Brexit seen bringing new twist to long-running frozen pension battle

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A long-running and thus far, unsuccessful fight by expat British pensioners to get their “frozen” British state pensions “uprated” annually is seen as entering a new phase, thanks to the possibility that the UK might leave the EU.

The first official skirmish is set to take place today in the House of Commons, where a debate is scheduled on the matter of whether the state pensions of those living in certain foreign countries – such as Australia, Canada, New Zealand and South Africa – should be uprated at the same rate as those of pensioners who have remained in the UK.

Until now the policy of not awarding increases to British pensioners in those countries has been consistently adhered to by successive UK governments, and a legal challenge that went all the way to the European Court of Human Rights was ultimately unsuccessful in 2010.

Expatriate pensioners have nevertheless continued to lobby British lawmakers  for a change, and today’s debate was scheduled in response to this  continuing pressure.

Among those sounding the alarm over the matter with respect to Brexit has been the UK-based stockbroker and third-party pension fund administrator AJ Bell. Last night, the firm issued a statement in which it warned that a vote in favour of leaving the EU could result in Britons who retire to Europe “seeing their pensions curtailed by £50,000”.

This, AJ Bell noted, could happen because, “in the event of a Brexit, the UK might have to negotiate ‘reciprocal’ arrangements with individual EU countries [in order] to maintain the status quo” with respect to the way the UK state pensions of those living in these countries would be handled.

“Where no such arrangement is agreed, people retiring to those countries could see their state pension payments frozen,” AJ Bell said – unlike now, when those who retire to a country within the European Economic Area (EEA) have their pensions uprated by the highest rate being offered to any UK state pensioners that year.

“Based on an individual aged 65 in receipt of the £155.65 flat-rate state pension, the loss of uprating would cost around £50,000 over 20 years,” AJ Bell said, adding that as many as 472,000 UK citizens who have retired to EU and who currently receive fully uprated pensions could be affected.

‘Throw into doubt’

“Brexit would throw the position of expat pensioners, or those who wish to retire to Europe, into doubt,” AJ Bell senior analyst Tom Selby said.

“Currently, UK citizens who retire within the European Economic Area have their state pension payments uprated by at least 2.5% every year,” he added. “This could be worth tens of thousands of pounds over the course of an individual’s retirement.

“While some believe the Government will be able to negotiate protections for expat pensioners in the event of a Brexit, it is worth noting the UK has not arranged a similar deal with a non-EU country since 1981, primarily due to the costs involved.”

‘Lack of clarity’

For its part, the UK Government appears to have admitted that a lack of clarity does surround the matter of how UK pensioners who retire abroad within the EU will be affected in the event of a Brexit vote on 23 June.

In response to a parliamentary question on 23 February, UK pensions minister Ros Altmann said that there was “of course…uncertainty about how a vote to leave the EU could impact on access to pensioner benefits for UK pensioners living in other parts of Europe”, but added that such questions “would need to be answered as part of the process of negotiating the UK’s exit if there is a vote to leave”.

A briefing note ahead of tomorrow’s debate may be found and downloaded here: House of Commons Briefing Paper on Frozen Overseas Pensions, 6 May 2016