Workers dodge final salary pensions bullet
as EU mothballs solvency rules for schemes
By Adam Uren
May 23, 2013
‘Damaging’ proposals that would have seen UK businesses running defined benefit pension schemes have to raise an extra £400billion to ensure their affordability have been mothballed by the European Union.
The rules would have forced companies to dramatically increase the capital they have to cover their pension liabilities, something which experts feared would hasten the closure of the remaining final salary pension schemes and put a dent in major firms’ finances, dealing a serious blow to growths and job creation. [EXPAND Read more]
Solvency II regulations will not be applied to occupational pension schemes in the EU for the time being, following a wide-ranging review by the European Insurance and Occupational Pensions Authority.
And though the European Commission recognised that there were ‘significant deficits’ in some pension funds, Commissioner Michel Barnier said the work by the pensions authority made it clear it needs to ‘deepen its knowledge’ before taking a decision on any Europe-wide initiative.
The worst-case scenario for British pension schemes would have seen them have to raise an extra £400billion, and pensions minister Steve Webb has been a vociferous opponent to its introduction.
Mr Webb said: ‘This is a welcome move by the Commissioner, and is hopefully a sign he may eventually abandon his damaging and reckless plans altogether.
‘Introducing Solvency II-style rules for defined benefit pension schemes would push up liabilities by up to £400billion, harming businesses’ ability to invest, grow and create jobs, and put more schemes at risk.
‘The UK has been making the case against the plans for some time, with growing international agreement. The signs are we are winning the argument.’
Pension consultants Barnett Waddingham estimated the cost to providers at a still hefty £150billion, and partner Nick Griggs said its postponement will be welcomed by employers.
He said: ‘Employers sponsoring pension schemes will be greatly relieved that the damaging proposals which would have greatly increased pension funding requirements have been set aside.
‘The Pensions Regulator estimated as part of a Europe-wide impact study that UK occupatonal pension schemes as a whole would have needed to raise an extra £150billion compared to the current funding regime, and meet the costs of carrying out the complex calculations involved.
‘This would have accelerated the demise of quality pension provision and undermined the UK’s competitiveness.’
Although final salary pension schemes have been closing at the fastest rate on record as they become increasingly unaffordable, defined benefit schemes still account for 60 per cent of UK workers on workplace pension schemes.
The announcement by the Commission today said that proposals for changes to EU law on pension governance, transparency, and reporting requirements would be brought forward, but aspects relating to solvency would be postponed. [/EXPAND]