If you live in Ireland, but draw a UK-based pension, what does Brexit mean for you? Mathew B Tully, Esq. discusses the implications.
Should you be worried about your UK pension? Considering the current state of the Brexit negotiations, and the large-scale disruption that is forecast to occur if the United Kingdom crashes out of the EU without plan, it is not surprising to hear that most business sectors, including financial and pension services, could end up in dire straits in the aftermath of Brexit.
With specific reference to financial services, it is worth noting that certain pensions could be at risk following the UK’s exit from the European Union (EU). This could have an adverse impact on many individuals living in Ireland. It has been widely discussed that the pensions of British expats and other individuals who lived and worked in the UK at some point in their careers—but currently live in Ireland or other European Union (EU)-member nations—could be adversely affected after the Brexit transition period expires in December, 2020.
Varying reports warn that current passporting arrangements may no longer apply and that future uprating (increases) may be affected post-Brexit are nothing short of troubling.
While the UK is set to officially leave the EU on 29 March 2019, a transition period will extend to the end of December 2020. During this time, European law will apply, meaning pensions will likely not be adversely affected. In the event of a no-deal Brexit, there would be no legal framework to ensure delivery of pension funds or uprating to individuals outside the UK beginning in 2021.
Confirming this worry, an 18 December 2018 statement from the UK’s Department for Work and Pensions confirmed that pensions for individuals with UK pensions living outside the country would not be affected in 2019 or 2020, but gave no indication about potential impacts to pensions after 2020.
The Brexit plan endorsed by the EU member states that is yet to be voted on by Parliament does not contain provisions for pensions for those outside the UK, with Prime Minister Theresa May saying that she still needed to “negotiate some of the arrangements in relation to certain benefits, such as pensions, under the future trading relationship.”
The EU’s proposed Contingency Action Plan, however, may buy some more time to untangle the potential pension mess. In response to the call by the European Council (Article 50) to intensify preparedness work at all levels and for all outcomes regarding Brexit, the EU on 19 December 2019 announced that it had established a no-deal Contingency Action Plan to reduce the potential adverse impacts of Brexit.
Among its recommendations are temporary financial measures to ensure that the services of financial operators established in the UK can continue to provide their services to EU residents for one year (until March, 2020) and that EU residents can utilise central securities depositories in Britain for up to two years (until March 2021).
Currently, many pension schemes operate in Ireland on the basis of the EU’s free movement of goods and services, i.e., the single market. Following the UK’s exit from the EU, the ability of UK pension schemes to provide services in Ireland may be affected without a branch or subsidiary authorised and regulated in the EU.
Specifically, the “passporting” arrangements that currently enable UK-based financial services companies to operate in other EU countries may no longer apply when the UK leaves the EU, according to MoneyWeek. “If the system is not replaced, these companies will have to stop all their EU operations – including paying out benefits to pension policyholders,” according to the magazine.
In addition, the uprating of pensions, of which recipients of UK pensions living in other EU countries are eligible for the same annual pension increases as those living in the UK, remains in limbo after 2020. “Without a new and reciprocal social security agreement agreed as part of the Brexit negotiations, 492,000 Europe resident British state pensioners will therefore face a frozen pension,” according to the All-Party Parliamentary Group on Frozen British Pensions. “The Government has previously acknowledged that continued uprating rights will be reliant on the Brexit negotiations.”
Huw Evans, director general of the Association of British Insurers (ABI) warned earlier this year that “the treatment of contracts written pre-Brexit and still in force post-Brexit will need to be clarified. These could include pensions contracts, or business liability insurance contracts—some of them stretching decades ahead.” Evans said that “the risk is that, as a result of leaving the Single Market, insurers lose their licence to do insurance in the customer’s jurisdiction, and therefore cannot legally fulfil the contracts.”
This could mean that cross-border pension payments from the UK to the EU or vice versa cannot be paid, Evans explained. “It would also affect the ability to pay claims on many liability insurance contracts offered to businesses on a pan-EU basis. These are usually annual contracts but the claims are complicated and may take up to a decade to be completed,” he said.
Some UK pension providers have informed their recipients of the issue, and advised Ireland-based recipients to open bank accounts in the UK to avoid any loss of pension payments, however, that may not solve the problem.
The European Insurance and Occupational Pensions Authority (EIOPA), however, insists that it is the responsibility of individual insurance and pension firms to handle the situation—not policy makers and regulators. The EIOPA has urged insurance undertakings “to take necessary steps in good time to ensure the continuity of cross-border insurance contracts between the United Kingdom and the European Economic Area,” the organisation said in a recent statement.
Other entities have urged “financial passporting” between the UK and Ireland be dealt with in the Brexit negotiations to ensure that those in Ireland who receive pensions from the UK actually receive them. But considering the current spectacle at hand, this seems like a long shot.
Time to worry? Probably not, but it is important that you understand how your pension could be affected after Brexit. If you are receiving a pension from the UK and unsure whether you will be able to receive it, or want to ensure that you continue to receive future uprates post-Brexit, it is highly advisable that you speak with an experienced employment law Solicitor.