Proposed EU pension changes could cost UK employers £350 billion in additional costs, reducing GDP by an average of 1.5% per annum and cutting 180,000 jobs by the mid-2020s, the CBI has warned.
The European Commission
is proposing to introduce a new funding regime, which would require final salary pension schemes run by individual employers to be subject to similar rules as those being suggested for insurance firms.
Under the EU ‘Solvency II’ process, they would need to hold enough funds to pay out pensions in the event of a catastrophe taking place.
But the CBI, attested that the changes were “completely unnecessary” and would amount to a “disaster”. This was because, unlike insurance schemes, pension funds never had to pay out benefits all at once, with liabilities falling over a period of years as workers retired.
Moreover, UK employers were already required to set aside enough money to cover long-term costs and guarantee pensions, while the Pension Protection Fund provided a “robust safety net”.
Katja Hall, chief policy director at the employers’ lobby group, said: “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.”
An analysis by economic consultants, Oxford Economics
, revealed that UK employers would be hit by £350 billion in additional costs to fund the proposals, potentially reducing investment by 5.2% per annum by the mid-2020s if the scheme were introduced over the next two years.
As a result, annual UK GDP growth would be 2.5% lower over the first 15 to 20 years of the new regime, while export volumes would fall by 2.1% due to reduced competitiveness over the next decade or so. Employment levels would also be cut by 0.5%.
Joanne Segars, chief executive of The National Association of Pension Funds
, agreed that the changes would have a “disastrous impact” and called on the EC to “urgently rethink its approach and shelve these proposals”.
“These plans would kick our economy when it’s down, and the damage to jobs, growth and living standards would be felt for decades,” she said. “It is incredible that Brussels wants to strip the business world of $350 billion of potential investment when there are fears of a triple dip recession.”
The move was also likely to result in the closure of many final salary pension schemes altogether, which would mean that millions of workers would lose out, Segars said.