Retiring abroad could cost you £160,000

However, hundreds of thousands of expats living in Australia, New Zealand, Canada, South Africa and the Falkland Islands do not benefit from any increase, despite having made the full amount of national insurance contributions. Some have had the same pension income for decades while the cost of living has soared.

Criticism of the policy started to build in the 1960s, but according to a House of Commons briefing the government took the view then that “it would not be right to impose an additional burden on contributors and taxpayers in the UK to pay pension increases to people who had become resident anywhere else.”

Alice Guy from the trading platform Interactive Investor said: “This group of pensioners has suffered from one of the longest pay freezes on record. They haven’t benefited from the triple lock or enjoyed a single pay rise since they retired abroad, despite paying into the system for years.”

Jill and Colin Dilland

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‘We are paying the same in, but not getting the same back’

Colin Dilland and his wife, Jill, both 62, have paid national insurance contributions for more than 30 years. By the time they reach state pension age, at 67 and 66 (state pension age is rising from 66 to 67 between 2026 and 2028), they hope to benefit from the full state pension. But they know it will never go up. This is because they moved from Wolverhampton to South Africa 29 years ago. Colin, who used to be an accountant, and Jill, a former civil servant, now live near Gqeberha, formerly known as Port Elizabeth, and run a safari business. They pay voluntary UK national insurance contributions.

Colin said: “We are still paying into our UK state pension, which we will rely on when we reach retirement age. It seems unfair that we are paying the same amount into the system as others but not getting the same back.”

About 480,000 expats live in countries where the state pension does not rise each year, according to the latest government figures. The government estimates it would cost about £900 million a year to increase these pensions in line with others.

• Will you have to pay tax on your state pension?

Someone aged 90 who has lived in a frozen state pension country for all their retirement would be getting £64.70 a week — the state pension amount when they turned 65 in 1998. If they had stayed in the UK, they would get the basic state pension of £169.50 a week. Someone who reached 65 in 2016 in a frozen country would get £155.65 a week under the new state pension, which was introduced that year. This compares with £221.20 a week for those living in non-frozen state pension countries.

Some frozen pension countries have requested that the UK government increase the state pension for the expats living there. Australia has done this three times in the past three years, according to the International Consortium of British Pensioners (ICBP), a campaign group. Canada has made four formal requests since 2013, most recently in April 2023.

Many expats who rely on the state payment are having to make cutbacks on essentials such as food

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The ICBP said there was no reason why the state pension increase should apply in some countries and not others, and that many expats who rely on the payment are having to make cutbacks on essentials such as food, as their frozen income buys less each year due to inflation.

Someone who has got the full state pension of £11,502 this year and goes to live in a country where it is frozen could be £160,000 worse off over a 30-year retirement compared with someone who has stayed at home, or moved to a country where the state pension rises, according to analysis by the investment platform AJ Bell. This assumes that it increases 2.5 per cent a year, the minimum rise under the so-called triple lock. The triple lock guarantees pensions will increase by the rate of inflation, wage growth or 2.5 per cent, whichever is the highest.

Pensioners who move back to the UK and become fully resident for tax purposes would have the financial boost of immediately getting the new level of state pension. But Guy said: “It’s not always that simple to uproot your life, especially for older pensioners. The sad fact is that many people won’t have realised the complex rules when they moved abroad and could now be living in poverty.”

• How much is the state pension in 2024 in the UK?

The MP Sir Peter Bottomley is part of the all-party parliamentary group on frozen pensions. He said: “This is a scandal which is growing. It is unjustified, unfair and intolerable. Until it is put right, MPs’ pension and pay should also be frozen. The people most affected by this live in Australia and Canada. People living in countries that Britain has a close connection with, such as current or former Commonwealth countries, are also losing out. The government needs to have a plan.”

The average age of those with a frozen state pension is 77, according to data obtained under a freedom of information request by Interactive Investor. Tom Selby from AJ Bell said: “While it might seem deeply unfair that some Brits retiring abroad receive state pension increases and others don’t, this has been an established policy under successive UK governments. They have justified the state pension freeze by saying they prefer to focus resources on pensioners that remain in the UK.”

If you plan to move abroad it is important to check how your state pension will be affected. You can find details and support from the government’s International Pensions Centre at gov.uk. The Department for Work and Pensions said: “Our priority is ensuring every pensioner receives the financial support to which they are entitled. We understand that people move abroad for many reasons and we provide clear information on gov.uk about how this can impact their finances.

“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.”