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):
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.
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.
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 who move from one jurisdiction to another during their working life or after they retire are not disadvantaged.
- 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.
There will continue to be coordination in the systems to try to ensure that people who move between the countries concerned are not disadvantaged in relation to state pensions as a result.
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:
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:
However the Director General also said:
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).