Pension reform will trigger DB ‘catastrophe’, Napf

Proposed changes to European pension regulation would have a devastating effect on employers and force the closure of all remaining defined benefit pension schemes, UK trade bodies have argued.

In a joint letter to José Manuel Barroso, president of the European Commission, the National Association of Pension Funds, the Confederation of British Industry, and the Trades Union Congress argue that proposed changes to EU pensions regulation could throw the region into further economic disarray.

The letter warns that increased costs to employers as a result of the proposals would “at best force all remaining defined benefit schemes to close, and at worst push many businesses into insolvency.”

The associations claim that changes proposed under the Institutions for Occupational Retirement Provision directive would result in pension investments fleeing return-seeking classes such as equities in favour of relatively risk-free high-quality bonds and gilts.

Co-signed by Joanne Segars, chief executive for Napf, Brendan Barber, general secretary for TUC, and Katja Hall, chief policy director for CBI, the letter says: “With European pension funds holding over €3,000bn (£2,511bn) in assets, a major switch in asset allocation would have an immediate catastrophic impact on the stability of European financial markets.”

“Given the overwhelming priority that must be given to increasing the economic competitiveness of the EU in the coming decades, it would be a serious mistake to do anything that would put it at risk.”

Ms Segars said: “These plans would cause massive damage to UK pensions and undermine economic growth across Europe. Instead of making pensions more secure, they would have the opposite effect.

“The UK already has a strong system to protect pensions. During these tough economic times, Europe should focus on fostering growth and job creation instead.”