Retiring abroad could lose Brits over £70,000 with state pension at risk
British pensioners eyeing a retirement in the sun could see thousands wiped off their state pension, top financial planners have warned.
Brits planning to retire overseas during this tax year could forgo more than £77,000 in state pension income over the next 20 years, if they opt to move to a country where payments are frozen, according to analysis from wealth manager Rathbones.
Those swapping rain for sun also opt to lose access to the UK’s triple lock, which ensures the state pensions rise each year by inflation, average earnings growth or a minimum of 2.5 per cent.
The mechanism was introduced in 2010 in a bid to ensure purchasing power of pensions kept pace with living costs and the wider economy, but has caused controversy in recent years due to its high costs and long-term affordability.
The damage caused
But moving to certain countries, including popular choices Canada, Australia and New Zealand, state pension payments are frozen at the first rate received, with no future increases.
Olly Cheng, a Financial Planning Divisional Lead, at Rathbones, said: “We often speak to people hoping to retire overseas, many of whom don’t realise that this decision could significantly affect their state pension entitlement.
“The state pension is uprated every year under the triple lock to help keep pace with the rising cost of living. If your pension is frozen when you move abroad, those increases stop entirely.”
Over time “inflation steadily eats away at its value”, meaning it buys less each year in real terms and quickly snowballs into losses of “tens of thousands of pounds”.
Cheng said: “Once your pension is frozen, there’s very little you can do to undo the damage.”
Thousands affected
Pensioners who opt to live overseas for 20 years could lose up to £77,585 in state pension income, while those who go for ten years could be more than £18,600 worse off.
Roughly, 450,000 pensioners living overseas are already affected by the UK’s frozen pension policy, with the replacement of the income requiring a significant private financial buffer.
Cheng said: “Anyone planning to retire abroad should start by checking their National Insurance record to make sure they’re entitled to the maximum state pension, particularly if future increases won’t apply.
“It’s also vital to understand how much private income you’ll need to replace any lost state pension, as well as factoring in local tax rules, healthcare costs and currency movements, all of which can materially affect how far your money stretches overseas.