British pensioners in EU won’t face ‘Frozen’ pensions

Whilst the UK has now reached a Brexit trade agreement with the EU, many UK expat pensioners were concerned regarding the future of their state pensions. It was, therefore, met with great relief when it was confirmed by the British government that UK pensioners living in the European Union would not have their pensions ‘frozen’ post-Brexit.

Frozen Pensions

What is a ‘frozen’ pension’?

It was feared that post-Brexit, UK expats living in the EU would no longer receive annual increases to their state pension by the UK government. The Brexit trade deal secured by UK Prime Minister, Boris Johnson, however, means that state pension rights for UK expats will continue post-Brexit.

Steven Cameron, Pensions Director at Aegon, commented that “while the treatment of state pensions was clearly not top of the agenda in last minute Brexit trade negotiations, the outcome will make a huge difference to those planning to move abroad in future for their retirement years.”

In fact, Aegon calculated that any changes to state pension rules for pensioners living overseas could have cost UK expats around GBP 140,000.

With the main focus of the much negotiated Brexit trade deal between the UK and the EU placed on fishing rights, British pensioners living in the EU were particularly concerned regarding the future of their annual state pension increases post-Brexit. It had been feared that state pensions could be frozen once the UK leaves the EU, meaning pensioners would not be subject to the same cost of living increases that those still living in the UK would be. This situation is currently the case for British pensioners living in a number of other countries, including CanadaAustralia and New Zealand.

The UK and EU eventually reached a Brexit trade agreement on 24th December 2020 with the confirmation on pension rights greatly welcomed by UK expats. The rules state that annual pension increases, as well as healthcare, will continue for UK expats who resided within the EU before the end of 2020, as well as UK citizens looking to move to the EU post-Brexit.

“The UK and EU have agreed that the UK will continue paying and uprating state pensions to UK citizens living in EU countries after Brexit – and vice versa,” said James Walsh, of trade body, the Pensions and Lifetime Savings Association. “This means, for example, that British pensioners living in Spain will continue to get the same annual inflation increases they would have received in the UK. The same will apply to Spanish pensioners residing in Britain,” he added.

The agreement will also cover expats who live in countries that are part of the European Economic Area (EEA) – Norway, Iceland and Liechtenstein – as well as Switzerland.

The value of a UK state pension

Although many UK citizens also hold a private pension, the state pension remains a great source of financial assistance, helping many to budget for later life. State Pensions are funded by national insurance contributions and ensure that all UK citizens can be financially supported in retirement. April 2021 will see a 2.5% increase to state pension payments, which brings weekly payments up to £179.60 from £175.20.

Those who entered the national insurance system after the 6th April 2016 will need 35 years’ worth of qualifying national insurance contributions or credits to access the full state pension once state pension age has been reached.

Anyone who reached state pension age prior to 6th April 2016 can either access a basic state pension or an additional state pension depending on certain factors. Those eligible for a basic state pension must have:

  • Paid national insurance contributions
  • Claimed national insurance credits
  • A spouse or partner whose national insurance contributions covered you for benefits

To receive the full basic state pension, you must have paid 30 years’ worth of national insurance contributions or received credits for the same period. Those who paid less than 30 years’ worth of contributions and have less than 30 years of credits will receive a lower sum based on the number of contributions and credits you had.

Employees with high enough earnings will have contributed to an additional state pension, also known as a state second pension (S2P) unless your company specifically opted out of this option.

If you are concerned about your pension post-Brexit, it is recommended that you seek advice from a financial adviser. Alternatively, free advice can be accessed from The Pensions Advisory Service.

Can expats living in the EU still use UK bank accounts post-Brexit?

UK banks such as Lloyds, Barclays and Coutts have informed their UK customers living in the EU that their bank accounts could be closed post-Brexit. British expats living in EU countries such as France, Spain and Portugal could have their bank accounts closed if they are unable to provide evidence of a UK address. New EU passporting rules post-Brexit mean that certain UK banks will be unable to offer certain products to British expats.

All UK expats affected by the change will be written to two months ahead of any account closures, giving customers a chance to make alternative arrangements. The post-Brexit banking changes are a blow to expats who have their pensions paid into a UK bank account.

There is the opportunity for UK expats to open up an alternative account with another UK based bank. At present, HSBC is still offering bank accounts to EU residents. It’s always important to note, however, that banks do not offer the best exchange rates for those looking to convert their pension from British pounds (GBP) into local currency. As a result, it is best to speak with a foreign exchange specialist, such as Halo Financial before making any currency transfers.

Read more about planning for expat life after Brexit by Peter Robinson of the Association of International Property Professionals (AIPP) in Vision: Brexit – Halo Financials’ quarterly Brexit report.

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