Brexit – the countdown to withdrawal

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As the Brexit negotiations continue to hot up, recent research Aegon carried out with advisers showed their views on its impacts are as divided as the population more generally. While overall, the research showed advisers very optimistic about their futures, two in five (40%) have concerns that Brexit could hurt their business prospects. In contrast, one in five (21%) believe it could lead to new opportunities.

We now have an indication of the starting position for the UK’s negotiations, but it will be quite some time till we know what form Brexit will actually take. With macro-economic impacts hard to call, we could find savers and investors wary of committing to markets. But many have investment horizons far longer than Brexit, for example, if saving for retirement, and a break in saving could have damaging consequences. In times of uncertainty, people‘s need for advice on where to achieve additional returns or how to protect existing funds and manage risk is even greater.

Looking beyond the macro-economic aspects, the operational implications for financial services firms and their customers are likely to be quite different between segments of the wider financial services industry. For example, investment banks operating across the EU will have different considerations from domestically focussed pension providers.

When it comes to preparing, the regulators rightly expect firms to consider a range of scenarios. At one end of the spectrum, ‘hard’ Brexit is typically associated with a ‘cliff edge’ outcome with no trading deal in place. ‘Soft’ Brexit might involve negotiated trade deals and transitional periods. The eventual outcome could well sit between these ‘extremes’, meaning advance planning also needs to regularly update the ‘most likely’ outcome based on the most recent intelligence.

Here we look at the key areas of operational impact and also at state pension implications which could affect clients. The headline finding is that for an organisation like Aegon UK, the operational implications are relatively modest.

Cross-border trading

Cross-border trading could be a huge consideration for those UK financial services companies which actively sell across the EU. Aegon UK doesn’t seek to sell products cross-border but we do have a small number of existing clients who now live outside the UK and also some workplace schemes with overseas members. Like other companies, we will want to continue to service them. We’ve flagged this to the regulators as an important aspect of the broader Brexit negotiations and are pleased to see the importance of being able to continue contracts now being recognised.

Cross-border trading, in general, will ideally continue under some form of mutual recognition, with the UK satisfying some form of equivalence test. This should then allow financial services companies to continue to service existing customers, hopefully without disruption to the customer.


The UK complies with EU data regulations and next May will adopt new General Data Protection Regulations. Financial services of all types can rely on data being held or processed in different countries, EU and otherwise. Ideally, the EU will continue to accept the UK as a safe location for storing and processing data. This may require UK authorities to agree to continue to adopt certain EU regulations, including any future changes to these.

Financial Regulation

Immediately after Brexit, through the European Union (Withdrawal) Bill, the UK will automatically retain all EU laws and regulation, including those related to financial services such as MiFID II, IDD and PRIIPs. Whatever the outcome of Brexit, if a UK company wants to continue to sell into the EU, it should expect as a minimum to be required to follow EU regulations. However, aspects of these regulations may not always be a perfect fit or needed for the domestic market. This means over time, there could be benefits in exploring a ‘twin track’ approach with different tailored regulatory standards between EU and UK sales.

State pensions

Some individuals who have worked overseas or who are currently resident overseas will want to understand the implications for their UK state pension entitlement. The highest profile issue is whether EU residents with UK state pensions will continue to benefit from upratings UK residents receive when their state pension is in payment. It’s also important to clarify how periods of employment in the EU may affect whether or not an individual meets the ‘minimum qualifying period’ of 10 years to be entitled to any UK state pension. Currently, individuals who fall short of 10 years’ UK NI contributions can ask for periods where they were working elsewhere in the EU to be taken into account or ‘aggregated’, resulting in a pro rata entitlement. It appears that the UK and EU are both keen to allow current practices and their reciprocal arrangements for EU citizens in the UK to continue.

The countdown to withdrawal

Whatever form Brexit takes, and despite talks of ‘cliff edges’, it’s likely that many things will not change in March 2019 when we formally leave the EU. Advisers can play a key role in offering help, reassurance and advice to those clients wishing to factor Brexit into their financial planning.