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Will Brexit make it illegal to pay pensions overseas?

Will Brexit make it illegal to pay pensions overseas?

Anyone casually reading the news in July 2018 might have had the impression that Brexit could make it illegal for pensions to be paid to people who retire to a country in the European Union.

This headline might have done it (but there were many others):

Headline from Independent 

Is this scaremongering? What impact will Brexit really have on pensions for people retiring to the EU?

Unfortunately, it is very difficult to be definitive about this because the government doesn't seem to have finished negotiating with itself about the form Brexit will take, never mind made an agreement with the EU.

The final form of Brexit (particularly whether there is an agreed withdrawal deal or not) could make a difference to the impact on pensions.

I've previously written about the potential impact of Brexit on pensions (here and here) based on what we knew at that time.

Things have moved on in some ways and now seems like a good time to return to this question in the context of those reports last week.

When talking about the potential direct impact of Brexit on pensions there are three main areas to consider: state pensions, defined benefit pension schemes and pensions paid by insurance companies.

State pensions

Following the Chequers deal on Brexit, the government published a white paper on the future relationship with the EU and a white paper for legislating for the withdrawal agreement (the draft withdrawal agreement was published in March).

These documents confirmed the outcome of previous discussions on state pensions – the UK and EU agreed to continue to coordinate state pension rules so that people covered by the Withdrawal Agreement are not disadvantaged.

This covers:

  • UK state pensions will be paid to people who retire to an EU member state. 
  • The UK state pension will attract annual increases (these increases are not paid in every country so this is welcome reassurance).
  • There will only be a requirement to pay contributions in one country at a time.
  • Contributions in other countries (before or after withdrawing from the EU) will count towards meeting minimum eligibility criteria for the UK state pension (and vice versa).

Overall, subject to there being a final agreement because "nothing is agreed until everything is agreed", there should be no significant differences to state pensions as a result of Brexit for people covered by the Withdrawal Agreement.

The July 2018 White Paper states that the UK government will seek reciprocal arrangements for state pension rules for people who move between the UK and the EU in the future but to date there have been no reports of any progress on negotiations on this issue.        

Defined benefit pension schemes

Many people receive a pension directly from a defined benefit pension scheme. This can be a public sector scheme (such as the civil service pension scheme) or a private sector scheme (such as the British Telecom Pension Scheme). The Pension Protection Fund also pays compensation to its members on a similar basis.

These schemes currently pay pensions and compensation to members around the world whether they have retired to a country in the EU or outside it. There is no reason to believe they will not be able to continue doing so after Brexit.

The following tweet by Josephine Cumbo, the Financial Times' pension correspondent, confirms that the PPF does not believe there will be any impediment to it continuing to pay compensation to members living in the EU even after a no-deal Brexit:

Tweet by Josephine Cumbo    

Pensions paid by insurance companies

This brings us to the issue of pensions paid by insurance companies. The possibility of people living in the EU who are in receipt of personal pensions facing difficulty in being paid was raised last year by the chair of the Treasury select committee.

It has arisen again now (and prompted stories along the lines above) because of the appearance of the Director General of the Association of British Insurers (Huw Evans) in front of the Exiting the European Union Committee last week.

The transcript of the evidence given to the committee makes for interesting reading.

Clearly the stories about it potentially being illegal to pay pensions overseas in the event of a no-deal Brexit were based on the following exchange:

Transcript

However the Director General also said:

Committee evidence

This was more of a call to arms for regulators and officials to make sure the issue gets resolved rather than an exhortation to personal pension holders to panic because their income might be be cut off in the event of a no-deal Brexit.

Of course the latter is a headline that is more likely to attract attention which is why the coverage was as it was.

So the headlines about it potentially being illegal to pay pensions to people in the EU after a no-deal Brexit relate to a story about just one type of pension (insurance-based personal pensions paid to a bank account in an EU country) and even the person actually raising the risk said it was "sortable".

Direct v indirect impacts

The above covers the potential direct impact of Brexit on pensions, ie potential changes to rules that could affect what someone might actually be paid.

There could, of course, be many potential indirect impacts of Brexit on pensions but these are not in the scope of this blog (eg if the type of Brexit agreement had an impact on the value of sterling then this could impact on the buying power of a UK pension paid to someone living in an EU member state).      

Neil Walsh

Neil Walsh


Comments

  • There were some interesting reports on this subject in the Irish press this week.

    In the article below the Irish Independent reports that:

    (1) A UK pension provider has written to customers living in Ireland to advise them to open a UK bank account because “As it stands, insurance providers may not be able to continue paying out to overseas bank accounts after Britain leaves the EU in March 2019.”

    (2) That the Irish Central Bank says that it is working on contingency plans to ensure pension payments can continue post Brexit.

    Irish Independent article on Brexit and pensions

    The above confirms what the ABI has said about this issue being something that governments, regulators and pension providers need to prepare for. However, even in the event of a no-deal Brexit, there are realistic solutions to this potential problem. 

     
    Neil Walsh

    15 August 2018 11:18


  • There must have been agreements in place with fellow European states prior to the creation of the EU and these agreements will be re-instated.  I understand we have agreements with the USA?.

    Mark S. Steele

    17 August 2018 11:33


  • This will not happen, and is not the interest of any person or country. Do not listen to the scaremongering.

    Jim

    22 August 2018 14:35


  • Today the UK government pubished the first in a series of documents setting out their preparations for a no-deal Brexit.

     

    Pensions are covered by the paper on financial services:

    No-deal Brexit paper on financial services

     

    In this paper the UK government acknowledges the risk previously explained to the select committee by the ABI and covered in the blog above:

    EEA-based customers of UK firms currently passporting into the EEA, including UK citizens living in the EEA, may lose the ability to access existing lending and deposit services, insurance contracts (such as a life insurance contracts and annuities) due to UK firms losing their rights to passport into the EEA, affecting the ability of their EEA customers to continue accessing their services"

     

    The paper states that the UK government is seeking to address these risks:

    "The government is committed to working with EU partners to identify and address such risks."

     

    And also that financial services companies themselves are taking action:

    "Many UK financial services firms who currently passport into the EEA are taking steps to ensure that they could continue to operate after exit, for example by establishing a new EU-authorised subsidiary."

     

    Overall, the publication of this document seems to support the earlier conclusion that there is a real risk to certain pension payments in the event of a no-deal Brexit but that it is possible for the government to resolve the position if they can come to suitable arrangements with other EU governments and financial services companies themselves are also thinking about how to ensure pensions can continue to be paid even if there is a no-deal Brexit.  

    Neil Walsh

    23 August 2018 13:27


  • The ABI's comment on today's no-deal Brexit financial services paper:

    “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.

    “Today’s paper emphasises the risk of insurers not being able to make payments to customers based in the EU after the end of March next year. 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 can be fixed by co-operation between the UK and EU regulators – if the EU authorities wish to do so. Insurers have of course been making contingency plans for their own operations for many months now, but this contract issue is not one that insurers themselves can fix.”

    Neil Walsh

    23 August 2018 14:13


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