Pensions Minister, Steve Webb, will today slam the EU’s plans to use a Solvency II-style basis to measure pension liabilities, as he says the cost to companies and the economy could run into hundreds of billions of pounds.
Publishing new calculations carried out for the UK Government by pension experts the Pensions Regulator, the Minister says the likely outcome would be a cost to UK employers with final salary schemes of around £150 billion. In a worst case scenario, pension shortfalls could rise by as much as £400 billion.
All private companies with defined benefit (DB) pension schemes would be affected. These schemes hold half the UK’s private pension assets, and have total liabilities of around £1,200 billion.
In a speech to the European Retirement Federation in Frankfurt, Steve Webb, Minister for Pensions, will say:
The new figures show us just how devastating the impact of the Commission’s wrongheaded proposals would be. A likely outcome of the new rules would be to increase pension liabilities by over £100 billion. This would harm businesses’ ability to invest, grow and create jobs, and many more schemes could be forced to close.
We are urging Brussels not to pursue these dangerous, reckless plans. In Britain, we are making reforms to ensure our pension system is sustainable. In Europe, we should be working together to tackle real pension challenges, and find ways of better sharing the risk of providing pensions between the employer and employee.
If the Commission proposes rules requiring the maximum level of funding, more DB schemes would be forced to close. On the basis of current trends, it is possible that over the next 20 years the percentage of remaining schemes open to new members would be brought further down, from a current 16% to 5%, and those open to existing members from 58% to less than 25%.
The UK Government has been clear there is no “one size fits all” model for pensions across EU member states.
Notes to Editors:
- The European Commission is reviewing the IORP (Insurance and Occupational Pensions) Directive which provides the EU framework within which funded occupational pension schemes are regulated. The Commission has said it wants to harmonise the rules governing pensions with Solvency II capital rules for insurance.
- The report on the estimated impact of the EU proposals was commissioned by the DWP, and carried out for the UK Government by The Pensions Regulator, and is available on the DWP website: http://statistics.dwp.gov.uk/asd/index.php?page=adhoc_analysis. It is an initial impact assessment rather than a comprehensive Quantitative Impact Study. It was commissioned earlier this year and completed in September ahead of a current QIS exercise.
- In April 2011 the European Commission asked EIOPA (The European Insurance and Occupational Pensions Authority) to provide advice on how this might be accomplished and what modifications may be needed.
- 1.5% of workers from the Member States of the EU live in a different Member State from their country of origin - European Commission study,
Geographic mobility in the European Union: optimising its social and economic benefits (April 2008). Longdistance mobility is not common: only 18% of Europeans have moved outside their region, while only 4% have ever moved to another Member State and only 3% outside the EuropeanUnion - study published by Eurofound website, (European Foundation for the Improvement of Living and Working Conditions (2007) - Mobility in Europe
- Britain is reforming pensions to provide sustainable and adequate provision for the future by raising the state pension age, introducing workplace pension reforms and a single tier state pension.
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