The government will not give a lifetime guarantee to index-link the pensions of British nationals who have retired in the EU if there is a no-deal Brexit, a decision that has been described as “immoral” by campaigners.

The government currently continually increases the payout of the basic state pension by either 2.5%, average wage growth or by the consumer price index, whichever is higher, on a reciprocal basis under EU regulations, a practice known as uprating.

The government has resisted calls for an indefinite continuous uprating for the 222,000 Britons living in EU member states after Brexit, despite the financial hit they have already taken.

Since the referendum, the value of the pension, worth up to £130 a week, has decreased by up to 20% because of the collapse in the value of sterling.

The decision will also affect around 240,000 EU citizens who have worked in the UK and are entitled to a British state pension.

Under a no-deal Brexit, all pension increases for British nationals in the EU were due to have stopped in March but the government has now said it will continue with the rises, in line with those given to retirees living in the UK, for the next three years.

Campaigners for UK citizens resident in the EU have welcomed the three-year stay but say they are disappointed pensioners will be used for negotiations again three years down the line.

“This commitment will come as a vital temporary relief to all pensioners living in the EU. We have been pressing for this step all year as, until today, those pensioners faced having their pensions frozen next April, on top of their pensions having lost over a fifth of their value because of the fall in the pound since before the referendum. But it does not go far enough,” said Jeremy Morgan, a retired barrister living in Italy and vice-chair of the British in Europe Brexit campaign group.

The work and pensions secretary, Amber Rudd, said the government was working hard to ensure Britain was “leaving in a way that protects the interests of citizens here and in EU member states”.

She said: “This guarantee will provide reassurance to the hundreds of thousands of people living in the EU who receive a UK state pension that their pensions will continue to rise significantly each year, however we leave.”

Morgan said the UK is “almost unique in the EU in distinguishing between pensioners who are living in the country and those that are not.

“If you have worked all your life in the UK, it should be a basic entitlement and up to the individual to decide where they want to live without being penalised,” he added.

The government has previously expressed a desire to offer a lifetime guarantee on uprating, but only “subject to reciprocity”, a policy British in Europe has said is irrational.

“These people paid their contributions and taxes to the UK, and then retired to the EU on the basis that their pension, already the lowest in the OECD countries, would at least be increased for inflation,” said Morgan. “To move the goalposts for this vulnerable group when it is too late for them to do anything about it is simply immoral.”

He called on the government to review the decision urgently and offer the lifetime guarantee for their own citizens who had the “legitimate expectation” of an uprated pension when they moved to an EU country.

British in Europe says some pensioners in rural France and in Spain are already struggling to make ends meet with the decrease in their pension seen since Brexit.