EU pension changes would cripple UK business, study says

Posted on 11 Dec 2012

Proposed EU pension changes would force £350bn of extra costs on UK businesses, hit long term growth by up to 2.5% and slash 180,000 jobs according to an independent report commissioned by the CBI.

An analysis commissioned by the CBI says that proposed EU pension changes would pile on billions of pounds of cost to companies, slash 180,000 jobs and cut the value of pensions in the UK.

The European Commission wants to impose a new funding regime for pensions, which would force employers to divert hundreds of billions of euros into defined benefit (DB) schemes.

The plans would require pension schemes run by individual employers to operate like similar proposed changes for insurance firms.
Under the EU’s “Solvency II” process, these would have to hold enough funds to pay out in the event of a once-in-200 year catastrophe.

Analysis by independent economic consultants, Oxford Economics, backs up the CBI and other European business leaders’ views that the reforms would be a “disaster”, when the long term economic outlook in Europe is so fragile.

Katja Hall, CBI’s chief of policy, said the EU’s pension reform was “wrong-headed” and that it will do nothing to help us cope with the burden of retirement.”

Pension funds, unlike insurance schemes, never have to pay out all benefits at once, the CBI points out. Pension liabilities fall over many years as workers retire over time and can call on additional funds from employers if needed.
It says the proposals would force firms to cut jobs and be forced to pass costs onto customers and employees to meet the extra demands from Brussels.

And it says the plans would force pension schemes into ‘low risk’ investments in ‘safer’ products like government bonds – reducing returns, forcing up costs for employers, as well as discouraging funds from investing in long-term assets such as infrastructure.
“Imposing £350 billion more costs on business would be a disaster for the economy and for pension saving. The long term economic outlook is so fragile and uncertain that it is crazy to entertain proposals which would cost jobs and cut so deeply into our long-term growth and competitiveness.”

The changes are unnecessary in the UK, the CBI says, because here pensions already have robust regulation to ensure employers have set aside enough money to cover long term costs – although this claims was tested during the demise of nearly all DB schemes in the 2000s.

“It’s alarming the Commission is still turning a deaf ear to calls from businesses, trade unions and pension funds to bin these proposals” said Ms Hall.

The proposals are part of the Commission’s proposed review of the Directive for Institutions for Occupational Retirement Provision (IORP), which lays down EU-wide rules to strengthen pension security.

It is inspired by the Solvency II process, a review of the capital adequacy regime for the European insurance industry.