UK Markets close in 1 hr 22 mins

Britain and EU reach agreement over expats' state pension after Brexit

Sam Brodbeck
Fears that expat pensioners living in Europe would have their payments frozen have been eased - AFP

British pensioners who live in the EU will continue to see their state pension payments increased each year after Brexit, the Government has indicated.

There had been fears that millions of expats who live in Europe would see their pensions "frozen", meaning their value would be steadily eroded over time. This is the situation in countries such as Canada, Australia and New Zealand, where British state pension payments to expats are not increased each year in line with inflation.

But an official update, published quietly last month, confirms that the British government intends to continue increasing state pensions to expats in the EU after the UK leaves the EU in 2019. The update showed that Britain and the EU had the same position on annual increases: that they would continue to be made as now after Brexit.

In addition, National Insurance contributions made while abroad will also continue to count towards the state pension. You get the full state pension, worth £159.55 a week, if you have 35 or more "qualifying" NI years on your record.

James Walsh, of the Pensions & Lifetime Savings Association, a trade body, said: "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. 

"This means, for example, that British pensioners living in Spain will continue to get the same annual inflation increases they would have got in the UK. The same will apply to Spanish pensioners resident in Britain."

The agreement also covers people in countries that are part of the European Economic Area – Norway, Iceland and Lichtenstein – as well as Switzerland.

The state pension is increased by the "triple lock", meaning payments rise each year by the highest of earnings, inflation or 2.5pc. The mechanism has ensured pensioners' income keeps pace with the rising cost of living.

However, by 2020 the Conservatives want to remove the 2.5pc underpin leaving a so-called "double lock". In July the Government announced it was to push back the state pension age, meaning around six million people will retire later than under previous plans. 

As with other policy areas, the whole Brexit deal will have to be approved by British and European parliaments and governments. But it is thought the agreement over state pension is unlikely to be a sticking point now a deal has been struck.

"The fact they have been agreed so early in the process indicates they are seen as uncontroversial which will come as a relief to pensioners across the EU," said Mr Walsh.

Experts had warned that pensioners who retire overseas could have been up to £50,000 worse off if an agreement had not been reached.

Listen now: It's Your Money Podcast