Why some pensions abroad never go up

Two people retire in the same year on the same State Pension rate. One moves to Spain, the other to Australia. A decade later, their pensions are not the same amount — and the difference has nothing to do with their National Insurance records.

This is the part of the annual uprating story that is easiest to overlook, because almost every article about April rate changes is written as though every recipient gets them. Not every recipient does.

Payment abroad versus uprating abroad

Two separate questions get run together. The first is whether a UK State Pension can be paid to someone living outside the UK. Generally it can, into an overseas account or a UK one.

The second is whether that pension is uprated each April. That depends entirely on where the person lives, and the answer is no in a significant list of countries.

Term explained: frozen pension

A UK State Pension paid in a country where the annual uprating does not apply. The amount stays at the rate in force when the pension was first paid there, with no April increases added.

Where upratings are paid

Broadly, the annual increase is applied for people living in the European Economic Area, Switzerland and Gibraltar, and in countries that have a social security agreement with the UK which covers uprating. The United States is one example of the latter.

Where the increase is not applied is, for many people, more surprising. It includes a number of countries with large populations of British retirees — Australia, Canada, New Zealand and South Africa among them.

Canada and New Zealand illustrate why "does the UK have an agreement with that country?" is the wrong question. Agreements exist, but they do not all extend to annual upratings. The only reliable check is the official country list.

What freezing looks like over time

The effect compounds, because each missed uprating is missed permanently rather than caught up later. Consider someone who began receiving the full new State Pension in its first year, 2016/17, and moved to a country where upratings are not paid.

Illustration only. Arithmetic on published full standard rates for somebody on exactly the full rate throughout. It shows the scale of the mechanism, not an individual's entitlement, and it assumes no change of residence over the period.

The frozen figure is not reduced; it simply stays still while the UK rate moves. Over a long retirement that produces a widening gap, which is why the issue has been raised repeatedly in Parliament and by campaigning groups.

Returning to the UK

The freeze is tied to residence, not fixed for life. Someone who returns to live in the UK is generally paid at the current UK rate from that point, rather than remaining on the historic figure. The missed increases from the years abroad are not paid retrospectively.

Periods of temporary absence are treated differently from a permanent move, and the rules matter. The Pension Service should be told about a move abroad in any case, because that is also what keeps payment arrangements correct.

What else changes when you move

Uprating is not the only thing affected by living overseas.

• Other pensioner support. Payments such as the Winter Fuel Payment are generally tied to residence in Great Britain, so they do not travel. See who gets help with the heating bill now.
• Tax. A State Pension remains UK-source taxable income, and the interaction with the tax rules of the country of residence depends on the double taxation agreement in place, if any.
• Deferral. The rules on building up extra amounts while abroad differ from the domestic position, which affects the arithmetic in putting off your State Pension changes the arithmetic.
• Exchange rates. A pension paid into a foreign-currency account is exposed to the rate on the day, which can move more in a month than an annual uprating does in a year.

Checking before you move

GOV.UK publishes the position by country, and that list is the authoritative source. Because the list reflects agreements between governments, it is not something that can be negotiated individually, and it is not affected by how long someone worked in the UK or how much National Insurance they paid.

For anyone weighing a move in retirement, it belongs on the checklist alongside healthcare and tax — the difference it makes over twenty years is larger than most of the other variables being compared.

What to take from it

The April uprating is a national change to published rates, but it is not a universal payment. Before assuming an increase applies, check whether it is paid in the country where the pension is received. For several hundred thousand British pensioners living overseas, the April figures reported each spring describe a rate they do not receive.