Treasury Committee chair Nicky Morgan has written to chancellor of the exchequer Philip Hammond seeking clarity on the treatment of cross-border pensions and insurance contracts written prior to Brexit.
The letter, a copy of which has been seen by Professional Adviser, asked what proposals are being considered “to preserve stability and certainty” regarding insurance contracts that “straddle ‘Brexit day'”, if the issue poses risks to “a smooth and orderly exit” and whether the government intends to publish a position paper.
“The possibility 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. It is therefore surprising there have been no position papers from the European Commission or the government proposing how it might be addressed.”
She said she had written to the chancellor to gain “further clarity on the government’s thinking” and added the Treasury Committee would “no doubt want to examine the scale of the problem with the regulators, and may take evidence from the insurance industry”.
Morgan’s letter noted that while both the UK and the European Commission had published papers covering the status of goods already placed on the market at the point the UK leaves the EU, “less consideration has been given to the services that are being supplied at the point of exit, and particularly the hundreds of thousands of insurance contracts sold under passporting arrangements with a duration that extends beyond 29 March 2019”.
‘Break contract or law’
It added: “Without further action, insurers will lose the legal authorisation to service these contracts: they must break the contract or break the law.” UK insurers could establish a subsidiary elsewhere in the European Economic Area (EEA) but, wrote Morgan, “quite part from the costs involved, there may be insufficient time to do so”.
Describing the implications of insurers being unable to honour cross-border contracts as “potentially serious”, she continued: “In particular, citizens – including many UK expatriates – living in the rest of the EEA in receipt of personal pensions may face difficulties in getting paid. Without a change in the PRA’s regulatory approach, UK residents – including many UK citizens in receipt of personal pensions from EEA-based providers will find themselves in the same situation.”
Morgan, who was elected Treasury Committee chair in July, highlighted a briefing note published last month by the Association of British Insurers (ABI), entitled Why preserving customers’ rights after 2019 requires urgent action, adding: “The ABI is right to raise this concern with the Treasury Committee and government.”
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