacts expats who are living outside the EU and in popular destinations such as Australia and Canada.

Will the government unfreeze the State Pension for expats?
It seems unlikely that there will be any changes to unfreeze the State Pension for expats. The estimated cost is enormous: £860m for 2023/24, £940m for 2024/25 and an eye-watering £4.59bn from 2023 to 2028.

If you are moving overseas, or planning to retire abroad, it’s vital to check whether the country you’ll be living in has an agreement with the UK when it comes to the State Pension – especially if you are factoring it into your retirement income forecasts. With high inflation rates around the world the value of your State Pension could drop quickly in a short space of time.

To discuss any aspect of your retirement planning please contact your nearest office.

George Howard
Chartered Financial Planner