State Pension risk?
The outcome of Brexit talks could mean UK pensioners who have worked abroad are left worse off.
Several months after they began, negotiations for the UK to leave the EU remain in their formative stages. Even starter topics such as the size of the exit bill, duration of any transition period, and the rights of migrant workers are yet to be resolved.
But in this case, a slow start doesn’t necessarily translate into a delayed conclusion. As things stand, the UK is due to leave the EU in 17 months. In that time, there is a wide range of issues it will seek to cut a deal on, among them the fate of shared pension arrangements. Those who have worked in EU countries outside the UK for significant periods of their employment should take note.
UK citizens qualify for the full State Pension if they have made 35 years of National Insurance (NI) contributions, or have acquired the equivalent credits.
So long as they have at least ten ‘qualifying years’ of NI contributions or credits, those who have worked abroad are still entitled to the State Pension on a pro-rata basis.
However, the current arrangement - which is a reciprocal one - also enables UK citizens to include years spent working in other EU countries in their ‘qualifying years’ tally for the State Pension. Thus, if a UK citizen has made fewer than the requisite 10 ‘qualifying years’ of contributions in the UK, their time spent working in another EU country could push them up above the minimum. If the current system were to end, some of those who would formerly have qualified for the full State Pension could end up not receiving one at all.
There is no certainty that the current arrangements will continue after the UK exits the EU. However, the UK government has already expressed its aspiration to keep the existing arrangements in place after Brexit. In June, the government published its offer – based on the principle of reciprocity – for EU citizens in the UK. The paper1 proposed that:
- the UK will continue to export and uprate the UK State Pension within the EU
- the UK will continue to aggregate periods of relevant insurance, work or residence within the EU accrued before exit to help meet the entitlement conditions for UK contributory benefits and State Pension, even where entitlement to these rights may be exercised after exit.
Yet the paper expresses no more than an intention, and there is always the potential for negotiations to go awry. Indeed, only this week the European Parliament recommended that Brexit negotiations should not yet be allowed to progress to the second stage, given the slow progress thus far, until there is a “major breakthrough” on primary issues, specifically the UK’s ongoing liabilities.2
In short, nothing should be taken for granted. A House of Commons briefing paper3 published in March made clear that reciprocal arrangements will certainly remain in place ahead of the UK’s formal exit from the EU. After that, the survival of the current arrangements is dependent on the deal that the UK and EU are able to strike.
In March, the International Consortium of British Pensioners said that freedom of movement across the EU has meant that a “significant number of people” had acquired State Pension rights in more than one country.4 It warned that, without any agreement, “it is a distinct possibility that the UK National Insurance contribution record will not be consolidated with the other periods worked in the EU.”
For those affected, any failure to agree a continuation of the old rules could have a damaging effect on their retirement income. In light of these uncertainties, regular reviews and expert advice are as important as ever.
The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief depends on individual circumstances.
1 The United Kingdom’s Exit from the European Union: Safeguarding the position of EU Citizens Living in the UK and UK Nationals living in the EU, June 2017: http://bit.ly/2s9am7J
2 Brexit: lack of sufficient progress on divorce terms, 28 September 2017, http://bit.ly/2fTJnVr
3 Brexit – implication for private pensions, 15 March 2017: //bit.ly/2fGPlJ2
4 The Government’s negotiating objectives: the rights of UK and EU citizens, March 2017: http://bit.ly/2xXkCRZ