'Serious' risk of EU killing off British final salary
pensions with new 600bn hit – and it would ravage our economy too
Battling the EU: Pensions minister Steve Webb is trying to create a coalition of rebels to quash 'destructive' EU pension plans
Punishing new rules dreamt up by 'pesky' European bureaucrats threaten to kill off the last of Britain's final salary pensions and ravage our economy, industry experts are warning.
The plan would force companies across the 27-nation European Union to plough vast sums of cash into pension schemes to stop them going belly-up in a crisis.
Estimates suggest the potential hit to UK company balance sheets could range from 300billion to 1trillion if Brussels bigwigs get their way.
A report by JP Morgan estimates UK companies would take a 600billion hit in the aftermath of a rule-change
The higher costs would sound the death knell for the 21 per cent of British
final salary pension schemes still open to new members, according to the
National Association of Pension Funds.
And 'knock-on damage' would fling the UK economy into a tailspin, with job cuts and other corporate belt-tightening inevitable.
This is Money understands there is now a 'serious' risk of the destructive plans getting the green light in Brussels later this year.
Pensions minister Steve Webb is desperately cobbling together a 'coalition' of fellow EU rebels, thought to include Germany and Holland, in a last-gasp bid to quash the plans.
The EU is already forcing insurance companies to boost capital reserves in a plan called 'Solvency II' and now wants to make pension funds follow a similar model.
Joanne Segars, chief executive of the NAPF, said: 'Faced with extra funding demands, many employers will revisit their pension arrangements. And what we are likely to see is the closure of more final salary pensions.'
Any changes will hit Britain harder than other EU nations because it has disproportionately more defined benefit schemes. Around 60 per cent are thought to be UK-based.
Tom McPhail, of Hargreaves Lansdown, called for 'pesky' European politicians to back down before their meddling turns into disaster for Britain.
'In a worst case scenario the new rules could drive businesses to bankruptcy by draining too much capital into pension schemes,' he said.
'The EU has gone way over the top. The whole industry is saying “don't be so ridiculous, we've got adequate protection already”.'
The CBI has previously called the plan, whose details being hammered out by a quango called the European Insurance and Occupational Pensions Authority, a 'terrible idea'. It expects a huge 800billion equity sell-off as funds switch into less risky assets, potentially pulling stock markets to the floor.
A report by JP Morgan estimates UK companies would take a 600billion hit in the aftermath of a rule-change. Consultants at JLT Pensions say the bill could rise to 1trillion. The NAPF said if just one of the proposals went through it could cost 300billion – its most conservative estimate.
The industry argues that British pension provision is already secure enough without new capital laws. It has its own safety net, provided by the Pension Protection Fund, for when schemes collapse and schemes are monitored by the Pensions Regulator.
Ms Segars, who represents 1,200 workplace pension schemes, said: 'We do not need new solvency rules for pensions.'
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