Pensions  

Retired expats still face uncertainty in Brexit talks

Retired expats still face uncertainty in Brexit talks

Two weeks ago, Amber Rudd, then work and pensions secretary, announced the government would be guaranteeing the current arrangement for the uprating of the UK state pension for recipients living in the EU for only another three years.

This policy means expats living in EU countries will see their state pension rise annually by average wage growth, the rate of inflation or 2.5 per cent, whichever is highest – the infamous triple lock.

The announcement was intended to provide some sort of certainty to UK citizens living abroad while Brexit negotiations continue.

However, there is a fear that it is more likely to end up producing added anxiety for pensioners in retirement.

With the fall in the value of the pound ever since the EU referendum in 2016 and incomes being squeezed by exchange rates, many living in the EU will be seeing this as a double whammy of bad news.

It is important that the government acted before the Brexit deadline passed and it will be hoping it can negotiate a new arrangement to ensure the policy continues after this new three-year deadline.

Nevertheless, this will be subject to reciprocal arrangements that, as we have seen so far throughout the Brexit process, do not appear to be guaranteed and are far from straightforward to negotiate.

All of this may result in expat pensioners being used as a pawn in the political chess match that is Brexit, not only in terms of the UK’s negotiations with the EU, but also in the domestic political sphere where curbing the benefits of expat retirees would be unpopular with many voters at home.

As a result, this announcement will give retirees in the EU little comfort.

The government must take the initial feedback it has received to this policy and produce a detailed plan for what it expects, or hopes, to achieve as a final outcome. 

Informed decisions

As with nearly every facet of pensions, retirees need to be well-informed about this decision, giving them every opportunity to experience the retirement they deserve after many years of working.

Inflation will have a dramatic corrosive impact on real spending power over a 20 or 30-year retirement if incomes are not inflation-linked, which is the case for retirees outside of the EU at present.

Financial advice will have a crucial role to play for people receiving the state pension abroad who need to project their retirement funding plans and factor in both state pension income and their own private savings.

But the government needs to take responsibility for ensuring all parties can make informed decisions to plan with confidence.

At this point, no one ultimately knows whether current uprating will be maintained indefinitely.

Even so, expats should use the next three years to prepare to the best of their ability, ensuring any personal pensions or assets are set up to provide the income they require.

However, it also feels there is an elephant in the room with this decision.