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Warning over ‘frozen’ state pension as thousands told to beware of ‘nasty shock’ on retirement

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There are several popular retirement destinations where the state pension does not increase every year, including Australia, New Zealand and Canada

The state pension is not automatically increased in all countries(Getty Images/Image Source)

Many of us dream of retiring abroad in a sunny place, but you could be in for a “nasty shock” if you don’t check the state pension rules for your chosen destination.

The state pension is increased every April in line with the triple lock promise. The triple lock was introduced in 2010 and ensures that the state pension increases by the highest amount: inflation (based on the previous consumer price index index of September), wages (average growth between May and July), or 2.5 %.

But there are several popular pension destinations where the state pension will not be increased. This includes Australia, New Zealand and Canada. The most recent figures show that in March 2023 there were just over 450,000 people living abroad who did not receive an increase in their state pension.

The full new state pension is currently £221.20 per week, while the full state pension is set at £169.50 per week. Helen Morrissey, head of pensions analysis at Hargreaves Lansdown, said: “Frozen state pensions affect pensioners living in certain countries where there is no reciprocal agreement to increase state pensions annually. This means that their pensions will remain at the same level as when they left Britain.

“This means that pensioners living in these countries will eventually need significantly less than those living in Britain. So it is essential that you consider whether this will affect you if you are considering retiring abroad, as you could find yourself in financial difficulties over time.”

If your AOW is frozen, it will remain at the level from the moment you first emigrated. Your pension will be increased to the current rate when you return to live in Great Britain. Your AOW pension abroad will only be increased annually if you live in the European Economic Area (EEA) or Switzerland, or in a country that has a social security treaty with Great Britain, with the exception of Canada and New Zealand.

Ms Morrissey added: “Different countries have different rules and regulations and it is very important that you understand how these will affect you before you make the decision to retire abroad. For example, tax rules may differ, and you could be missing out on a huge amount of money if you don’t comply.

“It is no different for the state pension. It is essential that you check with the International Pension Center what the rules are before you travel to save yourself a nasty shock. The government has been challenged as to whether it can reverse the policy, but has refused to do so on the basis of costs.”

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