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How the Brexit vote affects your British pension in France

Des Cooney from Axis Strategy Consultants looks at how the UK state pension will be affected by Brexit and what expats in France can do to protect their money.

Published: 20 July 2016 11:03 CEST

Photo: Susan Sermoneta/Flickr

The decision by UK voters to leave the European Union has been unsettling for expats based in Europe. As their status becomes uncertain there is increased concern felt by many British, especially on the pension front. The Brexit vote will have a major impact on the UK economy in the months and years ahead and could have far-reaching consequences for pensioners living abroad.

The political landscape is continuously shifting with financial markets reacting to every move. For British expats in France, who are dependent on income from the UK, the recent decline in sterling of circa 10 percent may pose a significant challenge, as their purchasing power is linked to the value of the pound. As such, the proceeds of British pensions, inheritances or rental income will now buy less in France.

How will the UK state pension be affected?

Concerns that UK state pensions may be frozen have become real now that Britain has chosen to leave the EU. Under the existing system, the state pensions of retired Britons in Europe increase annually in line with either inflation or a figure of 2.5 percent; whichever is the highest.

The aim of this policy was to make it easier for people to move freely between EU countries during their working life without suffering penalties in retirement for doing so. The “no” vote has now created a predicament wherein existing bilateral agreements between the UK and countries in the European Economic Area (EEA) will have to be renegotiated. If no new agreement is reached, the UK’s DWP has confirmed that the state pension could be frozen i.e. no future annual increases.

At present the flat-rate state pension is set at £155.65 per week. Failure to secure a suitable arrangement would mean that the reported 472,000 EU-based British citizens aged 65 and over, who are currently in receipt of the state pension, would run the risk of losing up to £50,000 in pension increases over a 20-year period.

Government figures from 2015 show that there were around 61,000 British recipients of UK state pensions resident in France. The UK government has pledged to negotiate protections for expat pensioners in the wake of the Brexit vote. However, such negotiations are not straightforward; the process is likely to take a considerable amount of time.

Pressure on expats to return to the UK

Any changes to the existing system are likely to have a negative impact on pensioners who rely on their benefits keeping in line with inflation. There are fears since the Brexit vote that a large number of pensioners currently living in the EU may have no choice but to return to the UK. This particular problem would be exacerbated if Member State governments were to stop or restrict access to free healthcare. Retired British expats may suddenly find themselves having to pay for private medical cover in France, which would put an even greater strain on their financial resources.

What to do with private pensions

With a number of experts forecasting a possible recession in the UK, it is important for investors to review their pension funds to ensure that they are suitably diversified in terms of asset allocation. Warnings of a slump in the commercial and residential property market along with a cooling banking sector are signs of an economic downturn.

For those with Defined Benefit (DB) pension schemes, it is likely that falling gilt yields as a result of the ‘no’ vote will further drive up pension deficits. Brexit triggered a rush of investors to buy the safest government bonds, pushing prices up and yields down. As a consequence, the UK’s 6,000 private sector DB schemes, which guaranteed inflation-linked annual incomes based on salaries to 11 million workers, now find themselves struggling to meet their pension promises.

The latest figures suggest that 5,000 DB schemes are now in deficit; as such there is increasing pressure for the Pension Protection Fund (PPF), the government’s lifeboat fund, to come to pensioners rescue. Unfortunately, the shortfall between assets and liabilities in all UK schemes has actually risen from £820bn on the day of the EU referendum to £925bn as of the end of last week. The problem for the PPF is that it now runs the risk of being overwhelmed.

Based on 5945 schemes in the PPF 7800 index (Souce: PPF)

Take back control of your UK pension

One positive aspect of a reduction in gilt yields is the increase in transfer values wherein DB schemes increasingly look to offload liabilities by offering members attractive payouts as an alternative to a guaranteed income stream.

Although such a move will exert further pressure on the DB schemes themselves, it is indeed good news for those wishing to transfer out of such schemes. The downside is that any continuous deterioration in the funding levels of schemes may result in a liquidity crisis for the pension sponsor. A ‘run’ on transfers out of schemes may eventually result in a freeze on all transfers out by individuals.

In the mean-time expats should consider taking back control of their UK pensions whilst the window of opportunity exists. This can be done by transferring to a Qualifying Recognised Overseas Pension Scheme (QROPS). Under existing legislation expats can transfer to a QROPS and benefit from the choice of currency along with a much wider range of investment funds on offer from providers.

Whilst uncertainty remains in the British economy we can expect to experience ups and downs in the value of our pension savings. The challenge is to try and manage such movements by adopting a more nuanced approach to pension planning.

For more visit www.Axis-finance.com

READ ALSO: How Brexit might affect you in France and how to react

By Des Cooney, AXIS Strategy Consultants

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'I feel exiled': How Brits in Europe are locked abroad with foreign partners

Europe is home to hundreds of thousands of British nationals, many of whom have foreign partners and children. But if they want to move to the UK to live and work it will soon become more difficult.

When it comes to getting a partner visa, the UK has some of the strictest rules in Europe. In addition to hefty fees and a healthcare surcharge, the Home Office requires British citizens and long-term residents who bring their foreign partner to the UK to have a minimum income showing they can support them without relying on the social security system.

The minimum income up until now was set at £18,600 (€21,700), or £22,400 (€26,100) if the couple had one child, plus another £2,400 (€2,800) for each other child.

But these income requirements will rise steeply from April 11th 2024.

How it works: What Brits in Europe should know about UK’s new minimum income rules

From this date the minimum a British national or long-term resident will need to earn if they want to return home will increase to £29,000 (€33,800) and up to £38,000 (€44,313) by spring 2025, although there will no longer be an additional amount for accompanying children.

Alternatively, families need to prove they have at least £62,500 (€72,884) in cash, which from 11 April will increase to £88,500 (€103,207).

‘Family life has been destroyed’

To put this in context the Migration Observatory at the University of Oxford suggests that around 50 percent of UK employees earn less than the £29,000 threshold and 70 percent less than £38,700. The Observatory also says that while the number of people affected by the policy is small compared to the overall UK immigration (family visas represent 5 percent of all entry visas), the impacts on concerned families can be “very significant”.

The Migration Observatory notes that other European countries apply income thresholds to sponsor foreign partners. Spain, for instance, requires sponsors to have an annual income equal to the social security salary. In Denmark, sponsors must not have claimed social benefits in the three years before the application. But in Spain and the US, the partner’s foreign income also counts towards the threshold.

So what does this mean for mixed British and international families living in Europe who might want or even need to return to the UK to live?

Campaigners have complained that many Britons with foreign partners have simply been “locked abroad” or families have been separated while they try to meet the minimum income or savings requirement.

Reunite Families UK, a non-profit organisation supporting people affected by the UK spouse visa rules, says this policy causes distress, especially for children.

Some 65 percent of respondents in research carried out by the group said that their child received a diagnosis of a mental health condition due to the separation of their parents.

“Since its introduction, this policy has destroyed the family life of countless people and children,” Matteo Besana, Advocacy and Campaigns Manager at Reunite Families UK said.

“Women have been forced to become single parents to their children and live away from their partner and the father of their children only because they didn’t meet the threshold.

“As shown by our research on the mental health impact of the policy, these are scars that, particularly for children, will be carried for the rest of their lives,” Besana said.

The people most likely to be affected are women, who tend to earn less or not work because they took on caring responsibilities. Also heavily impacted are people under 30 and over 50 years of age, people living outside London and the Southeast of England where wages are higher, and those belonging to specific ethnicities, according to the Migration Observatory.

The Local spoke to two British women, in Italy and Sweden, struggling to return to the UK with their families because of these rules.

More savings needed

Sarah Douglas, who has been living in Italy since 2007, was planning to return to Scotland with her Italian husband and three children.

“It was always our long-term goal to move back to the UK after we had our children and once we’d have saved enough to buy a home in the UK,” she said.

“In hindsight, we should have gone after the Brexit referendum, but in the beginning it wasn’t clear what the final deal would be and I naively assumed that situations like mine would be taken into account and we would have the right to return… Once it did become clear, we were in the middle of the pandemic and it wasn’t the time to move,” she said.

Having stayed home to take care of the children, Sarah will find it hard to land a job near her family in Scotland that meets the minimum income required to sponsor a foreign partner for a UK visa.

Her husband, a computer programmer, has been trying to get an employment visa, “but most of them state that you must already have permission to work in the UK,” Sarah says. And applying for British citizenship is not an option for a non-UK resident spouse.

‘People need to be aware’

Sarah and her husband are trying to save as much as they can, an alternative to the income requirement, but the amount they need is rising to almost £90,000, meaning it may be a long time before they have enough to move home.

While the aim of the UK’s policy is to ensure families moving to the UK are not a burden on the taxpayer, the reality is that people arriving on a family visa are not able to claim any benefits from the UK government.

“They should judge the overall financial viability of the family unit, rather than just the earning potential of the sponsoring partner,” Sarah says.

“We could live well with my husband’s salary and he could work remotely. We are stable and financially secure, but because I don’t earn any money, they say we are not able to support ourselves.”

Sarah says that most of the British public are unaware of the minimum income requirement.

“People think if you are married, your husband is allowed to come to the UK, but when I say no, it doesn’t work like that, they are really surprised. A lot of people are not aware of how this could affect them,” she said.

Looking for a job from abroad

Another British women who lives in Sweden with her South African husband and two children and plans to move to the UK told The Local how the minimum income requirement had put them in a “precarious and stressful situation”.

The woman, who preferred to remain anonymous said: “After having the two children, I was very fortunate to find a research position and do my PhD, which is a salaried position in Scandinavia, and now that I finished, we are looking to leave.

“But I need a job in the UK to sponsor my husband, and as a new graduate with limited work experience, it is not easy. It is even more difficult when you are not in the country and I missed out on opportunities because they wanted an immediate start. I really don’t want to move without my whole family,” she said.

She says the UK’s policy is “gendered and geographically discriminatory” because it makes life harder for women and also harder for anyone who is planning to move to a part of the country that isn’t in London, where salaries are higher.

“I feel exiled from my country and separated from my family there,” she said.

Her husband, she argues, has his own company and could continue working remotely from the UK, earning well above the requirement. He would also pay taxes and national insurance while having to pay the healthcare surcharge, a form of double taxation, she argues. But that would not entitle him to a visa.

“Our house is on the market now. We have booked removal companies for the 6th of June. The dog is booked for his transport. I just think this policy is so out of touch with the modern world,” she said.

Reunite Families UK has called on the government to recognise the right for British or settled citizens to bring their close family members to the UK and scrap the minimum income requirement. Alternatively, the group says the rules should take into consideration the earning potential of both partners and consider “the best interests of children”.

A petition on the UK parliament website asks the government to reconsider the minimum income policy. If it reaches 100,000 signatures, it will have to be debated in parliament.

This article has been produced by Europe Street news.

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