Frozen pension could mean loss of at least £50,000

How a pre-EU Franco-British agreement could offer a lifeline to thousands of expat pensioners

1 August 2016
By Connexion journalist

IF the previous Franco-British agreement is not re-activated and a replacement is not enacted, UK state pensions for expats in France are likely to be frozen following Brexit, as is the case in many non-EU countries.

For Britons taking the pension for the first time this year, this would be equal to a loss of at least £50,000 (€59,000) over 20 years, says a senior analyst at the investment firm AJ Bell, Tom Selby.

His calculation is based on this year’s new £155/week ‘single tier’ pension and results from the effects of losing a minimum 2.5% increase per year. UK state pensions have a ‘triple-lock’, rising annually in proportion to earnings, prices, or (at least) 2.5%.

“It’s the power of compound interest,” Mr Selby said. “You have something that looks small – 2.5% – but over years becomes enormous. For many people who have a pension already under the old, means-tested, ‘Second State Pension’ system, it may well be more than £50,000,” he said.

In many countries, UK pensions are frozen at the amount when a pensioner leaves, or that taken when the pensioner starts to claim at state pension age if they are already abroad.

This applies unless the UK has a social security agreement with the country agreeing to uprating. These often date to post-Second World War years.

The UK has not signed one since 1981 and the list looks arbitrary – the US, but not Canada; the Philippines, but not New Zealand or Australia.

Mr Selby said: “The government cites cost, saying it would rather spend its social security money on pensioners in the UK, but it does seem unfair. So far, British leaders have not made any promises, so it will depend on what happens next.

“I think it’s quite unlikely the UK will want a single deal with the whole of Europe, so the second option will be going round negotiating with each state.”

The fact that the UK Treasury warned before the vote of a drop in revenue of €36bn a year by 2030 in the event of a ‘Canada-style’ series of bilateral agreements may not bode well.

The UK remaining in the EEA would resolve the problem, but may not be an option.

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