Why Is My UK Pension Frozen?

Your UK pension may be frozen for several different reasons, depending on what type of pension is frozen: a state pension or a private pension. Here, find answers to explain both types of frozen UK pensions.


Pension Panic

If you are like one-third of UK retirees, you may be facing a future where you rely solely on your state pension. That can be bad enough, but if your state pension gets frozen because you’ve moved overseas, that can cause what we call pension panic.

The panic is real. The Financial Conduct Authority surveyed the British population and found that many are facing a bleak future without private pensions. Thirty-one per cent of UK adults will be relying entirely on their state pension when they retire.

That’s bad enough, but imagine if your state pension, small as it is, doesn’t even increase each year to keep up with the cost of living. This is Reason Number One why your UK pension might be frozen.

Read on to learn the details...

Reason #1: Your State Pension is Frozen Because of Where You Live

The idea of a pension is simple. You work hard, you contribute to your pot, (in the case of a state pension, for thirty years or more), and you receive a good, steady income when you retire. Moreover, in the case of most developed countries, you see an annual rise in your benefit that’s directly connected to the rise in the cost of living. It’s an indexed benefit that allows pensioners to maintain a decent standard of living throughout retirement.

However, there’s no indexing if you have retired to the “wrong” country. British expats who have chosen to receive their state pension in certain countries (New Zealand, for example) will not see their annual amounts adjusted for inflation.

That’s a frozen pension.

What determines the “frozen state pension” list of countries where British expats won’t ever see an increase in their benefits? The government’s policy is seemingly illogical and random. For example, UK pensioners living in Trinidad have frozen pensions, while those residing in Barbados enjoy annual indexed increases.

Reason #2: Your Company Pension is Not Gold-Plated Either

Life happens. Nobody is immune to the ups and downs and the unexpected twists that life’s path takes. The same is true for companies as well. Life just happens, and businesses face an uncertain path, just as individuals do. When that pathway leads a company down a dark road and they fail, what happens to your pension?

Good question. And not all that uncommon, either! You’d be surprised at the number of UK pensioners who have frozen pensions for exactly this reason. The company they once worked for is experiencing harsh times and needs to economize. Very often, that means pensioners are the first to feel the consequences. The result: their pensions get frozen.

Or, worse yet, what happens when a former employer has gone belly up? The same unfortunate result: a frozen pension.

It’s just another example of how hard-working people — people who have dutifully contributed to private, company-managed pension schemes their entire working life — can end up with frozen pensions. No matter how much careful thought and planning went into your retirement years, you can be stuck with a pension that doesn’t ever go up to keep up with the rising cost of living.

Sometimes, a frozen pension isn’t what you think it is. Sometimes, there is actually something you can do. That leads us to Reason #3 for having a frozen pension...

Reason #3: You Have an Orphaned Private Pension

Since 2015, when pension freedoms were initiated, more than 1.6 million pension pots have been cashed out, at least partially. Many more are left just sitting there, which can sometimes result in this third type of so-called frozen pension.  

We say “so-called” because sometimes a “frozen pension” is just a matter of misplaced semantics. When you leave a job, you do have the option to leave that job’s occupational scheme right where it was rather than cashing out and taking a lump sum. Then, when you start a new job, you simply enroll in a new scheme.

In such cases, you are “locked out” of the old job’s pension scheme. You can no longer make contributions nor, of course, can your previous employer. You also cannot make changes to the investments. Some people even opt out of their company’s pension scheme because it doesn’t perform well.

Sometimes, these types of pensions are called “frozen pensions,” but as you can see, this is a slightly different interpretation of the word frozen.

In such cases, there is a way out, and you don’t have to wait for the government to change their policies regarding expat pensions. The answer for some retirees is to transfer their old pension scheme to a new one. The result is a new scheme to which they can contribute funds. They can also have more control over how the funds are invested.

International Unfairness With State Pensions

For British expats, it makes a huge difference where you’ve chosen to retire. Based on your lifestyle choices, many of which are out of your control, you may or may not be stuck with a frozen state pension! How’s that for international unfairness!

Right now, if you are a British pensioner and you’ve retired to New Zealand or Canada, you will not receive increases in your state pension. For folks who have family in these countries and who’ve moved to be closer to them during retirement, this can feel very unfair. The same is true for folks who originally hail from “frozen pension” countries and who want to return to their birth land when they retire. The government policy can indeed seem illogical and random.

While many countries have a social security agreement with the UK that allows for yearly increases, Canada and New Zealand do not. If you have retired to the United States, you are the “lucky” benefactor of a joint agreement between the US and the UK that provides for annual upratings of your state pension.

The same goes for a seemingly random list of countries around the world. If you retire to Puerto Rico or Israel, for example, your state pension will be uprated each year.

No Upratings for Expats in Over 100 Countries

All of this is an unfortunate side effect of what seems like a terrible bureaucratic mess, but at least it’s slowly changing. Until a short time ago, this unfairness also affected retired expats who lived in Australia. There, pensioners such as Ken Briggs, who fought in World War II, were living on pensions locked at pitifully low levels, reflecting the cost of living of half a century ago. Imagine living on £6.12 per week.

At one point, there were over half a million British pensioners with frozen pensions scattered around the globe. As of 2012, nearly half of them were living in Australia. That country has since moved off the list of frozen pension countries, but some countries still remain.

While countries such as Australia and South Africa are no longer on the list, Canada and New Zealand remain on the “unlucky” list of frozen pension countries.

There’s an Even Larger Issue Looming

Pension schemes are facing a very tough road right now. After years of extraordinary and continual record-breaking highs in the stock markets, economic growth is beginning to slow down. That means the investments that drive pension fund growth will slow down too, as returns are pulled down by a faltering stock market.

What’s worse, political uncertainty is very high right now — not just in the UK, but all around the globe. Of course, the present turmoil over Brexit doesn’t help!

It’s enough to make any asset manager nervous. Private pension plans can lock down at any time without notice, resulting in frozen pensions. As for state pensions, it has been estimated that unfreezing the pensions for expats would cost an estimated £580 million in the first year alone.

With all the political uncertainty surrounding Brexit as well as general market volatility, it can seem like an uphill battle to try and get state pensions unfrozen. Some expats actually consider moving because of these seemingly unfair state pension rules. In fact, when polled, 65% reported that the frozen pension problem would affect their decision about where to retire.

One place they consider moving to is the United States. British expats who choose to retire in the US have a range of options when it comes to their pension schemes. If you’d like to learn more, we can help. For over thirty years, Tim Carroll has been advising British expats on pension transfers. His company, UK Pension Transfer, LLC, is both registered and licensed in the US and regulated by the SEC under the Uniform Securities Act. For advice, you can trust, call now to learn more about transferring and increasing your UK pension.