Hard Brexit could threaten British people’s pensions

Ros Altmann is a pensions expert, economist and Conservative member of the House of Lords. She was previously Minister of State for Pensions.

Uncertainty over whether millions of people’s pensions will be paid properly is just one sign that Brexiters don’t know what they are doing. Single market membership allows cross-border payments by banks and insurers to be freely transmitted all around the EU. But if we leave with no deal, as so many Brexiters keep threatening, then contracts written under the previous “passporting” rules may be invalidated.

UK insurers and pension providers would be legally unable to make payments to EU residents. So hard Brexit carries a real prospect that people’s pensions will stop. Pensioners could be left in limbo in a No Deal scenario.

Did anyone think of this during the referendum? Did anyone mention any of these matters?  Of course not. This is yet further evidence of how little the Brexiters know or seem to care about people’s lives and their unwillingness to acknowledge the advantageous arrangements that we currently have with the EU.

The benefits of our existing EU agreements have improved our living standards and the ease with which we can move or transact anywhere. But that is all taken for granted.

Instead of playing brinkmanship with people’s lives and livelihoods, the government should be preserving as much of the current benefits as we can. The EU would be willing to sit down and talk sensibly with us. As partners and friends.

But our Brexit negotiations have treated the EU with hostility and threats. Even the idea that the prime minister has a Brexit “war cabinet” is symptomatic of the disdain with which the fallout from Brexit is being treated. In wartime, national needs may override other matters, but we are not at war with the EU.

And it’s not just private pensions that may be affected. State pensions could also be at risk, because there are no agreed reciprocal arrangements for inflation linking. This means state pension payments to expats living in the rest of the EU might be frozen, as they are in other countries without reciprocal agreements.

Brexiters blithely assume this will be worked out, just as they seem to assume everything will somehow work out. But without an actual deal, we have no idea what will happen.

A transition period to December 2020 may provide more time to sort this out, but we may not achieve this. Meanwhile, pensions could be caught in the contentious negotiations over arrangements for financial services and single market-style rules.

Unless UK and European negotiators reach a deal to allow payments to continue after Brexit, British pensioners cannot be sure about their future. With less than a year before the official exit date, the UK and EU have not even started discussing cross-border financial services.

Pension firms have no idea what to do. If they lose passporting rights, they could be forced to choose between breaching contracts by not honouring their promises to policyholders or breaking European law by continuing to make the payments. One possible solution might be to transfer policies to an EU-based subsidiary. But such a restructuring would cost significant sums in legal fees which would have to be passed on to customers.

The UK has declared its intention to leave, but it is vital to consider matters other than just great new trade deals. Being able to honour financial commitments and paying people’s pensions are surely at least as important.

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Edited by Hugo Dixon