EU RULES COULD 'KILL OFF' PENSIONS

European rules aiming to make occupational pensions more secure could end up killing them off, pensions industry representatives warned today.

The European Insurance and Occupational Pensions Authority (EIOPA) is looking at a scheme to assess the solvency of pension funds, which providers say would ramp up costs of provision as more funding would need to be injected.

But Raj Mody, head of PwC's pensions group, said the changes could cost UK businesses up to £500 billion.

He said: "While attempting to improve pension scheme security, these new rules could actually kill off occupational pension schemes altogether.

"The additional costs for companies would ultimately be borne by individual savers, who would see less generous pensions, whether defined benefit or defined contribution.

"The plans would therefore work against the initiatives the UK Government is planning to encourage long-term saving.

"We reckon the cost on UK business would be in the range of £250 billion-£500 billion.

"In terms of the impact on the UK economy this is like wiping out a quarter of the FTSE 100."

EU rule could "kill off" pensions 

The National Association of Pension Funds (NAPF) estimated that businesses would have to inject at least £300 billion into their final salary pensions, leading to the closure of more schemes.

To enhance the security of occupational pensions across EU member states, the EIOPA is proposing the application of a "Solvency II type capital regime" to assess the solvency of pension funds.

But the NAPF argued that 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 costly and leaving employers 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."

PA 2012