Proposed new European rules for final salary pension schemes would land employers with such a “huge bill” that they would be forced to close them for good, the Pensions Minister has warned.
The European Commission is considering whether to introduce so-called ‘Solvency II’ regulations that would mean the 6,850 UK companies still operating such pension schemes, which cover approximately 12.5 million current and former employees, would be forced to pump £100 billion into them to reduce their deficits.
The combined pension deficits of the final salary schemes run by the country’s 350 largest companies are currently estimated to stand at about £80 billion.
But Pensions Minister, Steve Webb, told the Telegraph from a meeting in Brussels, where he is attempting to build a coalition of European countries opposed to the plan. “What is being done in the name of protection could mean the destruction of some of the best British pensions,” he said.
The rules, which are designed to make pension schemes among workers across European Union member states more financially robust, would also mean that employers had to divert money from investing in future growth.
“These costs could force many employers to close their pension schemes and would have a massive negative impact on growth and our economic recovery. This is a £100 billion tax on growth,” Webb said.
But UK pensions were already safeguarded through the Pensions Regulator and the Pension Protection Fund, which would act as safety nets if the money in existing pension pots ran out and meant that the new rules were “not necessary”, he added.
Joanne Segars, chief executive of the National Association of Pension Funds, agreed. She said that final salary pensions were already under “huge pressure” and the proposals were “the last thing they need” as they would result in costs ramping up “dramatically”.
“Firms would be so badly hit by these new rules that they would simply shut these pensions down altogether. It would be a crippling blow for what is left of final salary pensions in the private sector,” Segars warned.
The UK already had one of the best protected pension systems in the world, but the plans would, perversely, “make pensions for UK workers less generous and less secure,” she said.
