STATE PENSION FOR PEOPLE LIVING ABROAD

You still get your state pension if you move abroad but in some countries it will be frozen at the rate it was first paid. We explain the rules...

Will my pension be paid abroad?

State pensions are not affected if you decide to move abroad. All you need to do is inform your local authority of your plans and give them the details of a local bank branch or post office in the town overseas where you wish to receive your money.

If you have further queries or concerns about this contact The Pensions Advisory Service (OPAS) on 08456 012923. You will need to ensure you make similar arrangements for any personal or occupational pensions before you leave.

Will my pension rise in value?

While you will still receive your pension if you move abroad half a million British pensioners living overseas have their state pensions frozen at the rate they were first paid.

This thorny issue affects those who have fully contributed to their pension but opted to move overseas, with many living in British Commonwealth countries, including Australia and Canada.

Overseas pensioners have fought for many years to have their pensions up-rated, and thus rise in value with inflation, but no avail. The latest attempt that was denied was a test case heard by the European Court of Human Rights.

Overseas pensioners lobby group the International Consortium of British Pensioners says that the way the rules are applied 'is entirely un-British'.

The ICBP says the sum required to achieve pension parity as of this year would be £540m, less than 1% of the Government's current pension fund.

How the overseas pension system works

The current system denies annual pension rises, dubbed 'up-ratings', to almost half of the 1,100,000 pensioners who no longer live in Britain. The rest receive full up-ratings, which aim to counter the effect of inflation which eats into the value of pension income.

A pensioner's country of residence is the deciding factor. Oddly, it is those living in British Commonwealth countries and British Overseas Territories who are hardest hit and number the largest group with pensions frozen.

Pensioners who move to a European Economic Area state or one of 16 other countries with long-standing reciprocal agreements, including America, Jamaica and Turkey, get their pensions increased each year along with those still in the UK.

Everyone else has their pension frozen at the point that they first collected them in their new country of residence.

Who does this affect?

There are 150 countries where pensions are frozen. Of the 540,000 pensioners living in those countries, almost 90% of them - 485,000 - live in Australia, Canada, South Africa and New Zealand.

Bizarrely, when these people return to the UK or if they travel to a country that gets up-rated, they temporarily receive a higher pension over this period of time, if they notify the UK pension authorities. So a UK pensioner living in Canada and going on holiday to Jamaica for two weeks, can get a higher pension for that fortnight.

Similarly, two people who came to the UK from the Caribbean to work could find themselves in very different positions if they returned home. Those in Jamaica would get a full pension, those from Trinidad would not.

What is it based on?

The system is supposedly based on long-standing reciprocal agreements. However, successive governments have refused to review these, despite many of these countries giving their own pensioners increases if they live in the UK.

Furthermore, campaigners say that while formerly, lack of a reciprocal agreement was given as a reason not to give pension parity, since then several ministers have stated in Parliament that the reciprocal agreements are not needed – and Parliament itself could change the system. Essentially, the Government's argument now is that it can't afford to up-rate all overseas pensions.

What was the case's main argument?

The test case was taken to the European Court of Human Rights, arguing that the current system breached human rights. It claimed the freeze was discriminatory, damages pensioners' right to full family life and restricts freedom of movement.

How much would raising overseas pensions cost?

The fight for overseas pension increases focuses on getting pension payments up to current levels – not backdating what people have previously lost out on.

The ICBP says the sum required to achieve pension parity as of this year would be £540m, less than 1% of the Government's current pension fund. This is less than an annual average of £1,000 per pensioner currently being denied their full entitlement.

Could this actually save Britain money?

It's a bit of a leap of faith but the ICBP also claims raising overseas pensions could save the UK money. Its argument is that the current system prevents pensioners moving overseas to be with family who have emigrated, or simply because they want to.

The group says that the UK government has stated each person over the age of 60 costs the UK taxpayer £7,000 per year in NHS costs and other benefits over and above their basic and additional pension allowances.

So by not being in the country, overseas pensioners are saving the UK £7,000 per year and with the cost of lifting overseas pensions for all about £1,000 per pensioner, the Government would be saving £6,000.

Similarly, any pensioners who decided to move abroad thanks to an improved pension system would save the Government money.

The countries where pensions are up-rated

This is the list of countries where pensions rise to cover the cost of living. All others are frozen.

All EEA Countries and Switzerland; Barbados; Bermuda; Bosnia-Herzegovina; Croatia; Guernsey; Isle of Man; Israel; Jamaica; Jersey; Mauritius; Montenegro; Philippines; Serbia; Turkey; United States of America; Former Yugoslav Republic of Macedonia.

By: This Is Money