Retiring abroad may be a dream for many. But it's definitely not without its challenges. And quite often, it's the financial challenges that take center stage. And these can be further complicated if you run into something unexpected, such as having your pension frozen.
What is a frozen pension?
A frozen pension is a state pension that remains fixed in the amount it was first paid when you moved abroad. This means that the amount you receive will not change, regardless of inflation and other factors.
Let's take the UK as an example. Here, pensioners benefit from the “triple lock” system: they receive an annual increase to their pension payments based on the inflation rate, wage growth, or a guaranteed minimum of 2.5%. By contrast, a frozen pension will not increase. Once you've relocated to a different country, your pension will remain fixed, irrespective of the rising living costs, inflation, overall wage growth in the United Kingdom, and other factors.
Needless to say, this can be a challenge, especially if you live in a foreign country with a growing cost of living and as you get older.
What happens if your pension is frozen?
It is estimated that over 453,000 retired Britons are affected by frozen pensions. Most of them have relocated to destinations that do not have a reciprocal pension agreement with the UK. Retirees are often attracted by warmer climates, more affordable living, and following friends who have relocated to a specific destination earlier—and in the spur of the moment, these factors may indeed seem to outweigh more practical considerations.
But as time goes by, the reality of having your pension frozen may start to set in, and your financial security will notably diminish. And as prices rise and your income remains the same, there is a chance you may start to rethink your strategy.
Take what happened in Türkiye as an example. Western Türkiye has a relatively large British expat community. And when the prices in the country surged in 2024 to an all-time high, a lot of expat retirees found themselves dealing with the rising cost of living. However, as Türkiye (as well as the EU, the USA, and a number of other countries) does have a reciprocal social security agreement with the UK, at least some of the growing expenses were compensated by the annual pension increase. Now, imagine if their pensions were frozen? This would have made coping with the almost triple price hike much more complicated.
If we continue following UK expats, we will discover that the issue of frozen pensions primarily affects retirees living in the Commonwealth countries (Australia, Canada, and South Africa). Their pensions remain locked at the initial payment rate, and they miss out on all the increases pensioners in the UK benefit from.
Why do pensions get frozen?
As we can see from our example above, pensions mainly get frozen when the country that the retiree is from doesn't have reciprocal social security agreements with the country they have relocated to. Agreements like these are essential, as they are what dictate if your pension will be increased based on inflation and wage increases.
Many countries reserve the right to "freeze" pensions depending on the destination the pensioner has relocated to. For instance, citizens of the United States would generally receive their Social Security benefits in full—unless they have relocated to specific destinations such as Cuba or North Korea. In some cases, your pension may be temporarily frozen even if you do not relocate.
For instance, France recently announced that pension revaluations would be delayed by six months to curb the country's deficit. Australia may also adjust pensions based on residency. For instance, if an Australian pensioner moved abroad for over 6 weeks, their pension payments may be reduced. And after two continuous years abroad, the pension may be frozen at a reduced rate.
In Germany, pensions for retirees living abroad can also be reduced or frozen. For example, the country does not apply annual inflationary pension increases to those residing outside the EU. But it continues to pay pensions without adjusting for inflation.
Austria also reserves the right to limit pension increases for retirees based outside the EU. So, pensioners may have their pensions fixed at the rate they were when they left Austria.
In Italy, on the other hand, pension freezes are not limited to just relocation. Just like France, during times of economic instability, the country reserves the right to temporarily freeze pensions for high earners.
How to avoid frozen pensions
The first and best thing you can do is check with the relevant authorities in your home country regarding pension freezing procedures if such exist. The most straightforward course of action would be to avoid relocating to a destination that doesn't have social security agreements with your home country.
If you have your eyes set on a specific destination—and it is affected by the "freeze"—consider supplementing the gap in income with personal savings or available transactions. For example, if you are just starting to plan for retirement, you may want to work on a more intense savings plan to relocate to the destination of your choosing. Or, you may consider selling some assets to compensate for the lack of income you may be facing in the future. Alternatively, there is always the option of finding part-time or remote work even after you've officially retired to make extra money.
Overall, the possibility of having your pension frozen highlights the importance of financial planning and understanding the benefits and limitations of your pension plan. A frozen pension may be easy to overlook in the excitement of planning your retirement. Or, it may seem too distant of a possibility to worry about ahead of time. However, as many countries—and especially popular retirement destinations—tend to have volatile economies, having a secure and adequate income source can be what makes or breaks your retirement experience. Do not set yourself up for unpleasant surprises in the future, and make sure you know where you stand before you lock in on your relocation.
