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Cath Everett

Sift Media

Freelance journalist and former editor of HRZone

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EU proposals could “kill off” workplace pensions

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Proposed new European Union regulations could “kill off” already struggling occupational pension schemes in the UK as employers would be forced to inject up to £500 billion into them during difficult economic times.

The European Commission is currently evaluating whether to introduce new rules that would require insurance companies and pension funds to increase their funding levels in a bid to make them more secure.
 
But accountancy firm PricewaterhouseCoopers warned that a ‘Solvency II type capital regime’ of this kind could cost UK business between £250 and £500 billion, causing them to close their pension schemes altogether.
 
Raj Mody, head of PwC’s pensions group, told the Daily Telegraph: “In terms of the impact on the UK economy, this is like wiping out a quarter of the FTSE 100. While attempting to improve pension scheme security, these new rules could actually kill off occupational pension schemes altogether.”
 
Any additional costs would likely be borne by individual savers, which would result in them obtaining less generous pensions in future, he added.
 
Extra burden
 
The National Association of Pension Funds was equally downbeat about the proposals. It warned that if the new law went ahead, damage would be done to both the UK economy and jobs market.
 
Joanne Segars, the organisation’s chief executive, said: “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 such difficult economic times, Europe should be focusing on boosting growth and creating jobs rather than putting more financial pressure on companies that were struggling to survive. It should also concentrate on “improving outcomes” for the 60% of European staff with no workplace pension and enhancing governance and communications, she added.
 
“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,” Segars said.
 
A consultation undertaken by the European Insurance and Occupational Pensions Authority on its Institutions for Occupational Retirement Provision Directive closed earlier this week, but British Ministers have promised to resist any changes. The EC plans to publish draft EU legislation in the autumn.
Author Profile Picture
Cath Everett

Freelance journalist and former editor of HRZone

Read more from Cath Everett
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