Frozen State Pension Cause for Alarm – Benefits of Private Pensions

Over half a million UK expats living abroad will not get state pension increases. This affects mostly UK residents living overseas in commonwealth countries like Australia, New Zealand, and Canada.

Frozen state pensions occur in countries that do not have a reciprocal social security agreement with the UK. This means that UK citizens in these countries will not receive annual pension increases in line with the cost of living and inflation. Only expats in reciprocal countries will receive a government pension increase in line with the annual triple lock policy.

Rob Roberts MP, stated during a debate that “Following our withdrawal from the EU, we are rightly able to move closer with our partners in the Commonwealth, and one of the ways we can do that would be to confirm that all British citizens that live in the Commonwealth should be entitled to the appropriate uprating of their state pension as if they were still in the UK, it would seem a matter of simple fairness.”

This means a UK expat living abroad in a non-reciprocal country could lose thousands on their state pension throughout retirement. The UK pension age is currently 66 and will gradually increase from May 2026. A pensioner will receive a pension on average for around 20-30 years till death. This means they will lose out on 20-30 years of annual increases.

What are state pension reciprocal social security agreements?

These are agreements between countries for social security contributions and benefits entitlement. This means countries agree to provide full benefits to pensions from both countries. Country of origin of the state pension and the country the retired expat lives in.

What can be done about supplementing a government pension?

Avoid having a state pension as your primary income at retirement; it should be supplementary. Firstly, most countries are increasing the pension age, and more people than ever before are retiring, and governments can’t keep up. Secondly, there are no guarantees that state pensions will still be available when you retire, or they may be significantly reduced. Company or private pensions are more reliable.

What are private pensions?

Private pensions are savings vehicles where contributions are made regularly towards retirement. It can be classified as a defined contributions pension. It is ideal if you are self-employed and have no company pension. You can contribute towards it even if you are unemployed. It is the one consistency of financial security that can continue to build retirement capital throughout your entire working career, especially as a person changes jobs on average seven times in their working career, which means seven smaller employment pensions if offered by the employer. Private pensions can also be in the form of regular premiums paid into a savings plan that has tax deferral and allows for flexibility in switching. Also, look for local schemes that offer tax benefits in the country where you reside.

Benefits of private pensions?

• It is a tax-efficient way to save, as certain tax benefits and rebates are offered.
• You can continue with contributions even if you are unemployed. Your employment status does not restrict you, and you can make employee pension and private pension contributions simultaneously.
• A tax-free lump sum could be paid at retirement if allowed by country tax laws.
• You have a say in where your pension is invested. You can make adjustments or switch funds, and it can be actively managed.
• It can be accessed from age 55, unlike other company pensions, or where there is a prescribed state pension age limit like 66.
• It gives you peace of mind that your retirement savings are well looked after and steadily growing.

Private pensions are an excellent way to boost retirement savings, as they can provide consistent capital growth over the long term, unaffected by career change or unemployment. Your financial advisor can assist with adding a tax-efficient private pension plan to your financial portfolio.

Please note, the above is for educational purposes only and does not constitute advice. You should always contact your advisor for a personal consultation.

* No liability can be accepted for any actions taken or refrained from being taken, as a result of reading the above.