State Pension triple lock under threat after Brexit

5th August 2016

Being members of the European Union (EU) has been good news for Brits retiring to other member states, as they have the same pension rights as those who reside in the UK.

However, this may be about to change, as this situation cannot continue in its present form and the 12 million retired Brits living in other EU states are left with an uncertain future in terms of what a Brexit will mean for their UK State pension benefits.

Although the UK state pension can be paid anywhere in the world, qualifying for annual increases under the triple-lock guarantee depends upon where you emigrate. The triple-lock was originally introduced by the coalition government in 2010 and ensures that state pensions rise in line with the higher of 1. Inflation, 2. average earnings or 3. 2.5%.

People who retire to countries within the European Economic Area (EEA) are currently entitled to benefit from the triple-lock. This includes all those resident in countries in the EU plus Iceland, Liechtenstein and Norway, which are part of the EU’s single market although not full members of the EU. Switzerland is neither an EU nor EEA member but is part of the single market, therefore Swiss nationals have the same rights to live and work in the UK as other EEA nationals.

Parts of the world like United States of America and Barbados have various social security agreements with the UK that enable expats to qualify for the annual increases to their state pensions. However people who are retiring to countries that have no social security agreements in place with the UK or Canada and New Zealand that have different ones, do not qualify for state pension increases, so they are effectively frozen at their initial rate.

There is much uncertainty around what will happen to the triple-lock after Brexit, as it cannot be assumed everything will remain as it is today. The main concern for British expats is that they may be joining the ranks of those with frozen state pensions once the UK finally leaves the EU.

Ultimately the UK government are likely to look after those still living in the UK before they start considering those living outside the UK, so it would be no surprise to see the rules to the state pension triple lock being tweaked somewhere along the line, so that it only applies to UK residents.

While an increase of 2.5% may not sound much to get excited about, a 65 year old receiving the flat rate state pension of £155 per week who lived 20 years would miss out on £50,000 of state pension income in retirement if they got no pension increases.

It is estimated that the treasury already saves around £500m per year from state pensioners that live in countries where they are not entitled to the triple-lock, so if they can see the opportunity to exclude another swathe of state pensioners from the triple-lock I’m sure they’ll take it.

The recent fall in sterling is also causing expats some issues, who are now getting fewer Euros with their sterling state pension money.

I guess this is just another potential unforeseen consequence of Brexit. Lets hope our negotiating team in Brussels do a good job for us.