In a technical notice published today (23 August), the government has set out how the financial services sector will be affected in the event of the worst scenario for the UK when leaving the EU.
It said British expats "may lose the ability to access existing lending and deposit services, insurance contracts (such as a life insurance contract and annuities) due to UK firms losing their rights to passport into the EEA, affecting the ability of their EEA customers to continue accessing their services".
According to figures from the Office for National Statistics (ONS), there are 900,000 Brits currently living in the EU, of which 220,000 are aged 65 plus.
Hugh Savill, director of regulation at the Association of British Insurers (ABI) – which has previously alerted to this problem - said leaving the EU without a deal "would cause major inconvenience to millions of pensioners, travellers and drivers".
The industry body is urging the government to agree a deal "as a matter of urgency".
He 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."
Mr Savill said the problem could be fixed if the UK and EU regulators cooperated effectively.
"Insurers have of course been making contingency plans for their own operations for many months now, but this contract issue is not one that insurers themselves can fix," he added.
The government noted the efforts being made by companies in this area, pointing to UK financial services firms, who currently passport into the EEA, who were taking steps to ensure they could continue to operate after exit, for example by establishing an EU-authorised subsidiary.
"This would allow the UK firm to offer new services after exit through its EEA subsidiary, and in some cases existing contracts could be transferred to the new entity," it said.
Sir Steve Webb, director of policy at Royal London and former pensions minister, agreed there could be "real problems" honouring financial contracts between UK businesses and EU residents if relations between governments are poor.
He added: "For this reason, many UK financial services businesses, including Royal London, have been spending a lot of time and money working out how they can best service those customers by means of subsidiaries within the EU."
According to Steven Cameron, pensions director at Aegon, not all expat pensioners are affected in the case of a no-deal Brexit.
He said: "Many British pensioners living in the EU will be or will in future benefit from pensions they took out in the UK. We expect to be able to carry on paying these pensions.
"The risk is that firms won’t be able to service the minority of expat pensioners who have bought their pensions while in the EU and it’s important that the UK and EU work together to resolve this issue."
Some experts have also pointed out potential solutions expats should be considering.
Rachel Vahey, product technical manager at Nucleus, said for individuals who already have a current contract with a drawdown provider, the income drawdown payments "could perhaps continue to be paid to a UK bank account".
However, expats should be aware they might not be able to access the money, she said.
She added: "These are still relatively early days, and the position has not yet been set in stone. The pensions industry will now work with banking and servicing to assess exactly what the practical risks are, and the possible solutions.
"In the meantime, the government is committed to resolving these issues by working with EU partners."
Kay Ingram, director of public policy at national advice firm LEBC, said expat pensioners would be well advised to build up a cash reserve in their country of residence, in case there are delays in payment of pensions from outside the EU being cleared by the EU banking system.
She also advised these individuals to "consider whether private healthcare insurance would be a useful additional resource, in case the arrangements currently in force to cover medical treatment break down".
maria.espadinha@ft.com
