Thousands of British expats could face a financial struggle unless negotiators on both sides of the Channel do a deal to let their pension payments continue after Brexit.
The rumour is that British and EU negotiators have not discussed what will happen to cross-border financial services once the UK leaves Europe and pension companies have given up hoping for a resolution.
The issue was raised by UK Parliament Treasury Committee chair MP Nicky Morgan.
She explained 38 million people living outside the UK in Europe could be affected – including tens of thousands of expats with personal pensions.
Payments from these pensions are allowed by a process called ‘passporting’ that lets companies regulated in one EU country do business in other European countries as if they were regulated there.
Passporting problem in Europe
Unless passporting continues after Brexit, pension companies will lose this advantage and cannot pay customers in EU countries by law.
Thousands of British expats are caught up in the passporting problem – the estimate is between 250,000 and 300,000.
The British government has promised to let EU financial companies pay their pension customers in the UK after Brexit, said Morgan.
“It’s important that policyholders in Europe with UK based-pensions are given similar certainty that their policies will continue to be serviced after Brexit.
“I hope that the working group established by the Bank of England and the European Central Bank are able to bring a speedy resolution to this problem.”
Breach of contract
Insurance companies are concerned they could be in breach of their contracts with customers if they cannot continue to make payments after Brexit.
“One of the frustrations we have in Brexit preparation is that we could end up spending millions preparing for outcomes that never happen,” said Steve Webb, director of policy at pension provider Royal London.
“It will get very messy if there’s one set of financial rules inside the EU and another set outside. Obviously, we want to go on paying the money we promised to pay.”
Webb explained one solution would be for UK insurance companies to transfer policies to EU subsidiaries but doing so could cost millions.