Pensions Minister, Steve Webb, has slammed 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.
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