Nicky Morgan, head of the Treasury select committee, has warned that when Britain leaves the European Union British expatriates could be left without pensions.
In a letter to to chancellor Philip Hammond, she said without further action, insurers would lose the legal authorisation to service hundreds of thousands of contracts that extend beyond the date when Britain is due to leave the EU.
‘The possibility that UK providers may not be legally able to pay out pensions or insurance contracts to citizens in the EU – including UK expats – is a stark example of the consequences of a ‘cliff edge’ Brexit,’ wrote Morgan. Citizens ‘living in the rest of the EEA (European Economic Area) in receipt of personal pensions may face difficulties in getting paid.’
UK-based insurance companies sell a variety of long-term contracts, including personal pensions to customers in the EU and vice versa using passporting arrangements. If the UK leaves the single market, then insurers will lose their automatic licence to insure and pay in the customer’s jurisdiction.
Morgan emphasised that after Brexit, insurers may not be allowed to continue paying out cross-border contracts that are already in place. Without further action, ‘they must break the contract or break the law,’ she wrote, demanding details of the government’s position.
In August, director general of the Association of British Insurers, Huw Evans said: ‘As the deadline for Brexit looms, many insurers’ biggest fear is that they will be left with a stark choice between breaking their promise to customers or risk breaking the law if the issue of how to fulfil existing contracts cross-border is not resolved. Agreeing terms to allow insurers to service contracts after March 2019 needs to be part of the exit negotiations between the UK and EU.’
But, according to the Pensions Lifetime Savings Association (PLSA), state pension increases will continue for UK citizens living in the European Union. James Walsh, policy lead at the PLSA, says while any Brexit deal will have to be approved by the UK Parliament, EU national governments and the European Parliament, the UK and EU have agreed to maintain the current arrangement.
Walsh cites the August edition of the ‘Joint technical note on the comparison of EU-UK positions on citizens’ rights’, published jointly by the UK and EU. He adds: ‘The agreement was reached some weeks ago, as the July edition of the same bulletin also shows this as one of the Brexit issues that has been settled.’
Keep up to date with all the latest personal finance news and investment tips by signing up to our newsletter. Email subscribers will also receive a free print copy of Money Observer magazine.