European Commission’s new salary pension scheme draws ire
12 Dec 2012
The European Commission seems to be all set to force member states into accepting a new funding regime, which would force employers to divert hundreds of billions of pounds into salary pension schemes. The so-called Solvency II regulations are aimed at making to making EU member states' pension plans more financially robust.
However, according an independent analysis carried out for the Confederation of British Industry (CBI) by Oxford Economics said the reforms would be a ''disaster''.
According to the report, it would cost firms £350 billion to fund the changes, which would mean businesses would have to cut investment in other areas of their operations by 5.2 per cent a year by the mid-2020s. GDP would be down by 2.5 per cent a year over the first 15 to 20 years of the new regime, with employment falling by about 0.5 per cent, or 180,000 people.
According to Katja Hall, the CBI's chief policy director, imposing £350 billion additional costs on business would be a disaster for the economy and for pension saving. The long term economic outlook was so fragile and uncertain that it was crazy to entertain proposals which would cost jobs and cut so deeply into the industry's long-term growth and competitiveness.
According to commentators, the EU wanted pension schemes to hold enough funds to pay out in the event of a once-in-200-year catastrophe, to make sure savers were afforded thorough protection.
Critics point out that the plan was based on similar rules for insurers, who had to pay out rapidly in case of disasters which was not appropriate for pension funds as they were long term investors who paid out over long time frames.
The scheme would also hit the value of pensions by blocking their investments into the longest-term investments, like infrastructure projects.
Also by forcing the funds into low risk investments like government bonds, returns would fall, jacking up costs for employers and discouraging saving.
Hall further said, that the UK had a tough regulatory system in the country, so the changes were completely unnecessary. She added, it was alarming the European Commission (EC) was still turning a deaf ear to calls from businesses, trade unions and pension funds to scrap the proposals.
She added the EC must leave individual EU members to deal with their own retirement saving systems, as they did now – rather than imposing a new system from the centre.
