Businesses would have to inject at least £300bn into their final salary (defined benefit) pensions if a new EU law goes ahead, causing knock-on damage to the UK economy and jobs market.
It would also lead to the closure of more final salary pensions in the private sector, the National Association of Pension Funds (NAPF)warned today.
The NAPF issued the stark warning in its response to the European Insurance and Occupational Pensions Authority (EIOPA) on the review of the Institutions for Occupational Retirement Provision (IORP) Directive.
To enhance the security of occupational pensions across EU member states, EIOPA is proposing the application of a ‘Solvency II type capital regime’ to assess the solvency of pension funds.
Under this system, which has been designed for insurance companies, pension funds would be required to increase their funding levels, making the provision of pensions much more expensive. This would lead to employers paying more at an already difficult economic time, leaving them with less money for investment and job creation.
Joanne Segars, Chief Executive of the NAPF, said:
“The overall objective to make European pensions more secure is one which we support. But the introduction of Solvency II type rules will have the opposite effect.
“Faced with extra funding demands, many employers will revisit their pension arrangements. And what we are likely to see is the closure of more final salary pensions.
“During these difficult economic times, Europe should focus on fostering growth and job creation. Solvency II type rules would not only put additional pressure on companies that are struggling for survival, but would also force them to divert money away from investment and new jobs.
“The UK pension system already provides a strong system of member protection through the employer covenant, the work of the Pensions Regulator, and the safety net provided by the Pension Protection Fund. We do not need new solvency rules for pensions.
“Any European action on pensions should focus on where it can add value across EU member states. The EU should concentrate on improving outcomes for the 60% of people without access to workplace pensions and on improving governance and communications. The EU should not try to fix a problem that does not exist.”
Notes to Editors:
1. The NAPF asked a sample of its members how much their ‘technical provisions’ (or liabilities) would increase if assessed – as EIOPA proposes - on a risk-free basis. The average response, scaled up across all UK defined benefit pension schemes, indicated a total increase in liabilities of about £300 billion. The final amount would be higher because the EIOPA proposals would then require a further ‘risk margin’ and ‘solvency capital requirement’, but insufficient detail is available to allow these to be assessed individually.
2. The response to the EIOPA’s Call for Advice on the review of the IORP Directive is available at http://www.napf.co.uk/PolicyandResearch/DocumentLibrary/0211_EIOPA_CP11_006_NAPF_response_03Jan11.aspx
3. The NAPF is the leading voice of workplace pensions in the UK. We speak for 1,200 pension schemes with some 15 million members and assets of around £800 billion. NAPF members also include over 400 businesses providing essential services to the pensions sector.
Paul Platt, Head of Media and PR, NAPF, 020 7601 1717 or 07917 506 683, [email protected]
Christian Zarro, Press Officer, NAPF, 020 7601 1718 or 07825 171 446, [email protected]