British expats in the EU look set to keep annual increases in the state pension and still get healthcare paid for after negotiators reached early agreement in Brexit talks.
Older Britons living in the EU faced the threat of eroding income and hardship if their future state pension rises were frozen, a fate suffered by some 550,000 people currently settled in certain other parts in the world.
A joint update on Brexit talks published by the UK and EU indicated ‘convergence’ of their positions on state pension uprating plus healthcare arrangements for people of all ages – including safeguarding of the EHIC scheme – although nothing will be certain until a final deal is struck.
Brexit talks: Early agreement on state pension uprating and healthcare arrangements reached, as other negotiations between the UK’s David Davis and the EU’s Michel Barnier remain fraught
State pensions are frozen when you first retire or move abroad if you decide to live in some countries, such as Canada, India and Australia, but not in others – forcing many to struggle with the cost of living or give up and return home.
It means some expats who retired when the basic rate was £67.50 a week in 2000 still get that, rather than the £122.30 now received by others who retired that year.
There is presently no indication the Government will change its stance on this group of expats, notwithstanding any protections for EU residents agreed under a future Brexit deal.
What have the UK and EU negotiators agreed?
The UK will continue paying and uprating state pensions to UK citizens living in EU countries after Brexit and vice versa for EU citizens who live here, according to industry group the Pensions and Lifetime Savings Association.
‘Those yet to retire will also benefit from this continuation of the current arrangements,’ said its policy spokesman James Walsh. ‘As at present, this arrangement will cover all EU countries plus those of the European Economic Area (EEA – Norway, Iceland and Lichtenstein) and Switzerland.’
WHAT’S IN THE UK-EU NEGOTIATIONS DOCUMENT?
The two sides indicated ‘convergence’ on the following issues:
Healthcare: ‘Persons whose competent state is the UK and are in the EU27 on exit day (and vice versa) – whether on a temporary stay or resident – continue to be eligible for healthcare reimbursement, including under the EHIC scheme, as long as that position continues.’
Pensions: ‘Lifetime export of uprated pension.’
Read the full document here.
He said progress was also made on whether National Insurance contributions made while working abroad count towards state pensions.
‘The latest update shows that the UK and EU have now agreed to maintain the current arrangement. So a UK citizen who spent some years working in Germany will still have those years count towards their state pension entitlement.
‘This arrangement applies to people who are already taking their state pension and will also apply for those who are yet to retire.’
Regarding how it likely it is these issues are now put to bed, Walsh added: ‘Although the whole Brexit deal will have to be approved by the UK Parliament, by EU national governments and by the European Parliament, it is highly unlikely that these issues will be a sticking point.
‘The fact they have been agreed so early in the process indicates they are seen as uncontroversial which will come as a relief to pensioners across the EU. However, if there is no deal then this agreement might unravel.
‘Of course, it is possible that the whole Brexit deal might founder because of failure to agree on more difficult issues.
‘However, even if the UK leaves the EU in March 2019 with no deal, the EU regulations in this area would have been copied into UK law under the European Union (Withdrawal) Bill now before Parliament – assuming this passes into law. So the state pension arrangements would continue unless the Government decides otherwise.’
Where does this leave expats currently on frozen state pensions?
Cross-party calls by MPs to start giving all British pensioners living overseas the same annual payout hikes have been rebuffed by the Government for decades, including in a recent House of Commons debate.
The recent development in Brexit talks, where EU expats look likely to carry on getting state pensions increases like everyone else, doesn’t appear to have changed the situation for those already in countries with frozen payouts.
A Government spokesperson said: ‘The Government has a very clear position, which has remained consistent for around 70 years: the UK state pension is payable worldwide but is only uprated abroad where we have a legal requirement to do so or a reciprocal agreement is in place.’
Labour leader Jeremy Corbyn threw his party’s support behind the overseas pensioners before the snap election in June. The Scottish National Party, the Liberal Democrats, the Green Party, and many backbench Tory MPs have also campaigned on their behalf.
Sheila Telford, chair of the International Consortium of British Pensioners, the main global campaign group on frozen pensions, said it welcomed the apparent convergence between the UK and EU negotiating teams on state pension uprating.
Where are pensions frozen? Whether an expat’s pension is frozen or not depends entirely on where they move to, because the Government has struck individual deals with some countries but left around 150 others out in the cold. See the full list of countries affected below. (Source: International Consortium of British Pensioners)
‘The ICBP have spent the last year campaigning to raise awareness of the dangers of state pension freezing, which we believed would be the legal default should new commitments to continued up-rating not be formalised during the Brexit process, as now appears likely.
‘Frozen pensions lead to declining real terms incomes, hardship, loss of independence and old age poverty. We wouldn’t wish that on anyone.
‘The ICBP are glad that our campaign has been so well supported in Westminster in recent months, with very few thinking that it would be right or desirable to end current up-rating entitlement for those living across the EU once Britain leaves.
‘But this is a somewhat bittersweet victory for British pensioners living elsewhere. The horror at which the prospect of a frozen pension for EU resident expats has been recognised is somewhat galling for those already in receipt of one.
‘The government’s clarity of intention for those in the EU, only highlights the inequity of the situation for those living elsewhere, particularly for those of us in the Commonwealth, who have just as strong continuing ties to the UK. Our campaign will now inevitably ask:”Why uprate them, not us”?’
WHY ARE STATE PENSIONS FROZEN FOR SOME EXPATS?
Whether an expat’s pension is frozen or not depends entirely on where they move to, because the Government has struck individual deals with some countries but left around 150 others out in the cold. See the map above and the list of countries affected just below.
This has created an historical anomaly, which originated some 70 years ago, where people retiring to Canada, Australia, India, Africa and many parts of the Caribbean lose out on state pension increases, while those living in EU countries, the US, Jamaica, Israel and the Philippines get their full whack. The Government has not struck any new deals for many decades.
Elderly people can experience severe financial hardship if they still choose to go abroad, while in other cases they are unable to join families overseas or return to their homeland after working in the UK because they can’t afford it.
This is despite those who choose to move after retirement having paid the same national insurance contributions as those who remain in the UK, or move to a country where the state pension does continue to rise.
Even if expat pensioners did not see their state pension rise to match the existing UK pension, they could instead at least have their already lower pensions start to be uprated with inflation, campaigners say.
But the Government argues the annual cost of doing even this would eventually escalate from £30million to £500million. This is because those on much lower pensions will die and be replaced by expats with higher payouts, leading state pensions to gradually become equal for everyone in future years.
In a twist, those who live in a country where payments are not uprated can get higher payments for periods of time they spend back in the UK, for example on a family holiday.
HOW MUCH IS THE STATE PENSION?
The basic state pension is £122.30 a week. It is topped up by additional state pension entitlements – S2P and Serps – accrued during working years.
That two-tier system has changed for people retiring since 6 April 2016, when it was replaced by a new ‘flat rate’ state pension. This is worth £159.55 a week.
However, people who have contracted out of S2P and Serps over the years get less than this.
Workers needed to have 30 years of qualifying National Insurance contributions to get the old state pension, but they now need to have 35 years of contributions to get the new flat rate state pension.
But even if you paid in full for a whole 35 years, if you contracted out for some years on top of that it might still reduce what you get.
Everyone gets the option of deferring their state pension to get more in their later years. You can check your NI record here.
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