The Government, businesses and pension funds are calling for the European Commission to abandon “reckless” plans to introduce Solvency II-style funding requirements for defined benefit pension schemes, which could cost UK DB schemes £450bn.
The controversy centres on changes the commission wants to make to the Institutions for Occupational Retirement Provision, or IORP, directive.
The commission’s proposals, which are designed to provide greater protection for occupational pension savers, would require DB scheme sponsors to hold extra capital in reserve to meet their liabilities.
The impact the changes would have on the UK was previously unclear, with cost estimates ranging from £300bn to £1trn.
Last week, the European Insurance and Occupational Pension Authority, an EU regulator, published preliminary findings of a study into the impact the proposals could have on pension funds. The commission instructed EIOPA to carry out the study between October and December last year.
EIOPA estimates the changes could load an extra £450bn in additional funding costs onto UK DB schemes.
Pensions minister Steve Webb says: “The EU’s latest figures show the extremely high cost its plans would place on UK defined benefit pension schemes.
“In fact, its estimate of a baseline £450bn cost is in line with the worst case scenario contained in figures The Pensions Regulator produced for the UK Government last year.
“This confirms that any such new rules would harm businesses’ ability to invest, grow and create jobs, and many more schemes could be forced to close. I continue to urge the commission to abandon these reckless plans.”
The Confederation of British Industry warns the proposals would damage UK growth and job creation.
CBI director of employment and skills Neil Carberry says: “The European Commission must not ignore this warning. EIOPA’s preliminary results show the impact of these proposals are even worse than expected.
“An additional £450bn cash call on businesses would damage growth and job creation, as well as destabilising financial markets.”
The National Association of Pension Funds says the changes would be “highly damaging” for UK savers. The trade body also criticises the commission for attempting to drive the reforms through at “breakneck speed”.
The commission is aiming to publish a first draft of the revised directive in June.
NAPF chief executive Joanne Segars says: “Businesses trying to run final salary pensions could be faced with bigger pensions bills to plug an astonishing £450bn funding gap. This would have a highly damaging effect for the retirement prospects of millions of UK workers.
“This project has been conducted at breakneck speed due to the commission’s ludicrously tight timetable. This cannot be the basis for formulating a policy that could undermine the retirement plans of millions of people both in the UK and across Europe.”
Independent consultant Towers Watson says the scale of resistance to the changes means the commission is likely to push back the deadline for publishing the draft revised directive.
It says: “The commission’s aspirations for a draft directive in June look increasingly unattainable and we expect compromise. However, the form of any compromise remains unclear.”