Retiring in expat favourite destinations 'equates to frozen pension'

Pensioners retiring in seven of the twelve most popular destinations for UK expats will have their state pension frozen at the rate when they first started drawing it, according to Alliance & Leicester International (ALIL).

While over one million UK pensioners are choosing to retire abroad, destinations are viewed differently by the UK Department for Work and Pensions (DWP).

A study by the Isle of Man-based international savings bank found pensioners in affected countries do not receive any annual uplifts or inflationary increases to their state pension payments.

Expat pensioners in New Zealand, South Africa, Dubai, Canada, Australia, Singapore and Hong Kong will not see their state pension increase annually.

However, retirees in America, Italy, Portugal, Spain and France will receive uplifts.

With the average 65 year-old man expected to live to 82 and the average woman to 85, there are significant consequences for their retirement finances, says ALIL.

While many of the destinations where pensioners suffer from frozen state pension payments have a lower cost of living, according to the ALIL Cost of Living Scorecard, a basic weekly pension of twenty years ago may not be sufficient to live a comfortable retirement now.

A pint of milk costs 45p in the UK but in countries where the pension is frozen, such as Australia, Canada and New Zealand, it costs £1.10, £1.40 and £1.18 respectively.

This illustrates while some costs may be cheaper in these countries, it si not necessarily the case across the board, says ALIL.

"Many UK pensioners retire abroad to move closer to friends and family or simply to enjoy a better standard of living. However, they don't necessarily realise that by choosing to move to Cape Town rather than Capri, they will have their state pension frozen at the level at which they first started to draw it," says Simon Ripton, joint managing director of ALIL.

He believes the fact some retirees in countries where UK pensioners do not receive an annual uplift, living off an income which can be 20 years out of date, brings the need for individuals to have additional retirement savings sharply into focus.

Peter Kennan, chairman of the Canadian Alliance of British Pensioners, says: "Just because a person chooses to retire to Johannesburg, Ottawa or Sydney does not mean they should have their state pension frozen and effectively become a second class citizen in the eyes of the UK Government."

He believes government policy treats one half of expatriate pensioners as thought they had never left home while freezing the other half.