As things currently stand, UK expatriates’ state pensions will see inflation-linked increases only if European countries reciprocate.
The state pensions of UK expatriates remain at risk from Brexit, a former pensions minister has warned, as the UK government has only agreed to pay pension increases on a reciprocal basis.
While it was expected the UK and EU would reach an agreement to pay and uprate state pensions to UK citizens living in EU countries after Brexit, and vice versa, the Brexit deal has not been finalised, and as the days count down to the UK’s exit on 29 March, the prospect of a no deal increases.
Under this latter scenario, according to former pension minister Baroness Altmann, there are no guarantees that other EU countries will commit to paying for British pensioners' increases. Under the triple lock scheme, UK state pensions increase each year by the highest of three measures: inflation, the average earnings increase or 2.5%.
Lady Altmann points out that, given there are far more UK citizens retired in the EU than EU pensioners living here, there is little incentive for other European countries to agree to pay the pension increases for retired UK expatriates. In other words, she says, the EU would face a huge bill for the cost of regularly uprating hundreds of thousands of British pensioners, while a much lower number of EU citizens retire to the UK.
She points to figures from the Office for National Statistics, which show that in 2017 the Department for Work and Pensions paid state pensions to around 340,000 pensioners living in the EU (excluding Ireland), but only 85,000 EU residents over age 65 were living in the UK.
While these statistics are not directly comparable, as some pensioners would be under 65, Lady Altmann adds that it is clear Britain 'exports' pensioners to the EU and very few are 'imported' here.
She comments: “Such imbalances clearly put any reciprocal arrangements at risk and leave British pensioners exposed to significant losses which were never explained by the Leave campaigns or party manifestos.
“Even with the prime minister's Withdrawal Agreement and Political Declaration, the risk of frozen pensions remains, because no future relationship is agreed. The likelihood of other countries making demands in exchange for reciprocal uprating clearly puts pensioners at risk.”
Earlier this month Baroness Buscombe, undersecretary of state for the DWP, said that even in the event of a no deal, the UK state pension would be uprated for those living in the EU in the 2019/20 tax year.
Buscombe added that under a no deal exit scenario, the government also wants to “secure continued reciprocal arrangements covering the uprating of state pensions in the EU.”
Separately, as part of a briefing paper entitled ‘Brexit and State Pensions’ published on 31 December 2018, the government stated that under the event of a no deal: “The UK leaving the EU will not affect entitlement to continue receiving the UK state pension if you live in the EU, and we are committed to uprate across the EU in 2019 to 2020.
“We would wish to continue uprating pensions beyond that but would take decisions in light of whether, as we would hope and expect, reciprocal arrangements with the EU are in place.”
In the event of a deal being struck, prime minister Theresa May’s Withdrawal Agreement with the EU supports the co-ordination of social security systems, which cover expatriate state pensions.
The Withdrawal Agreement states that this will “ensure citizens who have moved between the UK and the EU before the end of the implementation period are not disadvantaged in their access to pensions, benefits and other forms of social security, including healthcare cover.”