Currently, people living in countries that do not have reciprocal agreements with the UK, or don’t have legal requirements for expat pensions, will not receive yearly increases (uprates) in their state pension.
There are currently around 510,000 people receiving this payment abroad, with 84% of them having retired to Australia, Canada and New Zealand – none of which have reciprocal agreements.
Expats in hotspots such as Spain and France, for example, do.
At least for now.
Frozen with no protection
According to Tom Selby, senior analyst at AJ Bell, retirees based in the EU could have their pension frozen as well, if a Brexit deal is not reached.
“At the moment, UK citizens retiring to countries like Spain and France benefit from state pension increases through a reciprocal deal with the EU as a whole.
“If the UK leaves the EU without a deal the government has only committed to uprating state pensions for people living in EU member states in 2019/20. Beyond this point, these increases will depend on a reciprocal deal being struck, either with the EU or individual member states,” Selby added.
Brits won’t even be protected by the ‘triple-lock’ agreement, which ensures that the UK state pension goes up at the rate of inflation, earnings or 2.5% – whichever is higher.
The UK’s Department for Work and Pensions (DWP) has released an updated estimate of the cost of uprating state pensions in frozen rate countries.
Figures released on 14 February reveal that the cost to the UK government would be £600m ($769m, €682m) a year if expat pensions were unfrozen, up from an estimated £500m reported in October 2018.
This would mean costs in excess of £3bn over the next five financial years – making it even less likely to be implemented.
Jon Greer, head of retirement policy at Quilter, agreed: “The update is a useful exercise, as there had been disagreements over how much such a policy change will cost.
“Changing the 70-year-old rules on expat pensions could be seen as an opportunity to win favour with parts of the public, but with the state pension already eating away at an astronomical amount of the budget, it might be a hard one for the chancellor to stomach.”