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Minister calls for urgent action to ensure British pensioners in EU do not find payments stopped after Brexit

Pensioners Barbara, left, and Pauline at the Eagle Cafe Bar in Benalmadena, Spain
Pensioners Barbara, left, and Pauline at the Eagle Cafe Bar in Benalmadena, Spain. They are among about 300,000 Britons living in Spain. Photograph: Leon Neal/Getty Images

The chair of an influential parliamentary committee is calling for urgent action to ensure that British pensioners living in Spain or other EU countries do not find their payments stopped after Britain leaves the EU in 2019.

UK firms may not be legally able to pay out personal pension or insurance contracts to UK expats and other citizens living in the EU after Brexit, Nicky Morgan, chair of the Treasury select committee, wrote in a letter to the chancellor, Philip Hammond. She asked whether the problem would be discussed during the first phase of Britain’s exit negotiations with the EU.

At the moment, so-called passporting rights are used by many insurers in the UK and the rest of the EU to sell pensions, insurance and savings products across borders. Unless an agreement is struck between the UK government and the EU, passporting will end on Brexit day, and insurers would face the stark choice of either breaking the contract or the law.

Morgan 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.”

Morgan stressed that both the UK and the EU had a strong mutual interest in resolving this problem to ensure a “smooth and orderly Brexit”.

“It is therefore surprising that there have been no position papers from the [European] commission or the government proposing how it might be addressed.”

Morgan wrote to the chancellor that while the UK and the European commission had published papers covering the status of goods on the market once the UK leaves the EU, less consideration has been given to services – in particular the “hundreds of thousands of insurance contracts sold under passporting arrangements with a duration that extends beyond 29 March 2019”. Private pensions tend to run for 30 years or more.

About 900,000 British citizens lived in other European Union countries in 2011, with one in three living in Spain, according to the Office for National Statistics.

“Does the Treasury consider that the problem … poses risks to a smooth and orderly exit, and does it therefore consider it to be a matter for the first phase of the article 50 negotiations?” Morgan said in her letter.

“What proposals are being considered to preserve stability and certainty in respect of insurance contracts that straddle ‘Brexit day’?”

The Association of British Insurers (ABI) said insurers and pension firms must be authorised in an EU country to sell a contract to an EU customer, continue to pay claims, and accept premiums on existing contracts.

The industry body said: “If nothing is fixed, insurers will be left in an impossible position and face an unacceptable choice: break their promise to customers or risk breaking the law.”

Some insurers have started setting up subsidiaries in the EU – a lengthy process that requires approval from a national regulator in an EU state.

Another way to get around the problem would be to sell existing contracts to an EU-based insurer, but this would require a transfer of business that would have to be approved by the UK courts and would take around 18 months.

The ABI is calling for an arrangement whereby contracts written prior to Brexit day retain the same regulatory treatment as when they were first written.

Morgan said the Treasury committee would examine the scale of the problem with the regulators and may call representatives from the insurance industry to answer questions from MPs on the committee.

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