Brexit could leave British expatriates without their pensions, according to MP Nicky Morgan, head of the Treasury select committee.
Ms Morgan said, in a letter to chancellor Philip Hammond, that hundreds of thousands of long-term pensions and insurance policies were at risk, unless the government takes action to secure the future of these contracts.
UK-based insurance companies sell a variety of long-term contracts to customers elsewhere in the European Union using passporting arrangements.
These range from personal pensions to commercial negligence policies.
The same happens in the opposite direction, with European Union insurance groups selling policies to people and businesses in Britain.
Ms Morgan’s letter to Mr Hammond warned that, after Brexit, insurers may not be allowed to pay out on cross-border contracts already in place.
“Without further action […] they must break the contract or break the law,” she said, demanding details of the government’s position and urging Mr Hammond to raise the matter with his European Union counterparts.
She 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.”
A HM 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.”
UK insurers have been warning for months that a hard Brexit, which does not address the industry’s concerns, would leave them unable to service policies.
The Association of British Insurers (ABI) said in a report in August: “The treatment of cross-border contracts written pre-Brexit and still in operation post-Brexit needs to be fixed urgently.
“Insurers need to be able to run-off these existing commitments to customers for the duration of the contracts.”
The trade body stated any transitional arrangements under discussion between Britain and the EU would not be long enough to cover the insurance contracts, since some of these can last for over 30 years.
The ABI wants the issue to form part of the UK’s Brexit agreement with the EU.
Some insurers said they cannot afford to wait for a political agreement and have already started to move existing contracts into new subsidiaries elsewhere in the EU, so that they can continue to service the policies.
This process — called a part VII transfer — is lengthy and expensive, needing approval from courts and regulators.
According to the ABI, these transfers take at least 18 months and sometimes up to two years.