Elderly expats in the EU could see their pension payments stopped if there is a no-deal ‘cliff edge’ Brexit, the Government has been warned.
Pension and insurance deals could enter legal limbo, leaving British expats and other EU residents facing financial hardship if their payouts are cut off after March 2019.
The threat to UK expats has prompted influential House of Commons Treasury committee chair Nicky Morgan MP to throw her weight behind industry calls for the issue to be addressed in the Brexit talks.
Nicky Morgan MP: Treasury committee chair raised threat of pensions to UK expats being stopped in a letter to Chancellor Philip Hammond
Unless a deal is reached, pension firms could face a choice between breaking their promises to people and businesses or breaking the law, according to the Association of British Insurers.
The new peril to British expats’ private pension payouts has emerged shortly after news that they look set to keep annual increases in the state pension and still get healthcare paid for after Brexit.
Morgan, who put the Treasury on alert in a letter to Chancellor Philip Hammond, said: ‘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.
‘Both the UK and the EU have a strong mutual interest in resolving this problem, in line with their shared objective of a smooth and orderly Brexit.
‘It is therefore surprising that there have been no position papers from the Commission or the Government proposing how it might be addressed. I have written to the Chancellor to get further clarity on the Government’s thinking.’
Morgan added that the Treasury select committee would no doubt want to examine the scale of the problem with regulators, and may also take evidence from the insurance industry.
The ABI said the problem revolves around millions of insurance and pension contracts written pre-Brexit that will still be in force after the UK leaves the EU.
It claims unless negotiations over how to handle such deals are made part of the first phase of Brexit talks, there may not be enough time to resolve the issue effectively.
The risk has emerged because as a result of the UK leaving the single market, some insurers will lose their automatic licence to insure in the customer’s jurisdiction, according to the pension industry group.
That effectively means companies might not be legally able to make pension or insurance payouts without a replacement agreement being struck first.
Those potentially affected by payment cut-offs include UK expats to the EU, people living in the UK and receiving a pension from the EU, companies based in the EU which hold a contract such as liability insurance from a UK provider, and UK companies who bought such contracts from EU firms.
ABI director general Huw Evans said: ‘We are pleased that Nicky Morgan, as Chair of the Treasury Select Committee, has raised this important issue with the Chancellor.
‘This is a shared challenge for the EU and UK and a vital issue for millions of our customers. We have been urging all sides to address it as a matter of urgency and agree on a reciprocal solution.
‘Without a resolution insurers will face a choice between breaking their promise to customers or risk breaking the law. It must not come to this.’
A Treasury spokesman said: ‘We want to ensure a smooth and orderly exit from the EU that avoids a cliff-edge and minimises disruption for businesses and individuals. We will respond to the Treasury Committee in full in due course.’