Brexit puts pension agreements for retiring expats at risk
Possible changes to social security agreements post-Brexit could have an unforeseen impact on the retirement income of British citizens planning to move overseas to retire.
Countries in the EU have reciprocal social security agreements with the UK, which means the state pension is to increase each year in the same way as retirees living in the UK.
However, these arrangements are currently not in place in countries including Australia, Canada and New Zealand.
Retirement Advantage warned any changes to reciprocal social security agreements, as a result of Brexit negotiations, could end up having a detrimental effect on retirement incomes and urges retiring expats to seek financial advice.
According to Advantage Retirement, a person retiring to Australia in 2008 would have seen their UK basic state pension frozen at £90.70.
However, the basic pension rate has gone up by 39% to £125.95 a week during the last ten years, which is worth an extra £1,833 a year to those who stayed in the UK.
In September 2014, there were 1.24 million people in receipt of a state pension outside Britain. Of these, about 560,000 were in countries where the state pension is not up-rated, including Canada, New Zealand and Australia.
The government has estimated that uprating frozen pensions in payment to current levels would cost more than £500m a year.
Andrew Tully, pensions technical director at Retirement Advantage, told the FT Adviser: “Many people dream about retiring abroad, often hoping to enjoy better weather, a better lifestyle or cheaper living costs than back in the UK.
“However, without the right planning and financial advice, you can very quickly find yourself fall foul of local tax laws, feeling the pinch because of currency exchange rates or other financial issues, even more so given the current uncertain climate.
“As one example, if you retire to some countries, you will find your UK state pension won’t increase every year like your peers who remained in the UK. As living costs inevitably go up over the years, you will need to have other sources of income to help maintain your chosen lifestyle.”