Brexit And The UK State Pension

What effect could Brexit have on expatriate’s state pensions?  Will they continue to receive the annual inflationary rises once the UK is no longer an EU member?

What effect could Brexit have on expatriate’s state pensions?  Will they continue to receive the annual inflationary rises once the UK is no longer an EU member?

People living in or planning shortly to retire to an EU country may be asking what effect could Brexit have on their state pension?

When looking to discuss their state pension people are often thinking about the annual inflationary rises. Here the big issue is whether they will still be entitled to receive the rises as they will be living in an EU country and, once the UK leaves the EU, no longer have protection of EU law.

These concerns arise as over years there have been a number of scare stories in the media about UK expatriates living in countries such as Australia, Canada and New Zealand who have not received any increase in their State Pension.

The reason for this is that in order to be entitled to an increase each year a UK expatriate needs to be resident in:

• an EU country;
• an EEA country;
• Switzerland; or
• a country with which the UK has a social security agreement and that agreement includes a clause entitling the recipient to an annual increase.

The UK has 18 social security agreements of which 16 entitle the recipient of a UK state pension to the annual increase. The list of countries are: Barbados, Bermuda, Bosnia-Herzegovina, Jersey, Guernsey, Isle of Man, Israel, Jamaica, Kosovo, Macedonia, Mauritius, Montenegro, Philippines, Serbia, Turkey, USA, Canada, and New Zealand. Of these only Canada and New Zealand are excluded from receiving the annual increase to a UK state pension.

Therefore, people leaving the UK to live in countries like Australia, Canada, or New Zealand could have easily established the fact that their UK state pension would have not been increased before they departed.

Following the Brexit vote, the problem we have is that there is currently no specific bilateral agreements in place, other than at a general EU level. This lack of certainty means that no definitive answer can be given. All that we can do is look at the past as a guide to the future. The good news is that:

• the legal framework is already in-place to give annual increases in the State Pension to someone living in an EU country;
• the administrative processes are already in place to facilitate the increase payments;
• recent history shows that the UK is willing to adopt a positive approach to the entitlement of increases to the State Pension in times of change (the breaking up of Yugoslavia in Bosnia-Herzegovina, Kosovo etc.)

What is not known is whether the economic impact on the UK economy could lead to pressure to raise money. In such a situation there has been talk of changing the current ‘triple-lock’ provision where the state pension increases by the greater of the CPI/RPI or 2.5%. If this were to happen perhaps the government would also seek to renegotiate social security agreements to prevent those not contributing to the UK economy from benefiting from things like the annual rise in the state pension.

Overall this is an area in which only time will tell. However, comfort can be taken by the fact that recent history, when coupled with the fact that the legal and administrative framework are in place, suggests that the annual increase in state pension may well continue for people who are residents of EU countries.

Any questions? Ask our financial advisers for help.

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