What happens to pensions, savings and investments if there’s a no-deal Brexit?

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The government has published some papers that show what could happen to pension payments, bank accounts and investments if there’s a no-deal Brexit. It also published papers on what it could mean for people who take their car on holiday in the EU and roaming charges on mobiles.

The current system

At the moment, financial companies, such as banks, pensions firms, investment providers and financial advisers are regulated by the city regulator, the Financial Conduct Authority (FCA) and/or the Prudential Regulatory Authority (PRA).

Under European Union rules, banks and other financial firms that have their headquarters outside the UK, but in a European Economic Area (EEA) country, can operate in the UK under what’s called ‘passporting’ rules. These rules mean that a company based in, for example, Spain, can set up a branch in the UK and/or sell its products in the UK, without needing FCA authorisation. This works the other way as well, and UK-based firms can operate in the EEA under these passporting rules.

This arrangement will carry on until March 29th 2019. After March 29th, what happens depends on whether or not we leave the EU with a deal.

What happens to pensions, savings and investments if there’s a no-deal Brexit?

If we leave Brexit with no deal, financial firms in the UK may be be treated as if they were based outside the EU from March 30th 2019. That means that the way UK financial firms are treated would depend on the individual country’s rules relating to non-EU based firms.

However, there are some steps the UK is taking in relation to financial firms that have their headquarters in an EEA country, and that currently operate in the UK. These are designed to make sure these firms can continue to operate in the UK.

  • Financial firms based outside the UK: The government says it’s going to introduce what it calls a ‘temporary permissions regime’ (TPR) so that banks and other financial companies that are based in an EEA country can continue to operate in the UK for up to three years after we leave the EU. During this period, they can apply for authorisation from the Financial Conduct Authority and/or any other regulators they need permission from.
  • Insurance: The government says it’s going to introduce separate legislation, if it’s needed, so that insurance contracts that aren’t covered by the TPR I outlined above, can continue.
  • Banks’ clearing services: The government has already introduced legislation so that companies based in the EEA that provide clearing services to UK banks can continue to do this for up to three years. During this period, they can apply for authorisation from the Financial Conduct Authority and/or any other regulators they need permission from.

SAVVY TIP: Clearing services includes processing payments on behalf of banks and other financial providers. It means payments using systems like faster payments, BACS and CHAPS.

What does this mean for you?

How you will be affected depends on where you’re based, where the financial firm in question is based and how they are authorised. The government says that if customers are going to be affected, firms must tell them ‘at an appropriate time’. I’m not quite sure what that means!

UK-based consumers and UK-based firms

The government says there should be no change if you’re based in the UK and you’re dealing with a UK-based firm. However, we already know that some firms that are currently based in the UK are moving some of their operations to EU countries, such as Ireland, Germany or Belgium. This could affect you. So if you are likely to be affected, the financial company should tell you.

SAVVY TIP: Some financial firms that have their headquarters in an EEA operate in the UK through UK-based subsidiaries. They’ve done this for years and it’s nothing to do with Brexit. . These subsidiaries are directly authorised by regulators in the UK. In this case, there should be no change if we leave the EU with no deal. The only change might be if the bank or financial company decided to close its UK-based subsidiary. You can check whether a financial company is directly registered by the FCA on the FCA register.

Banks and financial firms based in the EEA, operating in the UK

If you have savings in an EEA-based bank that currently operates in the UK through ‘passporting’ rules, you could be affected if we leave the EU with no deal. The government says that under the temporary permissions regime (TPR) that the government wants to introduce, EEA-based firms would be able to operate for up to three years if we leave the EU with no deal. This three-year window would give them time to apply for full authorisation.

At the moment, if you have savings with a UK or EEA-based bank that is directly authorised by the UK regulator,  your savings are covered by the UK-based Financial Services Compensation Scheme (FSCS). That scheme covers savings up to £85,000 if the bank goes bust. If the bank has regulation by ‘passporting’, savings you have with them won’t be covered by the FSCS but by a deposit protection scheme in its home country.

The government says the regulators will consult on exactly what protection will be offered by the FSCS and which firms it will be offered to after Brexit, in the autumn.

Credit and debit card payments

The cost of making debit or credit card payments to companies based in the EEA could increase. This would affect payments to a company based in the EEA (for example, an online retailer) or payments you make while you’re on holiday or on business there.  At the moment, if you buy something from a company based in the EEA, you can’t be charged a surcharge. A surcharge is an extra payment that you could be charged just for paying by credit or debit card. That’s something that’s been banned since 13th January 2018, under EU rules. If we leave the EU without a deal, the surcharge ban won’t apply.

People living in the EU – banks

There are two ways that people living in the EU may be affected in terms of their bank accounts. The government says that people living in the EU who are customers of UK banks may not be able to access their bank accounts. From what the document says, there’s nothing the government can do about this without action from the EU. People may also not be able to access UK-based investment banks.

People living in the EU – pension payments

The government says that people who live in the European Economic Area, including UK citizens, won’t necessarily get their pension payments from UK-based companies if we leave the EU without a deal. That’s because UK-based pension firms and other companies are able to operate in the EEA under the passporting rules I mentioned earlier. Whether or not pension and other payments can continue will depend on the EU. There’s no other information in the paper on this subject.

However, Hugh Savill, Director of Regulation at the Association of British Insurers, which represents many of the large pension companies, said: “Today’s paper emphasises the risk of insurers not being able to make payments to customers based in the EU after the end of March next year. Obviously insurers want to meet their commitments to their customers, but this problem has the potential to affect millions of insurance customers, including UK pensioners overseas.”

People living in the EU – investments

UK nationals based in the EEA would also not be able to use the services of UK-based investment companies and UK companies wouldn’t be able to manage existing contracts if there’s no deal. This means that if the EU doesn’t give UK-based firms permission to carry on making payments to their customers who live in the EU or EEA, those payments may be interrupted. I don’t know how likely this is or how long this could continue for.

The government says that many UK-based firms that currently operate in the EU through passporting are setting up subsidiaries in the EU/EEA to make sure they can continue to sell to people from the UK who live in the EU and to service existing contracts.

SAVVY TIP: The government says that ‘in some cases, existing contracts could be transferred to the new entity’ which implies it’s not as straightforward as switching from one company to another.

Payments made in euros

This is likely to affect businesses more than individuals, but I’ve included it in this article. At the moment, UK-based financial companies are members of an EU-wide payment system called SEPA (Single Euro Payments Area). If we leave the EU without a deal, UK-based companies wouldn’t continue to be members of SEPA. This means that the cost of euro payments, and the time they take, could increase. However, the government says that it wants the UK to remain a member of SEPA after Brexit.

 

Useful links:

You can read the government’s no-deal Brexit paper on financial services here. You can read about driving in the EU if there’s a no-deal Brexit on the Gov.uk website.

There’s also information about mobile roaming if there’s a no-deal Brexit.

Photo by Artur Roman from Pexels

Related articles: 

Your state pension if you move abroad; will it be frozen and how to claim

How much of your money is protected by the Financial Services Compensation Scheme?

10 things you need to know about making a savings claim to the Financial Services Compensation Scheme.

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