PensionsApr 10 2013

Warning over £450bn bill from new EU pension rules

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New European Union pension proposals that will require pension schemes to adhere to Solvency-II type rules could increase UK pension fund deficits to at least £450bn, the National Association of Pension Funds has warned.

The European Commission wants parts of Solvency II to form the centrepiece of a new Pensions Directive. The rules would increase the funding levels required for pension schemes, forcing employers to make bigger contributions.

Napf warned that this move would put a “huge burden” on remaining UK final salary pension schemes and the businesses that run them.

However, worryingly Napf’s figure is one of the lowest estimates of the likely cost of the new rules.

Last year, JLT Pension Capital Strategies estimated that UK companies may have to pump as much as £1,000bn into their pension schemes due to this revamp, while JP Morgan Asset Management estimated the cost for UK defined benefit schemes at £600bn.

Pensions minister Steve Webb has previously stated that adapting capital rules for insurers would cost British industry £100m and could mean that companies walked way from final salary schemes.

Joanne Segars, chief executive at Napf, said: “The EU plans for UK pensions come with a clear and unpalatable price tag.

“Businesses trying to run final salary pensions could be faced with bigger pensions bills to plug an astonishing £450bn funding gap. This would have a highly damaging effect for the retirement prospects of millions of UK workers.

“This project has been conducted at breakneck speed due to the Commission’s ludicrously tight timetable. This cannot be the basis for formulating a policy that could undermine the retirement plans of millions of people both in the UK and across Europe.

“The European Commission needs to rethink its proposals, instead of trying to hurry them through. It would be better to focus on the 60m EU citizens who have no workplace pension, instead of eroding the good pensions already in place.”