Brexit could make retiring to EU countries costly for UK citizens
After spending about 50 years working within the public or private sector in the UK, some retirees prefer to pursue a self-actualization mission of moving abroad to other EU countries to spend their sunset years in a different environment away from home.
Although the decision to move abroad may have been made easier in recent years with the rise of online international money transfer services such as the ones listed on InternationalMoneyTransfer.co; after the Brexit vote, the decision may be a little bit complicated due to the expected changes in foreign relations agreements between the UK and the EU.
Current pension Implications for retiring abroad
Currently there are about 472,000 people who have retired from the UK to other countries within the EU; compared to about 550,000 people who have retired to other parts of the world. Choosing to retire to an EU country or a different country across the world is very critical for UK citizens since it has a direct implication on the amount of state pension you earn over time. The UK has agreements with specific countries across the world including the US and the countries within the European Union; whereby your state pension continues to increase by a given percentage over time to reflect the change in cost of living over the years.
However, if you retire and move abroad to country that do not have such an agreement with the UK, your state pension payment remains the same over the years. This means that, if you retire today and start earning the standard flat-rate state pension of 155.65 pounds per week, the amount will remain the same for the rest of your life until you die; if you move to country outside the EU, US and a few other select countries across the world. On the other hand, if you stay back home in the UK, or move to any EU country, the US or one of the other few select countries across the world, your state pension payment will be increasing over the years at a given percentage.
Moving out of the designated countries when you retire therefore becomes a costly affair since you lose out on huge amounts of money every year your pension is not increased. The government uses the triple lock principle to determine at what rate state pension increases for pensioners within the designated jurisdictions. The rate can be increased in line with inflation, average earnings or at 2.5 percent every year depending on which one is higher. This therefore means that if you miss out on the increase due to a decision to move to a country that does not qualify for the state pension increase, you will end up losing about 50,000 sterling pounds in the next 20 years of your retirement; according to estimates from a financial services firm AJ Bell.
Brexit could affect pensioners in the EU
After the Brexit vote many foreign relations agreements between the EU and the UK are bound to change over time. Among those that are feared to change is the state pension paid to retirees living within the EU. There is a high likelihood that EU countries could be removed from the list of those countries where UK pensioners qualify for an annual increase in their state pensions; as the relationship between the UK and the rest of the EU become less friendly.
The outcome has not yet been known so far since the process of fully exiting from the EU might take a longer period of time. To start the process of officially moving out of the EU, the UK has to invoke article 50, which is most likely not going to happen this year. After the invocation happens, the process should essentially take about 2 years to complete before the UK and the EU fully determine all new terms of foreign relations between the two jurisdictions. This leaves most of the retirees already in other EU countries and those intending to move out there in a state of uncertainty about their financial security.
With this kind of dilemma, we are most likely to have more retirees within the next two years preferring to remain back home in the UK. It is also projected that there could be more pensioners from the EU returning back home where their financial security is assured at least until the two years window for UK negotiation with EU is over. For now though, we can only watch and wait to see how the relationship between the UK and the EU plays out after their divorce.