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.

Using your mobile in the EU

Roaming charges: Extra charges for using your mobile phone in the EU were scrapped in June 2017. If there’s no deal, after March 29th next year, there’s no guarantee that you’d be able to use your mobile in the EU without having to pay extra charges. The government says that EE, Three and Vodafone have said they don’t plan to bring back roaming charges. However, that doesn’t necessarily mean they’ll stick to it in the longer term. And if you’re with another mobile provider, it could bring back roaming charges.

SAVVY TIP: The government says that roaming charges may not be levied on some mobile phone packages, but could be introduced on others.

Data roaming cap:  The EU had previously introduced a data roaming cap of €50 per month when you use your phone abroad. It was designed to protect people from ‘bill shock’ when they had their data roaming setting turned to ‘on’ and didn’t realise the cost of downloading music, TV or video from the internet. All mobile phone networks, except for EE, currently impose a data roaming cap. You can opt out of this if you wish.

If we leave the EU the government says it would legislate to ensure that a data roaming cap would be part of UK law. It would set this cap at £45.

Your UK passport in the EU

If we leave the EU without a deal, people from the UK will be treated the same as those from so-called ‘third party’ countries, such as the United States and Canada. That means if you travel in the EU, you must:

  • Have a passport that’s been issued within the last ten years on the date you arrive, and
  • Have at least three months left on your passport from the planned departure date from the EU country. However, the rules say that you can stay in an EU country governed by the Shengen border code for 90 days. So the UK government is advising that you make sure your passport is no older than nine years and six months on the day you travel. For children under 16 with a five-year passport, you should make sure it has at least six months left on it.

SAVVY TIP: Up until now, you’ve been able to carry over any unexpired time from your old passport to your new one, subject to a nine month limit. This meant your new passport could be valid for up to 10 years and nine months. However, since the start of September, this is no longer possible. Even if your old passport has some time left, your new passport will only last for 10 years.

Blue passports will not be issued until late in 2019, but passports issued after March 29th will not have the words ‘European Union’ on them.

Driving in the EU

At the moment, your UK driving licence is valid in the EU if you drive there on holiday or for work. If you move to an EU country, you can exchange your UK driving licence for an EU one without having to resit your driving test.

After March 29th, if we leave the EU without a deal:

  • Your UK driving licence will not be enough on its own to drive in the EU
  • You won’t be able to exchange your UK driving licence for another EU country’s one if you go to live there.

If you want to drive in the EU after March 29th next year or hire a car, you’ll need at least one, and possibly two types of international driving permit. These currently cost £5.50 each. The type of permit you need will depend on the country/ies you’ll be driving in. The two types of driving permit are governed by different conventions:

  • International driving permit governed by the 1949 Geneva Convention on Road Traffic: lasts for 12 months and would be needed for Ireland, Malta, Spain and Cyprus.
  • International driving permit governed by the 1968 Vienna Convention on Road Traffic: lasts for 12 months and would be needed for Ireland, Malta, Spain and Cyprus: lasts for three years (or until your driving licence expires, if that’s earlier). It would be needed in all the other EU countries, plus Norway and Switzerland.

You can currently get the 1949 international driving permit from your Post Office. From 1st February 2019, 2,500 Post Offices in the UK will issue both types of driving permit. The driving permit needed for most of the EU (governed by the 1968 convention) will be post dated to start from March 29th.

SAVVY TIP: There are currently 11,500 Post Office branches in the UK.

What the government is doing: It is negotiating so that the UK driving licence is still recognised in other EU countries. If it can’t get an agreement on this, it will try and get agreements with individual EU countries. People from the EU who come to live in the UK would be able to exchange their licence for a UK one, as they can currently. Alternatively, they could drive on their EU licence for up to three years, in the UK.

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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