COPY LINK

PENSION

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

Member comments

Become a Member to leave a comment.

INTERVIEW: 'A lot of people think Brexit is done, but it's not for Brits in Europe'

In the early days of 2021, after the United Kingdom had left the EU and completed the final stage of Brexit, many British citizens returned to their home countries in Europe only to face a grilling at the border.

Though the Withdrawal Agreement (WA) technically guaranteed their right to live and work in the countries they’d settled in before Brexit, there was widespread confusion about these fundamental rights and many were treated like new arrivals.

Over time, the chaos at the airports subsided as border officials and airlines were given clearer guidance on the treatment of Brits. But three years later, a number of Brits who live on the continent still face problems when it comes to proving their post-Brexit rights.

This was the reason campaign group British in Europe decided to set up their new EU-funded ICE project. Starting this year in March, it aims to build valuable connections between UK citizens abroad and mentor the next generation of civil rights advocates around the continent. The acronym stands for ‘Inform, Empower, Connect’ and the project’s organisers describe it as “the first project of its kind”.

“It’s a completely innovative project – especially the fact that it’s across so many countries,” Jane Golding, chair of British in Europe and one of the project’s founders, told The Local.

Bringing together groups from 11 EU member states, the project aims to train up volunteers to understand both the Withdrawal Agreement and EU Charter of Fundamental Rights, as well as learning skills like advocacy and communication, using real-life civil rights cases that are referred to British in Europe.

“The ultimate goal is to amplify the messages across the wider group,” said Golding. “You start with the volunteers, they go back to their groups, then the people that we train, they go back and train people. Then they pass on that knowledge to the wider groups, on their Facebook accounts and through social media, and hopefully it all snowballs, not just in their countries but across the EU.”

‘Far-reaching repercussions’

So many years after Brexit, it’s hard to believe that there’s still a need for a project like ICE that empowers Brits to protect their rights. Indeed, the future of groups like British in Europe and regional groups like British in Germany and Spain-based group EuroCitizens felt uncertain just a year or two ago.

But Golding says there are still serious issues cropping up for Brits in several countries around Europe – they just have a different quality to the problems that arose at the start.

“In some ways it’s needed even more because as we predicted right at the beginning, at the first stage of implementation, you’ve got the more routine cases,” she explained.

“What we’re seeing now is not as many cases, but when the cases come up, they’re complex. They can have such far-reaching repercussions on people’s lives. And of course, memories start to fade. A lot of people think Brexit is already done, but it’s not.”

Volunteers in British in Europe ICE project

The volunteers of the British in Europe ICE project pose for a photo at the kick-off meeting in Brussels on May 21st, 2024. Photo courtesy of British In Europe

Though the rights set out in the Withdrawal Agreement apply across the continent, different countries have taken different approaches to implementing them.

That means that while in Germany, for example, UK citizens simply had to declare that they lived in the country, people in neighbouring Denmark had to apply for their rights.

This led to a notorious situation in Denmark in which as many as 2,000 Brits were threatened with deportation after not applying in time or completing the right application process. According to Golding, this had a lot to do with the fact that people who arrived in 2020 weren’t given the same information as other UK migrants who arrived before.

In Sweden, meanwhile, the situation is still difficult for many Brits who lived there prior to Brexit.

“There have been issues with an anomalously high numbers of refusals compared to other countries, and they seem to be taking a very strict approach on late applications,” Golding explained.

Portugal has been another difficult case. Although the country opted for a declaratory system where Brits could simply exchange old residence documents for a new ID card after Brexit, reports suggest that the authorities have taken years to issue these cards, leaving many of the some 34,000 Brits in the country in limbo.

“While people are still waiting to have their status confirmed and have their card in their hand, it’s difficult to access a whole range of services, like health services, or applying for jobs or dealing with the authorities, or even going to the bank,” Golding said. “All of these problems just affect people’s lives.”

A French border guard checks a passport at the border

A French border guard checks a passport at the border. Photo by DENIS CHARLET / AFP

There are also concerns about the EU’s new exit and entry system (EES), due to come into force in October, which is based on biometric documentation.

“We still do not have clear data on how many people in declaratory countries like Germany, where it wasn’t compulsory to apply for the card, don’t actually have a card,” Golding said. “How is that going to play out if it’s a document-based digitalised system?”

A lack of support

In the immediate aftermath of Brexit, funding from the UK’s Foreign, Commonwealth and Development Office (FCDO) was still available to support NGOs in Europe helping Brits with their migration and civil rights issues. But that temporary funding soon expired, leaving groups like British in Europe largely on their own.

“The whole point is people’s lives change at very different paces,” Golding said. “And now this project is really going to start to pick up some of those cases and report on those issues, which is really crucial and exciting for the precedent that it sets, and it’s very clearly necessary still, because people don’t just sort their lives in the 18 months that the FCDO chose to supply that funding.”

This feeling of being left alone and increasingly isolated from the UK is one that many Brits in Europe have felt in the aftermath of Brexit. But the upcoming UK election on July 4th could be a game-changer.

This time, following a change in the law, Brits who have lived abroad for more than 15 years will be able to vote for the first time.

Polling station in the UK

A polling station in the UK. Photo by Elliott Stallion on Unsplash

When it comes to the election, the message from British in Europe is clear: “Make your voice count now, make your vote count, make sure you use it,” Golding said.

With the June 18th registration deadline fast approaching, BiE is advising UK citizens abroad to apply for a proxy vote as soon as possible, rather than relying on a postal vote from abroad. Since the 15-year rule was abolished on January 16th, more than 100,000 British citizens have registered to vote, according to official statistics. It is unclear how many were registered before the change in the law.

With an estimated 4.7 million Brits currently living abroad – 1.3 million of whom are in the EU – this could have a significant impact on the electoral landscape, Golding says. But most significantly, the change is creating a feeling of connection and belonging that wasn’t there before.

Nurturing this sense of belonging is one of the main goals of ICE.

With these bridges being built, British in Europe hopes to create a network of support that spans across borders.

“Now we’ve met. We’re going to meet,” said Golding. “We know we’re going to meet again in Berlin in October and then we’ll meet again in the new year in 2025 as well. It means a huge amount because even British in Europe, our steering team, we’ve only met physically three times.”

This opens up the possibility of people sharing their knowledge from country to country, Golding explained.

“There is crossover and the reassurance of having that EU wide view and knowing that you’re not alone and knowing that in this country, we managed to get this solution,” she said. “And then you can go back and say to the authorities in your country, well, in that country they did that – all of that helps. It’s really good.”

SHOW COMMENTS

Url copied to clipboard!