British retirees seeking to move abroad could benefit from pension top up

by Ray Clancy on October 16, 2015

British people retiring abroad often have to think about how they will finance their new lifestyle and this can depend on location.

Not only is their pension going to be affected by exchange rates but it can also be affected by location as UK state pension are not indexed linked in all countries, such as Australia, Canada and New Zealand.

UKpensionAnother option, but one that has to be acted upon by next year, it to buy an additional state pension, a kind of top up which is regarded as being low risk.

According to the Overseas Guides Company, people on the verge of retirement can put money into the UK government’s new pension top up scheme. To qualify a person needs to reach State Pension age between now and 06 April 2016.

The rules also apply for additional lifetime income worth up to £25 a week or £1,300 per annum, which equates to around €1,755 for expats in Europe, going on the current exchange rate. This would be paid on top of the current state pension of £115 a week.

“A pension top up could make sense for many expats who favour safe regular income, thanks to it being guaranteed for life, inheritable in most cases, and protected against inflation for people in the UK, all European Economic Area countries, the United States and a number of other countries,” said Elaine Ferguson, head of policy at the firm.

She believes that they appear to represent good value as according to the Institute of Fiscal Studies, to achieve £1,300 a year through an annuity would typically cost double what it will through the top up scheme.

“The cost of a State Pension top up is based on a person’s age and takes average life expectancy into account. For a 65 year old, an extra £10 of pension a week will cost a one off sum of £8,900, whereas for a 75 year old, the same increase will cost £6, 740,” Ferguson explained.

“However, the top up scheme might not suit everyone’s situation, including anyone living in or moving to countries where UK pensions are not index-linked, meaning that your pension income remains flat for your lifetime,” said Ferguson. “It’s also important to remember that there is a window of just 18 months to take advantage of the scheme, but always seek professional help from an independent financial advisor to ensure you are making the right decision.”

Figures from the Department for Work and Pensions released earlier this year show that more than half of all state pensions for expats are frozen, affecting about 560,000 people. For some expat pensioners it can lead to financial problems with reports of them being unable to enjoy their retirement overseas without help from their family and some even being forced to return home.

{ 4 comments… read them below or add one }

Jeff Chipps October 18, 2015 at 2:19 pm

Thank you Kay Clancy for highlighting the disgraceful fact that even if UK expat OAPs without uprated state pensions (frozen) bought into this TopUp scheme, then the payments from TopUp would be frozen too!
This is piling more discrimination on top of the shameful discrimination that already exists in the form of the British frozen pension policy.
But the tone of your article is that you accept this appalling state of affairs as fait accompli and something that cannot be changed. I dispute that completely – it can and MUST be changed, or ALL expats will be heading in this ‘frozen’ direction.
It is being fought against, and not just abroad. The All Party Parliamentary Group (APPG) on frozen pensions now amount to a formidable assembly of all party politicians whose pressure can shape a better future for ALL expats.
Your last paragraph states that some frozen expats are having problems that are forcing them to return “home”. I personally know of three UK expats who are being forced by this disgusting policy – that makes them poorer year after year – not to return ‘home’, but to leave them!!
Do you REALLY believe that someone of eighty or ninety years of age wants to put themselves through this upheaval?
The UK government appear to have closed their eyes to the indisputable fact that it’s far cheaper to uprate ALL expats, than to pay for their healthcare, housing etc, once they’ve returned ‘home’ – as you put it – to the UK!!


Jeff Chipps October 18, 2015 at 2:25 pm

Kay. This is a link to the APPG on frozen UK pensions. The whole site is very informative.


George Morley October 19, 2015 at 2:48 am

It would seem that the next to last paragraph spells it out, so will your purchase be accepted and then not honoured. From the way that the DWP work I would not part with a penny as they can easily move the goal posts yet again. You would probably get more satisfaction from giving it to a charity knowing that it would do somebody some good.


RobtheFox October 19, 2015 at 9:56 am

It really needs to be spelt out that in very simple terms if a 65 year old parts wıth £8,900 to receive an extra £10 per week it wıll, without any adjustments, take around 16 or 17 years to break even and for a 75 year old at £6,740 around 9 or 10 years. The author is right, one needs to look very closely at this scheme and take professional advice before parting with that lump sum.
Of course, if you are planning to retire abroad then the country is very ımportant. The frozen pension policy whereby one’s State Retirement Pension is frozen at the rate at which it is first paid ıin the host country would suggest that this is not for them. But what if one origınally intended to remain in the UK and joined the scheme but subsequently family circumstances dictate emigration to, say, Canada where the pension is frozen – is the lump sum refundable, lost, or is the “top-up” not frozen?
Such is the illogicality of the frozen pension policy you can live on one side of the street Derby Line, Vermont, USA and get index linking but on the other side of the road you are in frozen Stansted, Quebec, Canada!
With a referendum in the offing is even the going to live ın an EEA country any form of protection from freezing?
Buyer Beware!
Of course the Internatıonal Consortıum of Brıtısh Pensıoners campaıgn for the abolıtıon of pensıon freezıng under the current regulatıon three and forthcomıng sectıon 20 of the Pensıon Act contınues at a pace.


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