There is undoubtedly a strong argument for change – those affected paid the full level tax and national insurance contributions throughout their working lives in the UK yet, due to archaic laws, receive only a fraction of the pension received by expats based in other locations.
For many years the UK has had reciprocal pension arrangements with certain countries, where pensioners are paid the full going rate. This includes countries in the European Economic Area. Yet curiously, those in former commonwealth countries such as Australia, Canada, New Zealand and South Africa are on the end of a glaring and unacceptable expat pension inequity, receiving only the level of pension that was in place when they left the UK rather than the level their peers are entitled to today.
The worst part of all this is that this longstanding inequity could easily be remedied. In fact, the government has had the chance to do so every year for the past seven decades as part of its annual update of the terms of state pension. However, with the next review not due until spring 2019 there are fears that the government might again pass up the opportunity to make changes through the Social Security Benefits Up-rating Regulations.
As such, a campaign group, End Frozen Pensions, has been formed to bring about the necessary expat pensions changes.
“By building a parliamentary alliance we will stop this Government trick and end the frozen pension policy,” said a spokesperson with the group. It is estimated that the necessary changes would cost around £500 million a year. However, given that by being outside of the UK, expats place no additional strain on the UK’s health and welfare resources it is hard to make a persuasive economic justification for continuing the expat pensions inequity.
Sir Roger Gale, Conservative MP for North Thanet in Kent and chairman of the parliamentary group on Frozen British Pensions, commented, “There is a group of people who have served this country and paid their dues throughout their working lives who now find that their pensions are frozen. It leads to the anomaly where a pensioner living on one side of Niagara Falls has a frozen pension, while a pensioner living a few hundred yards away on the other side in the US has an uprated pension, annually. It is nonsense and iniquitous.”
Pensions Advice from Blacktower FM
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This communication is for informational purposes only and is not intended to constitute, and should not be construed as, investment advice, investment recommendations or investment research. You should seek advice from a professional adviser before embarking on any financial planning activity. Whilst every effort has been made to ensure the information contained in this communication is correct, we are not responsible for any errors or omissions.
The United Kingdom finally left the European Union on 31 January 2020. As such, the two jurisdictions are now in the process of implementing the Withdrawal Agreement, with the transition period ending at the close of 31 December 2020.
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