Should the pensions freeze for expats be lifted?

Should the pensions freeze for expats be lifted?

As the cost of living crisis continues some advisers have said frozen pensions should be revisited, whereas others claim linking expat pensions to UK inflation would be "wrong".

One individual who moved to Asia spoke to FTAdviser about the struggle of having a frozen pension, stating that many move abroad because they cannot afford to live in the UK. 

Graham Winter, a former travel agent, said: “We receive no medical or other so-called benefits or even a vote. This is a contributory arrangement and the government has no right to penalise us because we don't spend our income in the UK. 

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“They are saving huge sums from us on medical costs, so they should actually increase our pensions to reflect this.”

Winter explained that with soaring inflation, the frozen pensions for expats requires urgent government action “as pensioners are on a slow burn to poverty.”

However, advisers remain split on what the right thing to do in this situation is.

Under current rules a UK pensioner who moves abroad will have their state pension frozen at the level it was at when they left the UK or first claimed their pension overseas, unless their new country of residence has an agreement with the UK that says otherwise.

The state pension is a contributory benefit which individuals qualify for through national insurance contributions, or credits for various reasons such as being in receipt of disability benefits.

For a full state pension, an individual needs 35 years of qualifying contributions.

Winter said: “The increase in living costs around the world no longer provides us with any advantage. Many expats now find themselves in real difficulties as food prices are being raised every two weeks and rents driven up.

“The government should equalise the payments to expats and remove the cap as a matter of urgency. It would be the honourable thing for any government to do.”

Russell & Co Financial Advisers’ IFA Tim Morris said he agreed that the pensions freeze should be lifted for expats given the cost of living crisis.

“Most move to Europe and the cost-of-living crisis impacts them too,” he said. “Not to mention the increased uncertainty Brexit has caused them. 

“However, I can understand the argument that many people’s wages aren’t increasing by 10 per cent so perhaps benefits shouldn’t.”

Morris explained that he has a client who has been planning on a move to Spain and is now having second thoughts.

“He’s diligently saved enough in his personal pension to cover his expected costs,” he said. 

“He was relying on cost-of-living increases to his state pension to cover the basics. Despite him loving the lifestyle, he’s now questioning if his long-held dream will leave him worse off rather than better.”