Should the pensions freeze for expats be lifted?

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. 

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

 It is, of course, iniquitous because anyone entitled to UK state pension has paid for this through their NI contributions. Christopher Wicks, Holborn Assets

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.

 Linking their pensions to UK inflation would be wrong when inflation in their country of residence could be very different. Darren Cooke, Red Circle Financial Planning

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.”

 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. DWP spokesperson 

Meanwhile, Christopher Wicks, managing director at Holborn Assets, said historically government policy on this has not been consistent and it has applied normal increases for people living in some jurisdictions but not for others. 

“It is, of course, iniquitous because anyone entitled to UK state pension has paid for this through their NI contributions,” he Wicks. 

“So in the interests of fairness this ought to be put right. But we are in difficult economic times and the government has a huge hole in its budget to fill.

“They have just about managed (for now) to maintain the triple lock. Overseas pensioners will not be a priority for them politically.”

To rise or not to rise?

Wicks, who works for a firm that specialises in advice for expats, said for most of his clients, state pension is “a minor part of their finances”.

Still, he said it was essential that UK pensions see a rise because poorer pensioners have no means to substitute the reduction in the buying power of their state benefits. 

Morris argued with Wicks, stating that the state pension must increase in-line with inflation, especially in the current climate. 

“Mainly because the increase last year broke the commitment to the triple-lock (as a one-off) and ended up well below inflation,” Morris said. 

However, a spokesperson for the Department for Work and Pensions, said: “We understand that people move abroad for many reasons and that this can impact on their finances. There is information on GOV.UK about what the effect of going abroad will be on entitlement to the UK state pension.

 I would have preferred a lower general rise but then more targeted help to those in most need. Darren Cooke, Red Circle Financial Planning

“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.”

Elsewhere, one adviser seemed less affected, stating that the expats “knew what they were signing up to when they moved abroad”. 

“If they didn't, maybe they should have done a bit more research before emigrating,” said Darren Cooke, chartered financial planner at Red Circle Financial Planning. 

“Linking their pensions to UK inflation would be wrong when inflation in their country of residence could be very different. 

“Over the years changes in the exchange rate will always have changed the amount they would receive in the local currency. Again they should have factored that in before they moved.”

Cooke said he has no clients who are considering moving abroad to live so this will not affect them but he argued that if it did, he would be advising them accordingly to make provision for this through other income. 

“I also disagree that the state pension will be increased in line with inflation,” he said. “Many pensioners will need that rise as they are more reliant on the state pension but many are wealthy and don't need such a rise. 

“I would have preferred a lower general rise but then more targeted help to those in most need.”

Cooke explained that it will be difficult for other government workers such as teachers and nurses to see pensioners getting another inflation linked rise when they will likely be asked to take a much lower pay offer. 

Earlier this year, a petition urging the government to increase state pension payments for UK pensioners living abroad was circulating.

The petition, which closed on May 29, 2022, had 11,291 signatures. 

Since the petition reached 10,000 signatures, the government was required to respond and at the time, it said: “There are no plans to change the policy. The government continues to up-rate the state pension where there is a legal requirement to do so.”

sonia.rach@ft.com

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