Brexit – Social security co-ordination between the UK and the EU post 31 December 2020

Mon 20 Jul 2020

Negotiations between the UK and the EU on the UK’s future relationship with the EU have been taking place in both Brussels and London in July.  As work intensifies on finalising arrangements, employers should start to consider the impact of the UK’s proposed draft text on the UK’s future agreement with the EU in regard to social security co-ordination for its employees that start to travel between the UK and the EU for work from 1 January 2021 onwards.

Background

Pre Brexit, social security co-ordination between the UK and the EU was governed by EU regulations, and up to 31 December 2020 these regulations still apply under a transitional agreement.

However, post 31 December 2020, without an agreement between the EU and the UK on social security co-ordination, the position is unclear. It is unlikely that the existing social security agreements concluded between the UK and EU member states will apply to travel from 1 January 2021 in a no deal situation. In this event double social security charges could apply (see here).

The UK government is keen to remove barriers like these to the mobility of labour between the UK and the EU, and support business and trade. Therefore, in May it put forward a draft text on social security co-ordination between the UK and the EU.

The proposed UK text

The text reflects the UK’s desire to have an agreement with the EU that is similar to its social security agreements with non EU countries, as opposed to the EU regulations that provide for social security co-ordination  to support the free movement of people within the EU.

However, the text does not currently apply to EEA/EFTA countries (Norway, Iceland, Lichtenstein and Switzerland).

Persons covered by the proposed UK text

The text applies to persons who are, or have been subject to the social security legislation of an EU member state or the UK (and the family of that person).

However, the text needs to be considered in conjunction with the withdrawal agreement. For those persons who obtained social security rights deriving from periods of social security insurance in the UK, or an EU, EFTA, or EEA member state up to 31 December 2020, their social security coverage will be determined by existing EU social security regulations under this agreement. For example, workers who were posted between the UK and an EU member state up to this date.

By contrast, the social security coverage position for those workers who start postings  (or multistate worker arrangements) between the UK and an EU member state from 1 January 2021 onwards, would be determined by the proposed UK text (if adopted), rather than the withdrawal agreement.

Areas covered by the proposed UK text

The text covers:-

• the legislation determining the country to which employees and self-employed persons pay social security contributions;
• the aggregation of social security contributions for the purposes of determining old age pension benefits, and the exportation of these pensions; and
• access to “necessary healthcare” and reimbursement of costs

However, unlike EU regulations, maternity/paternity, sickness, disability, and unemployment benefits are not covered by the text.

Social security coverage

The proposed UK text on social security coverage largely mirrors the existing EU regulations in respect of:-

• posted workers (24 month rule);
• multistate workers; and
• exceptional circumstances (article 16 of the EU regulations)

Additionally, there are special provisions applicable to mariners and travelling personnel (including aircrew) that have some similarities to current EU regulations, but may produce different outcomes compared to EU regulations.

The EU regulations’ general rule that workers pay social security contributions in the country they work in unless the above exceptions apply, is broadly mirrored by the text.

Pension benefits under the proposed UK text

Where an individual pays social security contributions in an EU member state, and/or the UK, these contributions will be aggregated in determining the old age pension benefits in the country they retire to (i.e. the UK, or an EU member state).

Additionally, where individuals would be entitled to an old age pension under the legislation of one country (the UK, or an EU member state) and retire to the UK or an EU member state, they receive the same pension they would have received had they retired in the country they paid social security contributions to.

Healthcare access

The persons covered by the proposed UK text will be able to access necessary healthcare in the EU and the UK on the same terms as a person socially insured in that country, provided that the healthcare is necessary (and not pre-arranged), or the person obtained agreement in advance to obtain healthcare in that country.

As with EU regulations, this is subject to the individual obtaining a document akin to an EHIC (S1).

What should employers do?

In order to manage the changes in social security coverage provided by the UK’s proposed text in comparison to EU regulations, employers should:

• identify impacted employees, and for employees covered by the withdrawal agreement – ensure that forms A1 (statement of applicable social security legislation) and S1(Certificate of entitlement to healthcare if you don’t live in the country where you are insured)  are in place before 31 December 2020;
• for employers with mariners and travelling personnel, review any changes in their social security position, and review payroll withholdings and processes as appropriate;
• project the impact of the proposed UK text and a no deal Brexit on post 31 December assignments and multistate worker arrangements;
• Review existing policy and processes to take account of any potential loss of healthcare coverage and social security benefits in the event that these change under any new social security arrangement between the UK and the EU.

For assistance in preparing for these changes or any other global employment mobility issues, please get in touch with your usual Mazars contact or a member of the Mazars global mobility team.