What chance for a positive review of frozen state pensions?
19 February 2019
A review of the policy surrounding state pension payouts for individuals living abroad is unlikely, according to industry experts, as the latest figures from the Department for Work and Pensions showed over half a million are not benefiting from the ‘triple-lock’.
Currently, the majority of pensioners living in the UK have their state pension increased according to the triple-lock principle, which is either a minimum of 2.5%, the rate of inflation or average earnings growth depending on whichever is the highest.
This also applies to pensioners living in certain countries such as the US, EU member states, Barbados, Bermuda and Israel. However, it does not extend to those retired in countries such as Australia, Canada New Zealand and South Africa.
According to new DWP estimates, around 510,000 recipients of the state pension living abroad miss out on the triple lock agreement.
Tom Selby, senior analyst at AJ Bell, said: “Over the course of someone’s retirement this could have a huge impact, potentially costing more than £50,000 in state pension income. For many this might be the difference between living comfortably and struggling to make ends meet.
“Unfortunately, for those affected there is no sign of a reprieve, with successive governments rejecting calls to rethink the policy and preferring instead to focus resources on those who choose to remain in the UK.”
Selby said the problem could worse in the event of a No Deal Brexit, with many expats in countries like Spain and France benefitting from state pension increases through a reciprocal deal with the EU.
“If the UK leaves the EU without a deal the government has only committed to uprating state pensions for people living in EU member states in 2019/20. Beyond this point these increases will depend on a reciprocal deal being struck, either with the EU or individual member states.”
According to the DWP, the estimated cost of uprating pensions for the half a million expats would cost the government around £3.1 billion over the next five years.
Jon Greer, head of retirement policy at Quilter,said the DWP decision to provide a figure was a “useful exercise” following disagreements over how much a policy change would cost.
He said: “Changing the 70 year old rules on ex-pat pensions could be seen as an opportunity to win favour with parts of the public, but with the state pension already eating away at an astronomical amount of the budget, it might be a hard one for the Chancellor to stomach.”
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