Brexit threat to UK state pension accrual

UK citizens could lose the right to build up UK state pension entitlement while working in EU member states, a House of Commons Library note has confirmed.

The paper, published last week, states that while it is agreed by both the EU and UK that state pension increases will continue to be paid to UK citizens living in the EU after exit, the maintaining of the current system of aggregating state pension rights, where individuals have worked outside the UK, was not yet agreed and ‘was an area needing further discussion to deepen understanding’.

Currently UK citizens working within the EU, EEA countries and Switzerland can aggregate work done in these states in order to meet the minimum qualification threshold for UK state pension. For example, and individual with seven qualifying years from the UK on their National Insurance record when they reach state pension age, who had worked for 16 years in another EEA country, would under current rules be able to meet the 10-year threshold for UK state pension qualification. They would then be eligible for UK state pension based on seven years’ NI contributions.

This is because the UK is currently part of a system that co-ordinates the social security entitlements for people moving within the EU, EEA countries and Switzerland. UK state pension is currently only uprated if the pensioner is in an EEA country or one with which the UK has a reciprocal agreement requiring uprating.

In a parliamentary written answer in January 2017 the Government said it intends to continue to aggregate EU work contributions towards UK benefits and state pension, but has not yet agreed this with the EU.

In June 2017, the European Parliament said that if current rules ceased to apply, both UK citizens working or having worked in the EU and EU citizens working or having worked in the UK, would see their pension rights curtailed. It said: “Although there are some agreements between the EU and third countries providing for limited coordination in the social security field, the principles of aggregation and exportability underlying the pension rights of EU citizens exercising their free movement rights are generally not guaranteed outside the EU social coordination framework. This means that, if the current rules ceased to apply, both UK citizens working or having worked in the EU and EU citizens working or having worked in the UK will see their pension rights curtailed, particularly if they have worked both in the UK and in the rest of the EU as their insurance periods will not be aggregated automatically.”

The European Parliament also said it aimed to ensure anyone who moved abroad before exit would continue to enjoy rights they have now.

UK state pension is paid to around 1.26m people resident overseas, with 474,000 in the EU, 565,000 in the Commonwealth and 218,000 in the rest of the world.

Aegon pensions director Stephen Cameron says: “This highlights the importance of successful Brexit negotiations on state pensions. This probably won’t impact that many people, but it does show the level of detail that is going to emerge as these negotiations proceed.”