‘All Final Salary Pension Schemes Will Close Under New EU Rules’

‘All final salary pension schemes will close under new EU rules’ (Telegraph, Feb. 14, 2012):

Many businesses could also be pushed into insolvency by European pension proposals, risking significant job losses, three industry bodies have warned.

In a letter to José Manuel Barroso, president of the European Commission, ahead of EU directives due this week, the National Association of Pension Funds (NAPF), the Confederation of British Industry (CBI) and the Trades Union Congress (TUC) warned that the new rules would have a disastrous impact.

“By demanding dramatic increases in funding from employers, the commission’s plans would – at best – force all remaining defined benefit schemes to close and – at worst – push many businesses into insolvency, leading to significant job losses,” they wrote.

On Wednesday, the European Insurance and Occupational Pensions Authority (EIOPA), a pan-European watchdog, is due to send final recommendations on its EU pensions directive to the European Commission, aimed at addressing shortfalls in pensions schemes and improving risk management.

EIOPA is proposing to adapt Solvency II capital rules, originally aimed at the insurance industry, which could force pensions funds to hold large cash buffers in proportion to their liabilities, to guard against future risks.

Solvency II has been more than 10 years in the making, and its original 2012 introduction date has already been postponed once, drawing criticism from the insurance industry.

The NAPF, which represents 1,200 pension schemes in the UK, with 15 million members and assets of around £800 billion, has already warned that the new rules could cost the industry £300 billion.

Joanne Segars, chief executive of the NAPF, 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.

“Solvency II type rules would put extra pressure on companies struggling for survival, and also force them to divert money away from investment and new jobs. Faced with extra funding demands, many businesses will simply shut their final salary pension down.”

She added: “The European Commission will receive a crucial submission this week from its own advisers on how to take the project forward. We believe a comprehensive impact assessment is needed before any decision to go ahead.

“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.”

Many final salary schemes have already closed, or shut their doors to new members, as a result of increasing longevity, poor returns and changes in tax treatment.

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