British retirees residing in the UK are set to receive a 4% increase in their state pensions starting April 2024, amounting to an additional £460 annually. However, approximately 500,000 retired Britons living overseas will not benefit from this raise.
The issue stems from a long-standing policy that freezes pensions for expatriates on the day they leave the country, effectively eroding their entitlement due to inflation. This disparity has led to significant financial gaps between domestic and overseas pensioners, with some expatriates missing out on thousands of pounds each year.
The UK government's "triple lock" guarantee ensures that state pensions for residents increase annually by the highest of inflation, wage growth, or 2.5%. This protection extends to British pensioners in countries with reciprocal agreements, including most of Europe and the United States. However, retirees in many other nations, particularly Commonwealth countries, face frozen pensions due to the absence of such agreements.
Chris Lee, who relocated to Thailand in 2010, exemplifies the challenges faced by affected pensioners. His state pension was frozen when he turned 66 in 2021, leaving him ineligible for the upcoming 4% boost. Lee expressed frustration, stating:
"It's totally immoral and wrong. We're not a burden on the state – imagine if we all came back to the UK and how much that would cost in terms of healthcare and benefits."
Lee receives £131 weekly, significantly less than the full £221.20 he believes he's entitled to based on his 37 years of National Insurance contributions. The discrepancy partly results from his former employer "contracting out" his pension without his knowledge, reducing his entitlement.
The frozen pensions issue dates back to 1955 when British state pensions became payable worldwide but were not inflation-linked. Despite decades of campaigning, successive governments have maintained the policy, citing the absence of reciprocal agreements with affected countries.
Interestingly, some nations like Canada and Australia provide annual increases to their pensioners living in Britain, despite the lack of a reciprocal deal with the UK. This situation highlights the complexity and perceived unfairness of the current system.
Sheila Wills, 87, shares another poignant story. After her husband's 40-year career in British overseas development aid, they settled in South Africa. Upon retirement, they discovered his pension would be frozen. Wills now survives on just £67 weekly, inherited from her late husband's pension, struggling without support from either the British or South African governments.
"My husband and I were of the generation that were born pre-war, we lived through the shortages, dangers and deprivations of the war years and were then the generation that went to work, to once again build Britain."
The frozen pension policy affects about 40% of UK pensioners living abroad, with over 80% of these individuals residing in Australia, Canada, and New Zealand. This situation has sparked calls for reform, with affected retirees urging political leaders, including Sir Keir Starmer, to address what they describe as a "disgraceful" and "totally immoral" policy.
As the debate continues, the financial strain on expatriate pensioners remains a pressing issue, highlighting the need for a comprehensive review of the UK's international pension agreements and policies.