Beware moving to the 'wrong' country in retirement... you could miss out on £70k in state pension

Daily Mail​

10 hours ago

Choosing to retire to one of the 150-odd countries around the world where the state pension is 'frozen' could prove a £70,000 mistake, new research reveals.
That is the vast sum you stand to lose if your state pension stays stuck at the current £230.25 a week, and misses out on the increases everyone else receives for the next 20 years.
Many elderly expats live in a country where their state pensions remain at whatever amount they were set at when they moved - including popular destinations like Canada and Australia.
Those people have lost out on an estimated £26,000 over the past 15 years, as attempts to persuade successive governments to unfreeze their state pensions have failed to date.
Around 450,000 pensioners are presently affected, according to Interactive Investor, which looked back to work out what this has cost them, and ahead at the potential impact on people retiring abroad now.
'Many pensioners dream of spending their golden years overseas - whether it's for a warmer climate, an improved quality of life or to be closer to family and friends,' says Myron Jobson, senior personal finance analyst at II.
'But while the lifestyle may be appealing, it's vital to consider how such a move could affect your state pension entitlement.'
> Beware moving to a 'frozen' country: Scroll down to find a map and a full list
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The Government has struck deals to uprate state pensions with some countries, including the US and all those in the EU, but left many others out in the cold.
If you move to a frozen destination, II estimates you face a near £70,000 deficit over 20 years.
That is based on a 3.7 per cent state pension rise from April 2026, and a fairly conservative assumption of only 2.5 per cent-a-year increases after that.
The full new state pension is currently almost £12,000 a year, and the triple lock means it is increased every year by the highest of inflation, average earnings growth or 2.5 per cent, according to the prevailing economic data each autumn.
The Government has promised to stick to the triple lock for the whole of the current parliament, and it will be politically difficult for Labour or any other party to drop it at future elections.
II factored in a 3.7 per cent state pension rise for next year because that is the Office for Budget Responsibility's current inflation forecast for September 2025, which is the decisive month.
Its figures above show the impact of a frozen state pension over shorter timeframes too, with the loss of £433 over just one year.
What is your dream retirement destination? Check your state pension rights before deciding if it's affordable
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II also calculated the effect of a frozen state pension on someone who moved to an affected country in 2010.
That was the year before the triple lock was introduced by the Coalition government in 2011/12, meaning they wouldn't have benefited from any uprating under the pledge.
Those expats have received nearly £26,000 less than someone with a National Insurance record that also earned them a full basic rate state pension, but who stayed in the UK or moved to an unfrozen country like Spain in retirement.
II calculated the 15-year figure based on the old full rate basic state pension, which was reformed in April 2016.
This is currently around £9,200 a year - though people on the basic rate also get hefty top-ups, called S2P or Serps, if these were earned earlier in life.
II also worked out the impact if you moved to a frozen country 10, 5 years or one year ago, but based those figures on the full rate new state pension for this period.
Myron Jobson of II says: 'If you move to a country where the UK has no uprating agreement, like Australia or Canada, your state pension will be frozen at the level you first receive it.
'That means you won't benefit from the valuable triple lock increases that pensioners in the UK enjoy each year, and over time, that can seriously erode your spending power.'
Therefore, Jobson says planning ahead is key, and you should check whether your chosen destination is affected (see below) and make financial decisions and arrangements with this in mind.
'Consider topping up any gaps in your national insurance record to maximise what you're entitled to,' he says.
'Deferring your state pension can boost the amount you get, though it won't help with uprating in frozen countries.
'Most importantly, building a strong private pension pot can help provide the financial cushion you'll need to maintain your standard of living abroad, regardless of state pension freezes.
'It is worth considering seeking advice from a financial adviser to fully understand the implications of retiring abroad and plan accordingly.'
Last year, a This is Money reader asked whether the then very new Labour government would end the freeze on state pensions if you move to some countries.
Well-connected pension industry expert Henry Tapper, chair of AgeWage, replied: 'I'm sorry but I can give you no expectation that the Labour Government will be any more generous on this matter than its predecessors.
'While no civil servant I spoke to ruled out the possibility of rules changing, no one would give you any hope and the Labour party manifesto is silent on this matter.'
Tapper noted: 'If you return to the UK or go to live in a country where the UK does pay state pension increases to UK expats, you can have increases for the time you are resident at your new location.'
Regarding the 70-year history of state pension uprating overseas, he said: 'Whether you get state pension increases (lately with the triple-lock) or not, depends on a tax-treaty lottery. Some countries, including the US and Switzerland have treaties, some don't.'
Tapper quoted a Government response to a petition which put the cost of paying expat pension increases between 2023 and 2028 at over £4.5billion, and a research briefing to MPs which stated: 'The Government has no plans to change the policy on up-rating UK state pensions overseas; the policy is longstanding and has been supported by successive Governments for over 70 years.'
Will you get state pension rises if you retire abroad?
Where are state pensions frozen? Whether an expat's pension is frozen or not depends entirely on where they move (Source: International Consortium of British Pensioners)