UK employers may simply close their occupational pension schemes if proposed tough new European rules that force them to set aside similar reserves to insurance companies come into force, a pensions body has warned.
In a formal statement submitted in response to the European Commission’s Green Paper on pensions, the National Association of Pension Funds (NAPF) said that a harmonised European-wide solvency regime for pension funds mirroring that introduced for the insurance industry would not be “appropriate” as the two sectors work in very different ways.
The EC, which is keen to improve what it described as a “fragmented and incomplete” pensions supervisory framework in order to try and create a strong and sustainable pensions system, launched the discussion paper in July.
But Joanne Segars, NAPF’s chief executive, said: “While a Solvency II-type scheme of regulation is appropriate for insurance, the Commission needs to recognise that occupational pensions operate in a very different way.”
Moreover, unlike other member states, the UK pensions system already provided a strong system of protection in the shape of a tough regulator, which oversaw the funding of schemes, and the Pension Protection Fund, which provided a safety net for the underfunded schemes of insolvent employers.
“Additional solvency requirements on UK schemes would work against the Commission’s objective of promoting adequacy of pension provision and could lead to the further closure of defined-benefit schemes,” Segars said.
This was because those companies still offering them would be required to put a lot more money into them, which meant that many would just walk away, she added..
NAPF also wrote a joint letter with employer lobby group the CBI, union umbrella organisation the TUC, the Institute of Chartered Accountants in England and Wales and the Institute of Chartered Accountants of Scotland in October warning of the dangers of adopting a solvency approach.