Thousands of British expats living in the EU could be left without their pension after Brexit, a senior MP has warned.
Nicky Morgan, Tory chair of the influential Treasury select committee, says hundreds of thousands of long-term pensions and insurance policies are at risk, unless the government takes action to secure the future of these contracts.
In a letter to chancellor Philip Hammond, she warns that, after Brexit, insurers may not be allowed to pay out on cross-border contracts already in place.
Morgan says companies could find themselves in a situation where their only recourse is to “break the contract or break the law”.
UK and EU-based insurance companies sell a variety of long-term contracts – from personal pensions to commercial negligence policies – to customers using passporting arrangements.
However, Morgan says that once the UK leaves the European Union in early 2019, this arrangement ends, meaning insurers will lose the legal authorisation to service these contracts.
She highlights the “potentially serious” situation whereby expats may have difficulty in getting paid.
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.”
The letter calls on Hammond to clarify where the issue ranks in the list of Brexit priorities, what ministers plan to do and whether a position paper on the issue will be published.
The Association of British Insurers said in a briefing note in August that unless there is clarification, some firms would face having to establish a subsidiary within the EU to continue servicing the contract.
It warned, however, that some businesses may consider such a move as “uneconomical” when they would be looking after only a few thousand contracts.
Huw Evans, director general of the ABI, said: “This is a shared challenge for the EU and UK and a vital issue for millions of our customers.”
Stopping payments would see insurers break their promise to customers but, as it stands, continuing to service contracts would be against the law, the ABI said.
Tom McPhail, head of policy at financial services firm Hargreaves Lansdown, said: “Given the extent to which European regulation and legislation already sets the agenda for domestic UK regulation of financial services, it shouldn’t be too challenging to reach an accommodation whereby business can continue as usual.
“Nevertheless the ABI is right to highlight the risks of not making sure a solution is identified and implemented in a timely manner.”