/ Money, Travel & Leisure

Why retiring abroad could see your state pension slashed

Elderly man's face

Better weather, cheaper cost of living, a more chilled way of life – retiring abroad sounds great. But did you know choosing one country over another could reduce your state pension by almost half?

According to new research from retirement specialists MGM Advantage, someone who retired to Canada ten years ago would have received 42% less than someone who retired to the US.

That’s £6,726 less in pension payments.

State pension uprating

Why? Well, countries that aren’t in the European Economic Area (EEA) or countries that don’t have what’s known as a ‘reciprocal agreement’ with the UK don’t grant state pension increases to people who have retired there. A reciprocal agreement means that you’ll be able to receive various benefits that you’d get in the UK in that country, such as maternity allowance, sick pay… and the state pension.

When you receive your state pension in the UK, it gets uprated each year in line with inflation and the cost of living. In EEA countries or countries with reciprocal agreements, you receive the same increases as you would if you still lived in the UK.

Which countries won’t increase your state pension?

So you’d expect the most popular countries for Brits to retire to would have reciprocal agreements, right? Wrong. MGM Advantage’s research shows that three of the top ten won’t uprate your state pension if you retire there.

Australia, Canada and New Zealand – which are the third, eighth and ninth most popular countries for Brits to retire to – don’t have reciprocal agreements with the UK. This means that if you decide to move to either of these countries, your state pension will be frozen at the level it was when you left the UK. This means that there are a fair few Brits missing out on thousands of pounds of pension income.

Fortunately, the list of most popular countries for UK retirees includes others where you’ll enjoy such state pension increases, such as Spain (first), France (second), and Cyprus and the USA (joint fifth).

Still, estimates say that around 565,000 pensioners in 120 countries don’t get their state pension uprated. The International Consortium of British Pensioners is campaigning for all state pensions to be uprated, and the president of Canada is due to have discussions with the UK government soon – so watch this space.

Would you move to Australia or New Zealand despite missing out on state pension increases?


Even in EEA countries and others with reciprocal agreements, the UK state pension might not keep up with local inflation rates over time and it might buy less than it would at home. This might be why the northern European countries are less popular [also there is virtually no saving in heating costs, of course].

I don’t see why a “reciprocal agreement” should have any relevance to whether or not a UK citizen should receive the full state pension. Most of us have paid for it through NI either directly or indirectly and should receive the full amount, paid from the UK, wherever we choose to live after retirement. My mother went to live with my sister in Canada, after my father died, on a state pension that then was £6 a week; still the same 30 years later (worth even less in $Can).
We seem perfectly happy to make welfare payments to almost anyone with a need who decides to come and live in the UK. iIt seems grossly unfair that those who have funded the welfare system in the past should be cheated in this way.

I tend to think Malcolm is right. The people who have left the UK are no longer a charge on our public services. They have mostly been replaced by people from other countries who are contributing indirect taxation to the exchequer. The nett effect is probably so close to neutral it’s not worth worrying about.

There is a school of thought that UK pensioners should not depart these shores and should stay to support the cause for a better life at home. In a Victorian kind of way I feel it is a good thing if British people reside in other territories and I don’t think we should treat them any worse because they do.

“There is a school of thought that UK pensioners should not depart these shores and should stay to support the cause for a better life at home”

Many of the pensioners who have left the UK have UK income tax deducted at source from their pension income, for which they receive no direct services,except perhaps for the consular service. As such they pay a disproportional amount to support their home country. If they elected to stay in the UK they would be using services like the NHS for which they pay privately when abroad.

I’ve yet to find out first hand but I’m told that South Island New Zealand is more like the England we grew up in than England is now. That is a very appealing prospect for retirement. The England we live in today is overcrowded and is having it’s culture diluted to a degree which makes many people of a “certain age” very uncomfortable.
The clearly unfair treatment of expat pensioners who have paid into the system same as anyone else would not be “the” deciding factor should I (if I could) elect to go for it.
If the Government starts playing fair the likelihood would of course become even greater, but overall I seek fair play for all.

I found Chris Gloucester’s view of retiring to South Island NZ profoundly depressing on two levels – firstly his seeming need to escape to a ‘Narnia’ of his youth, where AA men saluted drivers, racial intolerance was de rigeur, and doctor always knew best. Secondly, he seems to want to go and impose what he remembers of the 1950’s in Britain, on a population on the other side of the world Whether they want it or not.
Having grown up in Lincolnshire in the 1950’s I can say without fear of contradiction, that the mindset was petty, and the scope for any variation from the local supposed ‘norm’ was nil. It was cloying, hypocritical and best left behind.
I have been to South Island, and there is no doubt that the scenery is beautiful; the weather can be harsh, and it does look like the UK of the 1950’s. However, there are tensions, for although the pace of life is definitely slower, South Island has access to many of the technologies we see and use in our own lives; younger people take all this in their stride, but there are pockets of ‘ older in comers’ who want to impose their own expectations and phantasies [ AA men saluting, doctor knows best etc] on the population. I can understand their frustration!

Try the Isle of Wight instead perhaps?

Even returning once a year for NHS treatment, it is very
more worthwhile to be resident abroad where yr
UK pension given the exchange rate enables to lead a life quite
handsomely, it must be said.

Many a people I know have retired to distant shores where
the cost of living is that very much lower and of course the weather
is much balmier…. little wonder that countries have set up special
schemes to entice retirees with their pension pot.

Why was the comment I made left out?

It was stuck in our queue. Sorry about that. Approved now.

“Well, countries that aren’t in the European Economic Area (EEA) or countries that don’t have what’s known as a ‘reciprocal agreement’ with the UK don’t grant state pension increases to people who have retired there”

Nonsense, this article is poorly researched. It’s the UK government that pays the pension and it would be the UK government that would pay any increases. The new country of residence has no role whatsoever in either paying the pension or paying the increases. Furthermore, the absence of a reciprocal SS agreement would not in any way prevent the UK government from paying these increases and the countries where these fortunate pensioners reside would be delighted if these pensioners were able to support themselves through higher income from the from the increases .

Aggie says:
26 July 2014

Surely if your pension is paid from the UK it doesn’t matter where you live you should get the increase. My husband and myself retired very young, as he had done 37 years in the military, his pension is more than enough to live on abroad but not enough to live in the UK, he gets his increase every year, pays tax and national insurance on it yet due to being well under retirement age, we are not entitled to any reciprocal agreements with regard to health care, I had to go back to work to get free health care for both of us, we have also been informed that we are not entitled to NHS when or if we ever return to the UK ! Nice ….

Aggie, I agree, and those who are hit hardest are the ones who have to go and live with a family member when they perhaps get in need of some future care. As I understand it, where we don’t get a reciprocal arrangement is where other countries don’t pay full pensions to their nationals who retire in the UK.
The only defence perhaps is that you know when you choose a country to retire to whether or not you will qualify for a full UK pension.

2 years late joining this debate but…1. yes, I agree with commentators here who say the pension is paid by the UK and should have nothing to do with the host country. There have been several challenges to this over the years – all unsuccessful unfortunately, 2. The article doesn’t mention a potentially much greater loss, namely that of having to pay for health care – usually private insurance – when outside of the EU. Pensioners in the EU get most of their healthcare paid for wherever they live by the UK if they get a full pension. However, whilst I know about what happens in the EU I don’t have a clear picture of costs outside. Maybe others would like to give some examples of what it is like in their new lands and what it costs them.