‘No deal’ Brexit threatens expat’s pensions

Brexit continues to dominate headlines. A ‘no deal’ would prove challenging for many reasons. Crashing out of the EU without an agreement would come with serious implications for UK retirees living in the European Economic Area (EEA). In a technical paper, HMRC warn that hundreds of thousands of people could lose access to their pensions.

The problem is related to ‘passporting’, or technically speaking, the potential lack of it. Effectively, any financial firm, fund or market infrastructure operating within the EEA can carry out activities thanks to passporting. But, if the UK leaves the EU without a deal the Government warn that UK citizens living in the EEA may lose the ability to access existing insurance contracts, such as Annuities, due to UK businesses losing their passport rights.

The passporting system for financial services, banks and insurance providers enables any firm authorised in an EU or EEA country to trade freely in others with minimal additional authorisation. Firms authorised outside of the EU currently face significant regulatory barriers to provide cross-border investment services to clients within EU member states. Conversely, advice may still be given in the UK to non-UK clients whilst they reside here.

House of Commons Treasury committee chair Nicky Morgan explained; “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.”

Further complications

In theory, UK based Annuities could be paid to a UK bank account, but with no deal, the complication and cost of transferring funds to a European account may prove prohibitive. Currency exchange rates would also have to be taken in to account.

The state pension would remain largely unaffected; retirees will still be able to receive payments. However, the relative value of them may be up for debate. Currently, the UK has an arrangement with EEA member countries that sees an individual’s state pension increase in line with the local cost of living.

The future

government white paper on Brexit has proposed an ‘equivalence of rules on an outcomes basis’ regime for financial services which would permit the UK and EU access to each other’s markets. The problem is this has yet to be agreed and the FCA has said it is continuing to make contingency plans for all Brexit scenarios as negotiations continue. Insurers have been making their own contingency plans for their operations for some time, but this issue is beyond their remit and not one that insurers themselves can address.

The potential severity of the situation has not gone unnoticed. Association of British Insurers Director of regulation Hugh Savill stated: “Leaving the EU without a deal would cause major inconvenience to millions of pensioners, travellers and drivers. We urge the government to agree a deal as a matter of urgency. Obviously insurers want to meet their commitments to their customers, but this problem has the potential to affect millions of insurance customers, including UK pensioners overseas.”

It’s in the interests of both the UK and EU to resolve the situation. Retirees having their income cut would negatively affect the local economies of popular expat destinations, such as Spain and France. As such, we hope a resolution to be reached, even if it is at the last minute.

It is important to remember that whilst no deal remains unlikely, it’s not an impossible scenario. In any circumstance, getting the right advice from trusted professionals during times of uncertainty is imperative. If any of your clients are currently living in an EEA member state or are considering a move in future, we are here to help secure their financial future no matter the Brexit outcome.

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