Hundreds of thousands of retired UK citizens living elsewhere in the EU could have their company and personal pensions payments stopped after Brexit unless the government takes action, according to Treasury Select Committee chair Nicky Morgan and the Association of British Insurers.
Morgan, who has chaired the influential parliamentary committee charged with quizzing Chancellor Philip Hammond since July, has written to him warning that “without further action, insurers will lose the legal authorisation” to make payments under insurance contracts sold under EU cross-border “passporting” rules.
She wrote: “Citizens, including many UK expatriates, living in the rest of the EEA [European Economic Area] in receipt of personal pensions may face difficulties in getting paid”.
She added: “UK residents, including many EU citizens, in receipt of personal pensions from EEA-based providers will find themselves in the same situation.”
Think tank Migration Watch estimated last year that there were 400,000 UK citizens living in the largest EU countries who were in receipt of a state pension. These people may well be in enrolled in and receiving occupational or personal pensions. Migration Watch did not disclose the number of retired UK residents who were citizens of another EU country.
In a briefing paper released in tandem with Morgan’s letter, the Association of British Insurers warned that if agreement on this issue is not found in the Brexit talks, its members will “face an unacceptable choice: break their promise to customers or risk breaking the law”.
The ABI said the issue affects hundreds of thousands of pensions policies and is particularly acute for insurers who have outstanding cross-border pensions contracts, but no plans to sell any new ones.
The association said: “Insurers who want to continue to sell new contracts in the EU27 are already establishing authorised companies there. This is a lengthy process which requires approval from a national regulator in an EU27 member state.”
But, the ABI said, “for firms who do not wish to continue with new business, it is uneconomical to set up a subsidiary company – in some cases to look after a few thousand contracts.”
The association argued that a political agreement needs to be found for insurers to “run-off these existing commitments to customers” without the “costly and time-consuming process, up to 24 months,” of setting up new EU subsidiaries – which may not even be possible before Brexit day on March 31 2019.
Morgan, in her letter to the Chancellor, challenged him to set out proposals for preserving the “stability and certainty in respect of insurance contracts that straddle Brexit day”, and asked whether the government planned to publish a position paper on the question.
Tom McPhail, head of policy at retail funds supermarket and wealth manager Hargreaves Lansdown said this morning that it “shouldn’t be too challenging to reach an accommodation”, but only “given the extent to which European regulation and legislation already sets the agenda for domestic UK regulation of financial services”.
He added: “Nevertheless the ABI is right to highlight the risks of not making sure a solution is identified and implemented in a timely manner.”
To contact the author of this story with feedback or news, email Mark Cobley