Did you know regardless of how long your family have lived and worked in the UK, choosing the wrong country to retire in could be fatal to their financial security. This is because the way the UK pension system works results in some pensions being frozen at the rate they were when the left – crucially however this differs between countries.
So in short, if your Grandma has dreams of retiring to the snowy hills of Canada, she will have her state pension frozen at the rate she received when she first left – regardless of whether she lives an extra thirty years and has worked all her life as the Queen’s personal nurse. Meanwhile, your Granddad who chose the bright lights of Vegas as the place to spend the rest of his days, would enjoy the same annual pension increases as those living in sleepy Shropshire back home – now I have your attention.
Not only is this clearly an unfair and arbitrary rule, but also the financial impact it has on some people’s lives abroad is frankly startling. The International Consortium of British Pensions has suggested that those unwitting expats who choose the ‘wrong’ country to retire in, will lose out on around £23,248 over the 20 years – something 558,000 pensioners have found out the hard way. So granddad Robert and grandma Anne, who qualified for their state pensions perhaps 45 year ago, will have their pensions frozen at as little as £6 a week – lets hope they don’t have large appetites!
There are of course those, including the current government who believe the pension system is fair. They argue that UK taxpayers should not have to fund people who now live abroad and contribute nothing to the British economy. This line of argument is frequently peddled by the Department of Work and Pensions when they are confronted on this issue. However, there are two serious flaws in this line of reasoning. The first is that the suggestion that many British pensioners, who for the most part have worked all their working lives in the UK, can now be accused of contributing nothing to the UK tax system, is both disrespectful and misleading. It is true that they won’t pay UK taxes anymore, but nor does someone who is ill in hospital – do we take away their pension because they are not paying income tax? No, because your supposed to get out what you paid in, or so many expats thought.
The second problem with this argument is that it misses a major deficiency within the current system – it is simply unfair. It lacks any clear logic. British pensioners in Mauritius for example, get the increases, but those living on the neighbouring Seychelles don’t. And this doesn’t just affect the stereotypical well-off white Brit moving abroad to soak up the sun – it also hits many black and Asian people who have lived and worked in Britain for decades and are now looking to retire to their country of birth in the Caribbean, Africa or South Asia.
It is clear that not only does the current system need to change, but the word also needs to get out about the risks for retirees moving abroad. So if you have any relatives thinking of upping sticks to spend their well-earned British pension on Pina Coladas and Pedalos, make sure you get them to read this article because not doing their research could cost them dearly.