Spain remains the top retirement destination for UK pension savers but non-EU locations are growing in popularity despite the fact that more than 500,000 are suffering a ‘frozen’ state pension by retiring to some non-EU jurisdictions.

A survey for Canada Life of over 1,000 over-50s yet to retire found that traditional EU destinations were still favoured, with Spain at the top for the sixth year in a row but the US and Turkey are growing in popularity.

The survey reveals, however, that Brexit has meant that nearly half of over-50s (45%) are reconsidering whether they can afford to retire abroad at all.

With figures showing that 510,000 UK retirees now live in territories where their state pension is frozen on the date they leave the UK, the company says financial advice on retiring abroad has never been more important to avoid a “nightmare” scenario.

Andrew Tully, technical director at Canada Life, said: “Given the prevailing headwinds and uncertainty continuing to surround Brexit, it’s perhaps not a surprise to find the ‘B’ word having a big influence on peoples’ plans for retiring abroad. Other things people will need to consider include a new set of retirement risks, whether that be local tax laws, feeling the pinch because of currency exchange rates or financial scammers.”

The top 3 retirement hotspots remain Spain, France and Portugal but Australia is growing in popularity and Turkey has appeared in the top 10 as a newcomer.

UK's favourite retirement hotspots (2018 rankings in brackets):

Source: Canada Life

Canada Life is urging people to consider when thinking about retiring abroad the impact of reciprocal social security agreements. Its survey showed that only one in four people (24%) looking to retire abroad were aware of which countries had reciprocal arrangements in place despite the fact these can have a major impact on benefits such as the the UK State Pension.

Canada Life points out that EU countries, and some others, do have reciprocal social security agreements with the UK. This means the UK State Pension will increase each year for UK retirees abroad, in the same way as retirees living in the UK enjoy annual increases.

However, many popular retirement destinations, including Australia, Canada and New Zealand, do not have arrangements in place, meaning the UK State Pension will not increase.

The latest figures show that around 510,000 recipients of the UK State Pension living overseas do not receive increases. Of those 84% live in Australia, Canada and New Zealand. The estimated costs of uprating these pensions as if they had not been frozen would be over £600m a year, says Canada Life.

As an example, Canada Life says that a single person who retired in 2009 to Australia would have received UK Basic State Pension of £95.25 at the point they left the UK but this amount was then frozen. A decade later, they should now receive £129.20 a week (an increase of 36%), or an extra £1,765 a year in income if they had remained in the UK.

Mr Tully added that as part of the Brexit negotiations, reciprocal social security agreements have been reflected in the Withdrawal Agreement, and in the event of a no deal the UK has stated it would preserve the uprating of the State Pension.