Interactive Investor

Britons abroad still face threat to pensions after Brexit

2nd December 2020 13:22

Marc Shoffman from interactive investor


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A challenge to how pensioners retiring overseas are treated has been rebuffed by the government.

Britons retiring aboard still face having their state pension payments frozen despite pressure on the UK government to change the way the benefit is paid.

Retirees taking their state pension in the UK benefit from a triple lock that increases it each year by the highest of earnings growth, price inflation or 2.5%.

This applies to expats who have already retired to the European Union and other countries with reciprocal arrangements such as the US, Bermuda and Israel.

But there are believed to be more than 500,000 retirees in Commonwealth countries such as Australia, Canada, New Zealand and South Africa who are not eligible.

Instead, their state pension is frozen at the point that they took it.

Labour MP Bell Ribeiro-Addy highlighted this issue during a parliamentary debate this week.

She cited the story of 82-year-old Monica Philip who emigrated to the UK as part of the Windrush generation and worked for 37 years as a civil servant, but now lives on a state pension of just £74.11p a week because she returned to Antigua to care for her ailing mother. 

Ribeiro-Addy says: “Pensioners such as Monica came to the UK at the invitation of the British government, but they are now being penalised for returning to their country of birth, sometimes not through their own choice.”

However, work and pensions secretary Thérèse Coffey, replied that government policy would not change.

She says: The situation that happens with aspects of pensions is quite complicated and often these are reciprocal arrangements, so that is where such things as aggregation may well happen, but that does rely on those agreements being in place.

“That has been the policy on pensions for longer than any of us in this house have been alive, I expect, and it continues to be honoured.”

Robert Hallums of Experts for Expats, which provides guidance on retiring abroad, describes the rule as “totally shameful” to ignore those who have contributed to the UK economy but chosen to live elsewhere.

He says: “It’s an arbitrary rule for people in particular countries and it makes absolutely no sense why they do not see their pensions increase as with everybody else.”

Jason Mountford, a financial planner at law firm Irwin Mitchell, warns the situation may get worse for those retiring in the EU after Brexit as it is not yet clear if they would benefit from the triple lock.

He says: “For someone retiring in a country without the right to the annual increase, this could have a significant impact on their long-term financial security.

“While a couple of per cent each year doesn’t necessarily sound like a lot, over the course of one’s retirement it could add up to tens of thousands of pounds less in state pension benefits.”

Mountford adds that the UK isn’t the only country with different rules for expats.

Australia’s state pension has a number of restrictions on those seeking to retire abroad, including the need to be receiving the benefits for two full years as an Australian resident to avoid it being cancelled completely when moving overseas.

He says: “The state pension is not like a personal pension and when you are making national insurance contributions you aren’t paying into your own pot that you can access when you retire.

“What you are actually doing is paying the state pension benefits for those who are already retired and receiving benefits now.

“The question is then, does it seem right that you are making a payment to the government for them to then send that money to be spent in the Spanish, Australian or American economies? I’m not so sure it does.”

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