Member Article

CBI criticise EU pension proposals

The CBI has suggested that EU pension plans could force around £350bn of extra costs on UK businesses.

The business body is concerned that a Solvency II style approach to measure pension liabilities would force firms to cut jobs and pass costs onto customers and employees to meet the extra demands.

Under the proposals, employers would need to pay into defined benefit schemes which would have to hold enough funds to pay out in the event of a “once-in-200-year catastrophe.”

Analysis by independent economic consultants Oxfored Economics, on behalf of the CBI, concludes that reforms are “wrong-headed” as pension funds will not have to pay out all benefits at once, as insurance schemes do.

The CBI say plans to force pension schemes into “low risk” investments will reduce returns and discourage funds from investing in long-term assets such as infrastructure.

Chief policy director at the CBI Katja Hall said: “European pension funds hold total assets worth over £3 trillion - a large proportion in the UK. These are exactly the long term sources of finance we need to tap into to get our economy moving – backing industry and entrepreneurs. Forcing funds to invest elsewhere could undercut billions of pounds worth of long-term infrastructure funding when public finances are so tight.”

In a speech to the European Retirement Federation in Frankfurt last month, the Minister for Pensions, Steve Webb, said: “A likely outcome of the new rules would be to increase pension liabilities by over £100 billion. This would harm businesses’ ability to invest, grow and create jobs, and many more schemes could be forced to close. “We are urging Brussels not to pursue these dangerous, reckless plans. In Britain, we are making reforms to ensure our pension system is sustainable. In Europe, we should be working together to tackle real pension challenges, and find ways of better sharing the risk of providing pensions between the employer and employee.”

The proposals are part of the Commission’s proposed review of the Directive for Institutions for Occupational Retirement Provision (IORP) which lays down EU-wide rules to strengthen pension security.

Ms Hall continued: “Imposing £350 billion more costs on business would be a disaster for the economy and for pension saving. The long term economic outlook is so fragile and uncertain that it is crazy to entertain proposals which would cost jobs and cut so deeply into our long-term growth and competitiveness.

“Workplace pensions are vital to ensuring people have enough money for their retirement when life expectancy is rising – so future generations are not hit with huge bills or driven into poverty. The European Commission’s wrong-headed proposal will do nothing to help us cope with the burden of retirement.”

The CBI reaffirms the Government’s position that the UK already has robust pension regulation in place to ensure employers have enough funds set aside to cover long-term costs.

Dr Ros Altmann, director-general of Saga, said: “It is absolutely true that if the EU imposes Solvency II rules on UK pension schemes, it will be a disaster for UK companies and for pension scheme members. The Government must fight hard against these ludicrous rules being imposed retrospectively on UK employers by EU countries which have a very different pension system from our own.

“If UK employers are forced to fund their pension schemes on a Solvency basis, the closure of private sector schemes will be inevitable, and, even worse, many employers may be bankrupted by the additional costs, resulting in workers ending up with reduced pensions in the Pension Protection Fund – putting a huge strain on the PPF.

“Thus, ironically, an EU system that is supposed to ensure that European pensions are safer, could end up making UK pensions much riskier. A uniform policy for EU pensions will not work when imposed on our already mature pension system. Because the legacy of pension schemes in different countries is so different, one size definitely does not fit all.”

This was posted in Bdaily's Members' News section by Tom Keighley .