Are Frozen Pensions Beginning to Thaw?

Over half a million retired expats receiving state pensions from the UK government find their weekly amount frozen at unbearably low levels. Although the problem of frozen state pensions is not a new one, there is now a glimmer of hope.

The Obvious Discrepancy of Pension Rates

Frozen pensions are a serious matter for British expats living in countries where state payouts remain stuck at levels too low to support a reasonable standard of living. Two decades ago, in 1997, the basic rate was £62.45 per week.

Someone retiring then who moved to a country where pensions don’t increase with inflation was living on approximately half of what today’s state pensions payout (Today’s weekly basic state pension rate is £122.30.).

It’s a Matter of Geography and Diplomacy

The situation sounds grim, but it’s not the same for all expats. Some—those who were lucky enough to have chosen certain countries to live out their retirement years—enjoy annual increases in their state pensions. That’s because the UK government has struck deals with those certain countries—deals that have a significant and lasting impact on the pensioners who retire there.

Pensioners headed for EU countries, the United States, the Philippines, Israel, and several other places get the full amount—that is, annual increases that keep up with inflation and the cost of living.

However, those who choose to retire in Canada, Africa, India, Australia, and about one hundred other countries never see any increases in their weekly state pension amount. If they return to the UK, however, they can apply to get their state pensions upgraded to the full amount, even if they only come back to their homeland for a short visit.

Glimmers of Hope in Parliament

MPs are aware of the inconsistency, but they disagree on how to solve the problem. Despite a Department for Work and Pensions spokesperson’s statement that there are no plans in place to review current policies, some MPs are taking action.

“We have a very clear position on this policy—which has remained consistent for around 70 years: the UK state pension is payable worldwide but is only uprated abroad where we have a legal requirement to do so or a reciprocal agreement is in place. There are no plans to review this.”

There is currently an All-Party Parliamentary Group on frozen British pensions, which rallies support for unfreezing the pension rates. The group also campaigns for policy reform. Following last April’s Parliamentary debate on overseas pensions, the group hopes to keep the momentum going by getting pensioners out to vote, among other activities. Other good news: the Labour Party backs the unfreezing of overseas state pensions, too.
The Barrier:  Huge Bill for Unfreezing the Pensions

The primary barrier to unfreezing pensions is cost. Some estimate that the cost would run around £580 million in the first year alone.

One solution is a partial uprating, which uprates frozen pensions going forward but not retroactively. The estimated cost for this would be about £30 million in the first year.

That cost could be offset, some argue, by the money saved every time a pensioner moves abroad. Once abroad, pensioners don’t draw on care services and other benefits, and they don’t use the NHS.

Is There an Injustice Here?

The argument for unfreezing state pensions often incorporates a plea to recognize a specific injustice: why does the government have agreements with some countries but not others?

Half of the British state pensioners whose rates are frozen live in Australia. Indeed, a significant portion of the countries where pensions are frozen encompasses Commonwealth countries.

Many believe this is a matter of social justice and that people who paid National Insurance during their working lives are entitled to a full pension—an indexed pension, that is.

However the case will be made—budget or social justice—it does seem time for frozen pensions to thaw out. We may be on the verge of something happening. For a full list of countries that are frozen, visit the British Age Pensioner Alliance website.