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Expat State Pension Income May Be Unfrozen

Apr 24, 2017

Andrew Stephenson Pension Expert

By Andrew Stephenson.

Independent Financial Advisor

There may be a pending fix for expats whose state pension income is currently frozen by the lack of a reciprocity agreement in their country of residence. If MPs finally agree to an end of freezing state pensions abroad, it would mean the reversal of a policy that has been in place for 70 years.

Under current law, expats who retire to countries without reciprocity agreements are subject to having their state pensions frozen on the day they arrive in a new country of residence. Three good examples are Canada, Australia, and New Zealand. British expats who retire in those countries do not receive cost-of-living increases in their state pension payments.

An example at the other end of the scale are expats who retire to the US. The UK and US have a reciprocity agreement that states both countries will include cost-of-living increases for state pension payments made to their respective expats.

Critics of the current rules often make the case that expats living abroad are being treated unfairly. They have a very good point. But in its own defence, the government claims that the decades-old rules were put in place to level the playing field between countries with different state pension benefit rules. A lot has changed in 70 years. Perhaps it is time to modify the rules regarding frozen pensions.

Now We Wait and See

At the time this post was being written, MPs were officially discussing the possibility of unfreezing state pensions. Now we wait and see. If the proposal gains serious traction, it is possible that a decision could be made before the Autumn Statement. It is unlikely any such decision would be implemented until after Brexit negotiations are complete, at the earliest.

There are some on the inside suggesting that Brexit is the primary motivator driving the frozen pension discussion. That would make sense, given the fact that state pensions are not currently frozen when expats retire within the EU. Negotiations for our exit could change that. How many pensioners would be financially devastated if Brexit resulted in their state pensions being frozen? In that regard, leaving the EU could actually turn out to be a benefit to British expats over the world.

As we close this post, we want to remind our readers not to rely too heavily on the state pension in retirement. Remember that whether you retire here or abroad, the state pension was never intended to provide the bulk of your retirement income. It has always been, and always will be, intended to be a supplement only.

If you are not yet invested in a personal or private pension, now is the time to change that. You are never too young to start putting money away for retirement. Private and personal pensions offer a strong foundation on which to build your retirement, and they can be supplemented with additional investments along the way. As always, do not make any decisions about pension income or investing without first speaking with a certified financial adviser.


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