UK pension scheme funding shortfalls are likely to increase by around £150bn if the European Commission goes ahead with plans to subject schemes to rules like those being introduced for insurers under Solvency II, pensions minister Steve Webb claimed today.
Speaking at the European Federation for Retirement Provision's Congress in Brussels, Webb said using Solvency II-type rules to calculate pension liabilities would have a 'devastating' impact on schemes' funding positions and, in turn, on their ability to invest in growth and jobs creation.
He cited new analysis published today by The Pensions Regulator which showed that the likely impact of the plans as they stood would be to increase the deficit of UK employers with final salary schemes by around £150bn. In a worst case scenario, deficits could increase by as much as £400bn.
The changes, which would be introduced under a revision of the European Union's Institutions for Occupational Retirement Provision Directive, would also force 'many more' defined benefit pension schemes to close to new members.
'The new figures show us just how devastating the impact of the commission's wrongheaded proposals would be,' Webb said. 'A likely outcome of the new rules would be to increase pension liabilities by over £100bn. 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.'
According to the Department for Work and Pensions, if the new rules require the maximum level of funding from employers, the percentage of existing DB schemes remaining open to new members would be brought down over the next 20 years from 16% to just 5%. The percentage of schemes open to existing members would fall from 58% to less than 25%, it added.
The analysis referenced by Webb is based on the methodology published for consultation by the European pensions regulator in June outlining how it planned to measure the impact of its proposed approach to revising the IORP Directive.
The European Insurance and Occupational Pensions Authority then submitted draft technical specifications based on this consultation to the European Commission last month, and is currently carrying out the impact study itself.
Joanne Segars, chief executive of the National Association of Pension Funds, said Webb was 'dead right' to take a stand against the Commission's proposals.
'Brussels is proposing a damaging solution to a problem that does not exist. Businesses struggling to keep jobs and investment going would instead have to divert huge amounts of money into their pension fund, completely unnecessarily,' she said.
'Many would simply close their final salary pensions altogether, further weakening the UK's ability to save for its old age. Europe should be supporting businesses that offer a good pension, not undermining them.'
She added: 'The UK has one of the strongest pension protection systems in Europe already and does not need this regulation. Instead the Commission should focus its activities on other aspects, like pensions governance and communications.'