The European Commission’s “terrible idea” to treat pension schemes as insurance contracts will hit UK jobs, according to the CBI chief policy director Katja Hall.
In a speech to the CBI Pensions Conference, Hall said: “We need the UK Government to step up to the plate in Brussels and stop the imposition of insurance-style solvency standards on defined benefit pensions. The Government can do a lot more than it has to date.
She added: “We have told the Commission, trade unions have told the Commission, the pension funds have told the Commission. But they don’t want to listen.
“This issue affects all businesses with defined benefit liabilities, whether or not they have closed the scheme,” she explained “The proposal is a terrible idea, based on a wrong-headed insistence that defined benefit schemes are the same as insurance contracts. The potential effects are very significant, and would massively undermine the Government’s economic goals.”
The plans would impose a huge financial burden, argued Hall: “At its worst, this represents an increase of almost half a trillion pounds on total liabilities. That’s money that will have to be paid by the schemes’ sponsoring employers. This will divert money away from business investment in growth and jobs at a critical time, and harm prospects for investment in infrastructure.
“European pensions funds hold total assets worth over £2000bn and a large proportion of this is in the UK. Removing the need to seek a significant return on investments could lead to a massive flight from equity and corporate bond investment towards high-grade government bonds.
Elsewhere, Hall commented on major pension changes on auto-enrolment being introduced for all employees in 2012, arguing that the CBI had acted in the best interests of employers. “Thanks to the phasing and staging the CBI fought so hard to secure, the introduction of additional cost to employers will be spread for many years, allowing it to be off-set,” she said.
"What seemed like a nice-to-have flexibility in the good days is today keeping the reforms alive by providing much needed breathing room for employers. But let’s not kid ourselves. For auto-enrolment to be successful in the long-term we must acknowledge that in the early years things are not going to go exactly as we hoped they would.
“Big squeezes on household incomes mean that many people do not have much cash to spare for saving at the end of the month. Not until re-enrolment from 2015, when hopefully we will be out of the economic wilderness, are we likely to start seeing the positive power of inertia keeping people in schemes.”