Introduction of regulation of
defined benefit pension schemes based on the Solvency II regime for
European insurers would be a disaster for the UK’s economy and
sponsor companies. This warning comes from the Confederation of
British Industry (CBI), the UK’s biggest business organisation, in
a call on the British government to resist plans by the European
Commission (EC) to treat defined benefit pension schemes as
insurance contracts.
Speaking at the CBI Pensions
Conference in September, CBI chief policy director Katja Hall said:
“The proposal is a terrible idea, based on a wrong-headed
insistence that defined benefit schemes are the same as insurance
contracts.
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“The potential effects are very
significant, and would massively undermine the government’s
economic goals.” She continued: “We need the UK government to step
up to the plate in Brussels and stop the imposition of
insurance-style solvency standards on defined benefit pension
liabilities. The government can do a lot more than it has to
date.”
If the EC’s proposals were to be
implemented as they now stand it could result in total UK defined
benefit pension schemes’ liabilities increasing by up to £500bn
($780bn), said Hall.
“That’s money that will have to be
paid by the schemes’ sponsoring employers,” she stressed. “This
will divert money away from business investment in growth and jobs
at a critical time, and harm prospects for investment in
infrastructure.”
To comply with the EC’s proposed
regulations, Hall said that defined benefit pension across the
European Union (EU) would be required to sell listed shares worth
£800bn.
“With the volatility that we have
seen in international money markets, pension funds piling into more
secure government bonds would push down yields and create even more
pressure on sponsors as investments fail to deliver,” said
Hall.
About 40% of total EU pension
scheme assets of £2trn are held by schemes in the UK. Hall
concluded there is “no reason” for proposed regulatory changes,
arguing there is already sufficient protection for scheme members,
proven during the economic crisis.
Hall said: “We have told the commission [EC], trade unions have
told the commission, the pension funds have told the commission.
But they don’t want to listen.”
