We explain why 500,000 people are missing out on the triple lock pledge despite paying into the system.
Have you ever dreamed of retiring abroad where the sun shines hotter and the cost of living is cheaper?
Sipping tequila under a palm tree with your toes in the sand sounds a lot more appealing than sipping tea in a rainy garden here in Blighty.
But, here I come with some bad news to shatter, or at least take the shine off, that lovely dream!
It turns out that Britons who retire abroad could end up missing out on the triple lock with a raw deal that’s been branded “outrageous” and “unjust” when it comes to their state pension.
And that’s not all. Older pensioners living in the UK will often get a lower state pension than their younger neighbours. They are still entitled to the triple lock but may get much less than the headline state pension figures that are often quoted.
Pension rules if you retire abroad
Although most Britons will see their state pension rise in line with inflation this year, increasing 10.1% in April, those who live abroad might miss out.
The triple lock is being reinstated in 2023, which means UK-based pensioners on the new state pension will receive an income boost of £963 with the state pension rising to £10,600 per year.
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It’s a welcome increase, with food, energy and transport costs all soaring during 2022 following Russia’s invasion of Ukraine.
But Britons living abroad in some countries aren’t entitled to any inflationary increase in their state pension, even though they paid National Insurance contributions when they lived in the UK.
If you retire abroad, you won’t see any inflationary increase in state pension if you live in Canada, Australia, or many other countries. Your state pension will be forever stuck on the level it was when you moved abroad.
Those who live in the European Economic Area (EEA), Switzerland, or countries where the UK has a social security agreement (apart from Canada and New Zealand) are still entitled to a state pension increase (here’s a link to the rules), but other countries are not.
For example, if you retired in Canada on a full state pension in April 2016, you will still be stuck on the level state pension at that point (£8,093) for as long as you live abroad. Your state pension income in April 2023 will be 24% less than someone the same age who still lives in the UK.
The longer someone has been living abroad, the worse they are potentially affected.
Someone who retired in Australia on the basic state pension 10 years ago in 2012, will receive a staggering 31% less than someone who lives and the UK.
Meanwhile, someone who retired in New Zealand on the basic state pension 20 years ago in 2002, will receive a shocking 52% less than someone who lives in the UK. They are getting a paltry £3,926 each year, rather than £8,121 for someone on the basic state pension in the UK (figures calculated using new state pension from April 2023).
It's currently estimated that around 500,000 retired Britons living abroad are relying on a frozen state pension that’s lagging behind the cost of living.
Nigel Green of deVere Group, calls the current system unjust and a “national scandal” as “despite paying taxes all their working lives in the UK, and the National Insurance in full, these Britons will completely miss out on the rise given to others”.
Green warns that as living costs skyrocket, there’s a danger that many Britons are living in poverty abroad and can’t afford to meet their basic needs. He comments that, “the majority of affected pensioners live in some of the biggest Commonwealth countries, such as Australia and Canada”, while bizarrely, those just across the border living in the US will receive the rise.
More detail on the rules
If you’re already living abroad and you later move back to the UK, it’s worth knowing that your state pension will jump back up to the current rate received by Britons living in the UK.
If you’re considering moving abroad, then it's important to find out more detail on which countries are affected by the frozen state pension rules.
There are also different tax rules in other countries that may affect your income and it’s important to do your research before making the final decision.
One small blessing is that the rules don’t affect private or workplace pensions. Here you’ll still be entitled to any annual increases while you’re abroad.
Older pensioners often get less
The complex state pension rules also mean that older pensioners living in the UK won’t always get as much state pension as their younger neighbours.
The state pension system changed in 2016, meaning that if you reached state pension age on or before 5 April 2016, your state pension will still increase by 10.1%, but that increase could be a much lower amount.
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The older state pension system includes two parts - a basic state pension, based on your previous National Insurance contributions, and an additional state pension, which is also based on your National Insurance contributions, but that takes into account your earnings and whether you claimed benefits.
The basic state pension is a flat rate but varies depending on how long you've contributed. Those who contributed to National Insurance for 30 years receive a full basic pension, while those who contributed for 10 to 30 years normally receive a proportion.
The older system means that people who were lower earners or “contracted out” and didn’t pay extra National Insurance contributions may only receive the basic state pension.
The basic state pension is due to rise by 10.1% to £8,121 in April 2023.
In contrast the new state pension, for people who retired after 5 April 2016 is a flat rate and is due to rise to £10,600 in April 2023.
The new state pension is still based on National Insurance contributions. Those who contribute for 35 years will get a full new state pension, while those who contribute for 10 to 35 years will receive a proportion.
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