The Government’s announcement that state pension increases will be guaranteed for only the next three years is ‘deeply worrying’ for ex-pats living in Europe says Royal London director of policy Steve Webb.
Under current rules the UK State Pension is payable overseas only uprated annually if the individual is resident in an EEA country or one with which the UK has a reciprocal social security agreement requiring this. UK pensioners in other countries – most notably Australia, Canada, New Zealand and South Africa – have their pension frozen, which means it is paid at the same rate as it was when they first became entitled, or the date they left the UK if they were already pensioners then.
It had been widely assumed that this policy would continue indefinitely post-Brexit. But today the DWP has announced that annual increases will only be guaranteed for the next three years, after which the Government ‘plans to negotiate a new agreement’. In the absence of such an agreement there is no guarantee of annual increases. With pensioners being retired for potentially 20-30 years, the lack of annual inflation protection could make a very large difference to their standard of living.
Webb says: “This attempt to reassure British pensioners living in the EU will actually have the opposite effect. They have received repeated assurances that their pensions would be increased each year regardless of the outcome of the Brexit process. Today’s announcement of a time-limited guarantee will be deeply worrying to British ex-pats living in the EU. If the UK leaves the EU on bad terms with the rest of the Europe there is no guarantee that a new uprating arrangement will be reached, and today’s statement offers no assurance to pensioners that annual increases will continue after that point.”
Aegon pensions director Steven Cameron says: “The UK Government’s announcement that EU residents entitled to UK state pensions are only guaranteed to receive inflation upratings for 3 years in the event of a no deal Brexit calls into question what could happen thereafter. While designed to offer reassurance that valuable upratings will continue for this 3 year period, it raises the spectre that such increases might cease in 2023.
“Under current rules, UK state pensioners resident in the UK and the EU benefit from the ‘triple lock’, which means state pensions increase at the highest of 2.5 per cent, average wage growth or prices growth. This has meant over recent years, pensioners have seen their state pension increase faster than price inflation, improving their purchasing power. While the current Government has not committed to continuing the triple lock rather than for example price inflation increases beyond the current Parliamentary term, the potential for the half million who have retired to live in the EU losing all inflation protection will be a big concern. If inflation were to be at the Bank of England’s target level of 2.5 per cent, £1000 today would be worth only £781 in 10 years’ time, a 22 per cent drop in purchasing power.”