Millions of Britons retiring abroad could have their state pensions dramatically slashed following Brexit.
A change in the way the state pension is calculated will result in lower weekly payouts for many who have lived abroad during their working lives.
All expats who relocate to the European Union and have previously lived in Australia, Canada or New Zealand will be impacted by the change, which has been announced by the Government. This comes as a direct consequence of the UK leaving the EU and will take effect from January 2022.
There are currently 1.2 million Britons citizens living in Australia and over 600,000 living in Canada who will see their pensions rights curtailed if they later choose to retire in the EU.
This is because any years spent working in Australia, Canada or New Zealand will no longer be counted towards the state pension. This will apply to everyone whether they have taken the state pension already or not, meaning many retirees could suddenly see a drop in their weekly income.
This move will only affect people retiring to EU nations. Britain arranges deals with other countries on an individual basis.
The amount retirees receive under the state pension depends on how many years they have made National Insurance contributions. Until Brexit, contributions made in Australia, Canada and New Zealand could be counted towards the British state pension for those retiring in the EU, but that will no longer be the case.
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Pensions are likely to be affected in a number of ways following Brexit and British retirees living in the EU will have to keep a watch on state pension payouts, the value of the pound and consumer protections.
Missing just one year of contributions can cost retirees £5,000 in state pension payments over the course of a twenty-year retirement, according to consultancy LCP, equivalent to £5 per week.
John Westwood of Blacktower Financial Management, a wealth manager, warned anyone planning to work or retire abroad risked being caught out. He said the change would hurt expats during an already turbulent time.
“If the Government goes ahead with this change in rule, they need to lay out clear foundations for UK expats on the new state pension breakdown,” he said.
Many British pensioners abroad have returned home in recent years, as there were more retired expatriates coming home than moving to the EU during 2020. Many have been worried about losing their residency rights and access to healthcare after the Brexit transition period.
There were 1,900 fewer retirees from Britain living in EU countries, according to figures released by the Department for Work and Pensions at the start of the year. The number of British pensioners living in EU countries peaked in 2017 at 475,000 and has since dropped by around 8,000 to 466,920.
The Government confirmed in January anyone moving to the EU or Switzerland after Brexit can carry on receiving their British state pension, which will continue to be increased each year in line with the rate paid in the UK. Only those who worked in Australia, Canada or New Zealand face potential cuts.
A spokesman at the Government said that only a "very small" number of people retiring in the EU after December 2021 will be impacted by the change in calculation.
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