Plans to apply Solvency II rules to pension schemes could threaten Europes long-term economic growth, unions, pension funds and business leaders have warned.
In a joint letter sent to the president of the European Commission, José Manuel Barroso, the National Association of Pension Funds, the Trades Union Congress and Confederation of British Industry said that the changes could 'push many businesses into insolvency'.
By demanding 'dramatic' increases in employers' funding for pension schemes, the proposed changes to the IORP Directive governing workplace pensions would 'at best' force all remaining defined benefit schemes to close, they said. At worst, by increasing insolvencies, they could lead to significant job losses.
'Far from benefiting employees and protecting scheme members, this would create a system in which job creation would be seriously hurt and pension provision inevitably damaged,' they added.
The letter was sent to Mr Barroso as the European Insurance and Occupational Pensions Authority is expected to send its final recommendations on changes to the IORP Directive later this week.
Together, the NAPF, TUC and CBI welcomed the Commission's objective of ensuring pension scheme members benefit from risk-related regulation.
But they said that the funding measures currently envisaged by the EC would fail to do this. Instead, the planned changes would 'undermine the retirement prospects of millions of EU citizens and would have a disastrous impact on the long-term economic and growth and employment rate in the EU'.
In particular, the signatories said the increase in funding would 'substantially' raise the cost to companies of providing occupational pensions. This, they said, would force firms to divert money away from investment in growth, job creation and research & development.
The proposals would also significantly change schemes' investment patterns, they said. Calculating liabilities on the risk-free discount rate proposed by the Commission would switch pension investments away from return-seeking classes such as equities and instead into risk-free high-quality bonds and gilts.
'Less equity investment would restrict capital flows to businesses, at a time when they are being asked to put even more cash into schemes. With European pension funds holding over 3 trillion in assets, a major switch in asset allocation would have an immediate catastrophic impact on the stability of European financial markets,' they wrote.
Warning that any change that could put the economic competitiveness of the EU at risk would be a 'serious mistake', the signatories called on the Commission to carry out its own 'comprehensive and detailed' quantitative assessment on its proposals.
The letter was signed by Joanne Segars, chief executive of the NAPF, Brendan Barber, general secretary of the TUC, and Katja Hall, chief policy director at the CBI.