I am planning to moving overseas when I retire.
I have worked all my life in the UK and paid national insurance to get my state pension, which I will need in retirement.
Will moving abroad affect my state pension?
Retired expats: State pensions are frozen when you first retire or move abroad if you decide to live in certain countries, such Australia, but not in others
Tanya Jefferies, of This is Money, replies: Where in the world you choose to spend your retirement will affect how much state pension you get in future.
State pensions are frozen when you first retire or move abroad if you decide to live in certain countries, such as Canada, India and Australia, but not in others, including EU countries and the US.
That means if you move to the ‘wrong’ country, whatever amount the state pension is set at when you leave is what you will continue to get throughout retirement, unless you move back to the UK.
Find a map and a full list of affected countries below.
So, if you qualify for the full new state pension of £164.35 and either move to or already live permanently in one of the ‘frozen’ countries after you start receiving it, you won’t get any further increases from that time onwards.
That obviously means you could lose out on substantial sums over the course of your retirement, depending on where you retire.
Some expats who retired when the basic rate was £67.50 a week in 2000 still get that, rather than the £125.95 now received by others who retired that year.
Looking ahead, the state pension is currently hiked every year according to the ‘triple lock’ – whichever is the highest of inflation, average earnings or 2.5 per cent.
Where are state pensions frozen? Whether an expat’s pension is frozen or not depends entirely on where they move to, because the Government has struck individual deals with some countries but left around 150 others out in the cold. See the full list of countries affected below. (Source: International Consortium of British Pensioners)
There are occasionally rumblings about this generous policy being ditched, but it would be politically difficult to do so.
Jeremy Corbyn committed the Labour party to protecting it at September’s party conference, which would put pressure on the Tories to follow suit at the next election.
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Even if the triple lock is dropped and the state pension is not increased by as much in future – perhaps being replaced by a link to average earnings – you would be affected either way if you are planning to move to one of the countries where the state pension is frozen.
Given what you could be sacrificing, you should think carefully about how much you will depend on the state pension in future years, and what you have in terms of other pensions or assets.
Expats with a frozen state pension report financial hardship in some cases, and facing tough decisions about whether they can afford to remain abroad, especially if they emigrated in order to live near relatives in their later years.
It is better to consider the implications of a frozen state pension on your finances now, rather than when you are older, potentially in poorer health, and have already taken steps to sever financial ties with the UK such as selling a property and transfering your money abroad.
Expats who come back to the UK, whether for a short visit or for good, get their state pension uprated back to the full amount again if they apply to the Department for Work and Pensions service centre.
Why are state pensions frozen for some expats?
Whether an expat’s pension is frozen or not depends entirely on where you move to, because the Government has struck individual deals with some countries but left around 150 others out in the cold.
This has created an historical anomaly, which originated some 70 years ago, where people retiring to Canada, Australia, India, Africa and many parts of the Caribbean lose out on state pension increases, while those living in EU countries, the US, Jamaica, Israel and the Philippines get their full whack.
The Government has not struck any new deals for many decades.
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It says: ‘The Government has a very clear position, which has remained consistent for around 70 years: the UK state pension is payable worldwide but is only uprated abroad where we have a legal requirement to do so or a reciprocal agreement is in place.’
This currently reduces the state pension of around 550,000 British pensioners living overseas.
The International Consortium of British Pensioners and other groups have campaigned on the issue but so far all efforts to unfreeze state pensions have been rebuffed by the Government.
This is despite cross-party support for change from sympathetic backbench MPs, and the Labour party at the 2017 election.
What about Brexit, if you are moving to an EU country?
British expats who move to EU countries, plus a few others like Switzerland and Norway, do not have their state pensions frozen.
Brexit caused concern that the 472,000 people who have retired to other EU countries would lose their automatic annual increases, but negotiators reached early agreement on this in the talks.
A joint update on Brexit talks published by the UK and EU indicated ‘convergence’ of their positions on state pension uprating and healthcare arrangements – although nothing will be certain until a final deal is struck.
However, in its recent bulletins on the impact of a ‘no deal’ Brexit, the Government highlighted the possibility that private pension payouts to British expats in the EU could be stopped, but made no mention of problems with the state pension.
The Government has more details about how the state pension works if you live overseas here. The International Pension Centre is here.
Source: International Consortium of British Pensioners
How much is the state pension?
The basic state pension is currently £125.95 a week. It is topped up by additional state pension entitlements – S2P and Serps – accrued during working years.
The two-tier state system has changed for people retiring since 6 April 2016, when it was replaced by a new ‘flat rate’ state pension. This is currently worth £164.35 a week.
People who have contracted out of S2P and Serps over the years and retire after April 2016 get less than the full new state pension.
But they can fill gaps in unpaid and or underpaid National Insurance in previous years, and build up more qualifying years if they have enough time between now and state pension age.
Workers needed to have 30 years of qualifying National Insurance contributions to get the old state pension, but they now need to have 35 years of contributions to get the new flat rate state pension.
But even if you paid in full for a whole 35 years, if you contracted out for some years on top of that it might still reduce what you get.
Everyone gets the option of deferring their state pension to get more in their later years. You can check your NI record here. This is Money
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