Retiring abroad: The costs and benefits for pensioners

Rita Young Rita Young says that her state pension is the key to her financial decision

Rita Young dreams of a life down under. She would like to spend the rest of her retirement close to her only son and his family who live in Melbourne, Australia.

But she is unable to make this dream a reality.

Like many pensioners, she is reliant on the basic state pension. At the moment, for a single person, this a maximum of £113.10 a week.

Each year the basic state pension goes up in line with prices, wages or by at least 2.5%. But if Mrs Young were to follow her dream and move to Australia her state pension would be frozen even when the cost of living went up.

"The best thing that could ever happen for people like myself is that the pension would continue to be paid normally over there and increase year by year," she says.

"It's only 2.5% most years, so you're not asking for a fortune."


The state pension is a key consideration for people who want to retire either in the UK or abroad.

If the country they retire to has a reciprocal agreement in place with the UK, the state pension will be paid and go up as normal. For example, expats who go to live in a country within the European Economic Area will get an annual state pension increase.

However, there is no agreement with a number of countries including Australia and Canada. In these countries, the state pension is frozen for a UK citizen who moves there.

Andrew Tully, from the pension provider MGM Advantage, says that somebody who retired to Canada 10 years ago would find that their state pension was worth 42% less (or £1,742 in a year), than if they had retired to the US.

State pension increases

The basic state pension rises yearly by whichever figure is highest:

  • Earnings - the average percentage growth in wages in Britain
  • Prices - the percentage growth in prices in the UK as measured by the Consumer Prices Index (CPI)
  • 2.5%
Financial pitfalls

Retired market researcher Mrs Young, 78, is not alone in wanting to spend her golden years overseas. MGM Advantage, having conducted a survey, suggests that more than six million UK adults plan to retire abroad with Spain being the most popular destination.

Mr Tully says that the state pension is not the only financial consideration to take into account when considering such a move.

"Currency and health insurance are two big issues," he says.

He points out that there is a cost to moving money overseas.

"We've got a free healthcare system in the UK and not necessarily everywhere overseas, so you need to investigate healthcare and work out if you need to purchase insurance," he adds.

He also warns that buying property overseas is often very different from what people might be used to in the UK. Things need to be taken a lot more on trust, and it is a good idea to find out about how the local market works. Research, overall, is vital.

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People on deckchairs

UK's most popular retirement destinations

1. Spain

2. France

3. US

4. Australia

5. East Asia

6. Canada

7. Italy

8. South East Europe

9. India

10. Portugal

Source: MGM Advantage (survey of 2,028 UK adults)

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Heading back

For many the dream move abroad does not work out, so they want to move back. However, these retirees might have to face the government's Habitual Residence Test.

Retirees who have been living abroad for more than two years and are looking to immediately claim benefits on their return will be subject to this test.

Experts say that people who have lived overseas for some time might be surprised by the changes in society and culture that they return to.

Mervyn Kohler, a special adviser at Age UK, warns that coming back is not always straightforward.

"Nothing is automatic, you've got to re-establish your existence as a citizen in this country in order to access services," he says.

"Some of those services you can only do once you're actually here and have an identifiable address. You can't actually plan for them whilst you're still living abroad."

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