£3 Billion Bill To Uprate Expat State Pensions

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In the ongoing Brexit uproar, the government has buried a fascinating document  detailing the costs of uprating frozen state pensions for more than 500,000 expats.

The paper was published by the Department of Work & Pensions updating figures last addressed in 2013.

The DWP confirmed 510,000 expats receive a frozen state pension– with 84% living in Australia, Canada and New Zealand.

Their state pensions remain at the amount of the first payment without any cost of living increases to reflect inflation.

“The policy on uprating UK state pensions for overseas residents is that the annual index-linked increases are paid outside the UK where there is a legal requirement to do so,” says the DWP.

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No uprating for frozen state pensions

“Examples of this are where UK state pension recipients are living within the European Economic Area or where there is a reciprocal agreement between the UK and the host country that provides for uprating of the UK State Pension.”

The DWP has worked out that uprating the state pension with annual cost of living increases for everyone would cost the Treasury between £600 million and £640 million a year between 2019 and 2023-24 – a total of £3.09 billion.

“As with all estimates of projected costs, there is a degree of uncertainty, however where possible we have taken steps to try to minimise any significant measurement error,” said the DWP.

The government has repeatedly told campaigning expats that the country cannot afford to uprate expat state pensions and has won a ruling against offering uprating at the European Court of Justice.

Unfair to expats

Expat pensioners claim the policy is unfair as many had contributed enough to their pensions to cover the payments and would receive them if they were in Britain.

Helen Morrissey, pension specialist at Royal London, said: “When people retire abroad many do not realise the potential impact this might have on their state pension entitlement with figures showing more than half a million retirees in countries like Australia and Canada not receiving annual index-linked increases.

“The estimated costs of delivering this uprating is huge. This situation could get worse if current uprating arrangements for British pensioners living elsewhere in Europe are affected by Brexit. Issues like this can blow a huge hole in someone’s retirement planning and we need to ensure people are aware they could get caught in this trap.”

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1 COMMENT

  1. What the DWP fail to mention is that the cost of up-rating frozen pensions is only 0.3% of the annual pensions budget.

    Furthermore, the government’s own forecast is that the NI Fund will be in surplus at April 2020 by £32.6 billion (enough to up-rate frozen pensions for the next 55 years) and by April 2024 the surplus will be £50 billion (enough to up-rate frozen pensions for over 80 years).

    It is totally dishonest for the DWP and the Government to say that up-rating frozen pensions cannot be afforded. The truth is that the government likes to borrow from the NI pension Fund at a cheap rate and, in doing so, they are stealing from people who have paid for a pension in retirement.

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