There are more than 500,000 Britons retired overseas, who are losing out as a result of the UK’s “frozen” policy on State Pension payments.
UK frozen pension policy
In the UK, pensioners benefit from something known as the “triple lock”.
As a result of this, State Pension payments increase by the greater of two-and-a-half per cent, price inflation or average wage growth.
This means that State Pension payments retain their worth as time goes on.
However, for many of those who retire outside the UK, State Pension payments are permanently frozen at either the date the individual retired or the date that they arrived in their country of residence.
Location, location and location
What confuses the matter, is that in some countries UK State Pension payments are frozen and others they are not.
The criterion for countries where pensions are frozen or not is somewhat arbitrary in my opinion.
For example, the list of “frozen” countries includes former Commonwealth countries such as Canada, New Zealand, India and Australia.
However, it also excludes countries with no connection to the UK such as Puerto Rico, Samoa and Macedonia.
Whether this policy will affect you, depends on where you retire.
You can check the list below to see the countries where UK State Pension payments are currently frozen.
Countries where UK State Pension is frozen
The following list of ‘frozen’ countries is drawn from data provided by the Department of Work and Pensions (DWP).
Afghanistan; Albania; Algeria; Andorra; Angola; Anguilla; Antarctic Territories (British); Antigua; Antilles (Netherlands); Argentina; Ascension Island; Australia; Bahamas; Bahrain; Bangladesh; Barbuda; Belize; Benin; Bhutan; Bissau (Guinea); Bolivia; Botswana; Brazil; Brunei; Burkina Faso; Burma (Myanmar); Burundi; Cameroon; Canada; Cape Verde Islands; Cayman Islands; Central African Republic; Chad; Chile; China People’s Republic; Colombia; Comoro Islands; Cook Islands; Costa Rica; Cote D’Ivoire; Cuba; Democratic Republic of the Congo (Zaire); Djibouti; Dom Commonwealth (Dominica); Dominican Republic; Ecuador; Egypt; El Salvador; Equatorial Guinea; Ethiopia; Falkland Islands & Dep; Faroe Islands; Fiji; Gabon; Gambia; Ghana; Greenland; Grenada; Guatemala; Guinea; Guyana; Haiti; Honduras; Hong Kong; India; Indonesia; Iran; Iraq; Japan; Jordan; Kampuchea; Kenya; Kiribati; Kuwait; Laos; Lebanon; Lesotho; Liberia; Libya; Macau; Malagasy Republic; Malawi; Malaysia; Maldive Islands; Mali; Mauritania; Mexico; Monaco; Mongolia; Montserrat; Morocco; Mozambique; Namibia; Naura; Nepal; Nevis, St Kitts-Nevis; New Caledonia; New Zealand; Nicaragua; Niger; Nigeria; Norfolk Island; North Korea; Oman; Pakistan; Panama; Papua New Guinea; Paraguay; Peru; Principe and Sao Tome; Qatar; Republic of Armenia; Republic of Azerbaijan; Republic of Belarus; Republic of Georgia; Republic of Kazakhstan; Republic of Kyrgyzstan; Republic of Moldova; Republic of Tajikistan; Republic of the Congo; Republic of Turkmenistan; Republic of Uzbekistan; Republic of Yemen; Russian Federation; Rwanda; Sabah; San Marino; Sarawak; Saudi Arabia; Senegal; Seychelles; Sharjah; Sierra Leone; Singapore; Solomon Islands; Somalia; South Africa; South Korea; Sri Lanka; St Helena & Deps; St Lucia; St Vincents & Grenadines; Sudan; Surinam; Swaziland; Syria; Tahiti; Taiwan; Tanzania; Thailand; Togo; Tonga; Tours (Individuals on Tour); Trinidad & Tobago; Tristan Da Cunha; Tunisia; Turks & Caicos Islands; Tuvalu; Uganda; Ukraine; United Arab Emirates; Uruguay; Vanuatu; Vatican City State; Venezuela; Vietnam; Virgin Islands (British); Western Samoa; Zambia; Zimbabwe
State Pension after Brexit
While Britain was a member of the European Union, Brits who retired in another EU country were entitled to have their State Pension payments increased in the same way as they would be if they were resident in the UK.
Brexit muddied the waters on this though.
Especially as it was originally stated that, after Brexit, UK state pensions for expats in the EU would be uprated annually only until 2023.
After that time, any increases would have depended on whether reciprocal arrangements with remaining EU member countries were in place.
However, in early 2020, the UK government gave assurance to British expats who are already resident in the EU that they will continue to be entitled to annual increases to their state pension.
In addition, they announced that the benefit will also apply to expats who move to the EU before the end of 2020.
The new guarantee will provide peace of mind to the many British expats currently retired in the EU (as well as those living in Switzerland, and countries which are in the European Economic Area but not the EU – i.e. Iceland, Liechtenstein and Norway).
Currency implications of receiving State Pension abroad
Another factor that has affected those receiving UK State Pension abroad in recent years, has been the weakness of Sterling.
For example, as you can see from the chart below, Sterling has dropped by 23% against the Euro in the past 5 years.
This has had a tremendous impact on the purchasing power of those retired in the EU with income sources (e.g. State Pension) denominated in Sterling.
Potential currency fluctuations are something that should always be taken into consideration when doing proper international retirement planning.
Further reading:
Frozen pensions: ‘unfair’ policy costs 94-year-old £62,000
The All-Party Parliamentary Group (APPG) on Frozen British Pensions
Should I accept a Pension Increase Exchange? The pros and cons of PIE offers