Damson

Saw this today on MSn and wondered if anyone was interested.

Should we pay expat state pensions?By Laith Khalaf | 03 Sep, 2009


Today 13 expat Britons present their case against the UK government to the European Court of Human Rights. Their complaint is that their state pensions are not uprated with inflation like everyone living in the UK. This treatment affects an estimated 500,000 expats living in certain countries, most notably Australia, Canada, South Africa and New Zealand. But should we pay for increasing their pensions when they may live in counties where the cost of living is much lower?

The question goes to the very heart of the UK state pension system, which is on the face of it a contributory pension: the amount you get is linked to the National Insurance you pay. This creates a very strong moral argument in favour of the expats- they have paid their dues all their life so why should they be treated any differently just because of where they live?

The government's position is that expats living in these countries are different to people living in the UK for a number of reasons. Different economic conditions exist in these countries including different levels of the cost of living, the tax you pay and the social security arrangements. Uprating pensions in line with UK Retail Price Index would therefore actually create pretty random effects on your budget depending on whether you lived in Auckland, Johannesburg or Dubai. What's more the decision to move abroad is entirely voluntary- expats can claim an uprated state pension if the stay within the UK.

So far the courts have all rejected the expats' claims and it looks likely that so will the European Court of Human Rights. The over-riding reason given for this is that the allocation of funds from the UK public purse is not a matter for the courts to decide, it is down to the UK government. In other words this is a political, not a judicial decision.

Even so the amount contributed by the expats in National Insurance and tax makes it seem unfair that they get less than everyone else. Often people move abroad to be with their family and therefore face a harsh choice of less income or being with their loved ones. Age Concern have highlighted the financial hardship that many face due to the freezing of their state pension, they say that the most common reason for people over 50 being repatriated is destitution and is a very traumatic event. Looking at it another way these people are also saving the public purse a great deal of money by spending their old age abroad- this is when most of us use the NHS the most due to deteriorating health.

Many of us here perhaps do not consider thoroughly the principle for which these expats are fighting tooth and nail. Though people recognise the threat of inflation, very few people do anything about it when they draw their private pensions- around 90% of the annuities sold do not increase with inflation. Part of this is because RPI linked annuities start at a much lower level, but part of it is also down to the fact that many people still don't shop around for an annuity. Doing so can boost your income by up to 30%, possibly more if you smoke or have any medical conditions. By shopping around you can also get a quote which offers you various options, such as inflation linking, or a spouse's pension, so you can at least make an informed decision about which annuity best suits you.

Petals

I think the question is more why do people who live in the USA get\their pension increased and not the migrants who have migrated to Commonwealth and former Commonwealth countries.

My grandfather went to live in the US with my Aunt when my grandmother died and he got his pension increased all the time.

hawkshaw

UK pensioners living in the Philippines get their pension increases too, as of course do those living in EU countries (presumably because EU law says they have to).

I'm told Aussie pensioners living in the UK get uprated pensions too and the reason Australia cancelled the reciprocal agreement was due to the UK's refusal to uprate UK pensions here.

quoll

As there is no national pension scheme in Australia, I believe you have to be resident in Aus to get the Centrelink benefits (or have a special arrangement like Aus does with Greece and Italy for example) and because there is no reciprocal arrangement any older Australian going to UK gets nothing at all.

twizzle

Yes, the uplift is given to UK pensioners in other parts of the world, just not those living in Commonwealth countries. Which fairly boggles the mind considering the Commonwealth countries are supposed to have some kind of special union with the UK, just not in this case

I understand that if you start to earn your UK pension in Aus, and it is frozen at that rate, it's possible to return to the UK & draw some payments there, at which point it will be brought in line with current payments, and then you can return to Aus again. Not sure what the minimum residency period would be though. Still, seems a cheek really, as it is contributions based, payments should be equal.

Wol

Just done it! I was in the UK for a few weeks in July, and told DWP (or whatever they call themselves this week) so that my pension was increased for that period. It's back down to the frozen level now.

I also asked my company pension scheme to do the same for that portion of the private pension which is similarly frozen - but no joy there.

twizzle

Wol - good to know from someone directly in the know... but can I just clarify? Are you saying your pension payments have returned to the level they were before you went to the UK? ie. previously frozen amount?
I was under the impression payments would be 're-set' as such at the new level valid when you go to the UK, and that returning to Aus after that you'd get payments at the new level received in the UK (but frozen again thereafter). Seems like you're saying that's not how it works??


If you don't mind me asking, is this a final salary scheme? I'm not sure I understand why part of it is frozen?

lesleys

I'm deferring claiming my UK pension for a few years. During this time it accumulates into a lump sum INCLUDING the increases. When I do claim it it will be at the rate then, ie with a few years' worth of increases, even though it will be frozen from then on. I'll also get the lump sum.

Instead of the lump sum there is an option to take an increased pension. Deferring for 5 years would add about 50%.


After a UK visit you go back to the old frozen level.

Wol

>> Wol - good to know from someone directly in the know... but can I just clarify? Are you saying your pension payments have returned to the level they were before you went to the UK? ie. previously frozen amount?
I was under the impression payments would be 're-set' as such at the new level valid when you go to the UK, and that returning to Aus after that you'd get payments at the new level received in the UK (but frozen again thereafter). Seems like you're saying that's not how it works?? <<

Correct. You get the "correct" pension while you are in the UK but it reverts to the original "frozen" amount on return.

Another bizarre thing is that you get the unfrozen payments while you are in *most* of the "unfrozen" countries as well! If you visit say France, you will get it on the same basis as if you are in the UK.

Don't blame me - I'm only the messenger <g>.



>> If you don't mind me asking, is this a final salary scheme? I'm not sure I understand why part of it is frozen? <<

I am on a final salary scheme. I was aware of the frozen state pension disgrace before I left the UK, but I was *not* aware that, if the employer had contracted out then part of the company scheme - the contracted out part - is also subject to freezing. It's a lot more complicated than even that - there are two tranches of contracted out pension (due as usual to politicians' buggering around, in this case I believe Barbara Castle) and each is handled differently. *Part* is completely frozen, and part is partly frozen - the details escape me and it's so complicated I don't even want to go there! The net result is that around £5000 of my own company pension is frozen as well.

NedKelly

Don't forget to claim your winter heating allowance as well!

MartinLuther

The argument being put forward in the original piece is mind boggling. Basically they're saying "We don't know the RPI in the country that these people are in so we're going to assume it's zero. Oh and of course that only applies to some countries not all".

It shouldn't really matter is the cost of living is lower (or even higher) in these countries. They all have inflation so freezing pensions makes no sense (morally speaking of course).

Wol

What on *earth* have morals got to do with politics?

MartinLuther

They should have everything to do with politics but unfortunately they seldom do.

That's why I put it in there as economically speaking it would make sense.

twizzle

Useful to know - thank you!!
So I guess the trick is to try defer payments for as long as possible...

ughhh!

twizzle

Amazing.... the lengths they'll go to to pay the 'correct' amount if you happen to be in one of the 'right' countries, but not in one of the 'wrong' countries.
I really don't understand how this discrimination can be justified

Uhhh.... ok... yeah, sorry I asked
It does sound overly complicated. I guess that's the job of pension administrators & tax depts., to make it as complicated as possible