Missing out on the state pension triple lock
One of the most attractive features of the state pension is the so-called ‘triple lock’ guarantee.
The state pension triple lock is a government promise that sees the income from a state pension in payment increased each year in line with the highest of price inflation, earnings growth or 2.5%.
This protection from price inflation does not however apply to more than half a million recipients of a UK state pension who are living abroad.
The calculation is according to new figures released by the Department for Work and Pensions, who have calculated the cost of uprating UK state pensions for overseas residents.
Current government policy is to only increase UK state pension income for residents living overseas where there is a legal requirement to do so.
This includes UK citizens in receipt of a state pension who are living in the European Economic Area, or in other countries where a reciprocal agreement exists between the UK and host country.
Agreements do not however apply in many countries worldwide, including Australia, Canada or New Zealand.
If the government were to relax their policy on uprating state pensions to those UK citizens living overseas, the new figures show it would cost the Treasury £3bn over the next five years.
Commenting on the figures which estimate the costs of uprating State Pension in frozen rate countries, 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 today’s 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.
If you are considering a retirement abroad then it’s important to consider the current and potential future position in respect of any state pension increases.
Price inflation, even at relatively modest levels, has the ability to erode the buying power of a fixed income over time, making it worth less in current prices.
When viewed over a 20, 30 or even 40 year long retirement, the impact of rising prices can leave those retirees on a fixed income in a very difficult financial position.