DWP estimates uprating state pensions in ‘frozen rate’ countries cost at £3bn

The Department for Work and Pensions (DWP) has estimated that the total cost of uprating state pensions for UK citizens living abroad in countries that do not require annual, index-linked increases at £3bn.

This takes into account increases that would occur between 2019/20 and 2023/24 for UK nationals living in countries where there is no legal requirement to observe the state pension increases.

There are around 510,000 UK state pension recipients living overseas who do not receive state pension increases, of which 84 per cent live in Australia, Canada and New Zealand.

Most people receiving a UK state pension who do receive annual increases do so because they live in the European Economic Area or where there is a reciprocal agreement between the UK and the host country.

The DWP has estimated that uprating the state pension in ‘frozen rate’ nations would cost £600m in 2019/20, £610m in 2020/21 and 2021/2022, £630m in 2022/2023 and £640m in 2023/24.

In 2013, it had estimated the cost of uprating state pensions between 2010 and 2015 to total £2.75bn.

Commenting on the findings, AJ Bell senior analyst said: “Over half a million people are understandably furious that, having paid into the system and retired abroad, they find their state pensions frozen.

“Over the course of someone’s retirement this could have a huge impact, potentially costing more than £50,000 in state pension income. For many this might be the difference between living comfortably and struggling to make ends meet.

“Unfortunately for those affected there is no sign of a reprieve, with successive Governments rejecting calls to rethink the policy and preferring instead to focus resources on those who choose to remain in the UK.

“In fact the problem could get a whole lot worse in the event of a No Deal Brexit. At the moment UK citizens retiring to countries like Spain and France benefit from state pension increases through a reciprocal deal with the EU as a whole.

“If the UK leaves the EU without a deal the government has only committed to uprating state pensions for people living in EU member states in 2019/20. Beyond this point these increases will depend on a reciprocal deal being struck, either with the EU or individual member states.”

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