29/09/2011
By Adam Cadle
The European Commission’s (EC) plans to impose insurance-style solvency standards on defined benefit pension liabilities have been labelled a ‘terrible idea’ by the CBI with the UK Government being urged to resist these proposals.
According to the CBI, treating pension schemes as insurance contracts will have a huge impact on investment, jobs and growth.
Speaking at the CBI pensions conference, CBI chief policy director Katja Hall said: “The potential effects are very significant, and would massively undermine the Government’s economic goals. At its worst, this represents an increase of almost half a trillion pounds on total liabilities. That’s money that will have to be paid by the schemes’ sponsoring employers. This will divert money away from business investment in growth and jobs at a critical time, and harm prospects for investment in infrastructure.
“We estimate that schemes that comply with Solvency II would need to sell equity worth over £800 billion.”
Hall also emphasised that pension funds immersing themselves into more secure government bonds would ‘push down yields’ and ‘create even more pressure on sponsors as investments fail to deliver.’ She argued that there is ‘no reason’ for the changes.
Auto-enrolment policy was also a topic covered at the conference with the phasing in process being highlighted as essential for employers.
“Thanks to the phasing and staging the CBI fought so hard to secure, the introduction of additional cost to employers will be spread for many years, allowing it to be off-set. What seemed like a nice-to-have flexibility in the good days is today keeping the reforms alive by providing much needed breathing room for employers.”
Regarding opt-out rates, it was highlighted that these will not reduce until re-enrolment from 2015, as the power of inertia will then have started to take effect.
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