The chair of Parliament’s treasury select committee has warned that British companies may not be able to legally pay pension or insurance contracts to UK citizens living in the European Union after the country formally breaks off.
“The implications of insurers being unable to honor cross-border contracts are potentially serious,” wrote Nicky Morgan, chair of the treasury select committee, in a letter to the UK’s Chancellor of the Exchequer Philip Hammond. “In particular, citizens—including many UK expatriates—living in the rest of the [European Economic Area] in receipt of personal pensions may face difficulties in getting paid.”
Morgan warned that without a change in the Prudential Regulation Authority’s (PRA) regulatory approach, UK residents, as well as many EU citizens, in receipt of personal pensions from EEA-based providers, will find themselves in the same situation. The PRA was created as a part of the Bank of England by the Financial Services Act of 2012, and is responsible for the regulation and supervision of approximately 1,500 banks, building societies, credit unions, insurers, and major investment firms.
“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,” said Morgan. “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.”
Morgan also said that “without further action, insurers will lose the legal authorization to service these contracts: they must break the contract or break the law.”
She said UK insurers could establish a subsidiary elsewhere in the EEA, and use the provisions of part VII of the Financial Services and Markets Act of 2000 to transfer the contracts to the new entity. “But quite apart from the costs involved,” she wrote, “there may be insufficient time to do so, particularly if, as the PRA expects, the courts receive a significant increase in the volume of Part VII transfer requests.”
Morgan closed her letter to Hammond by urging him to raise the issue at the next meeting of the Economic and Financial Affairs Council.
Approximately 900,000 UK citizens are long-term residents of other EU countries, according to the UK’s Office for National Statistics (ONS). Spain has the most UK expats among all European countries, with 308,805, more than 100,000 of whom are 65 or older. Spain is followed by France (157,062), Ireland (112,090), and Germany (96,200).