CBI: EU Pension Threat to UK Jobs and Growth
The Confederation of British Industry (CBI) is warning that it believes new legislation from Europe over pensions will damage economic growth and lose jobs in the UK.
The Institutions for Occupational Retirement Provision (IORP) Directive is intended to regulate occupational pensions at a national level and currently says pension schemes must be funded "prudently".
Under new Solvency II rules, akin to the Basel II rules which require banks to have gretaer capital behind them, IORP is looking to ensure that all pension schemes are "fully funded" and it is this change that the CBI are resisting.
Solvency II, designed for insurance firms, requires that they have enough capital behind them to pay out in the event of "once in 200 year catastrophes".
The CBI believe that the IORP refomrs themselves could be a disaster, particularly in light of the austerity measures under which European eocnomies find themselves and the fragile economic recovery.
Backed up by an analysis of the figures by independent economic consultants, Oxford Economics, the CBI are arguing that the proposed EU pension changes would force additional costs on to UK businesses.
Europe wants UK businesses to divert funds into backing up pension schemes, shifting capital away from direct business investment and into ensuring the capitalisation of pension funds.
IORP has been forecast to burden UK firms with an extra £350 billion of costs, affecting long-term growth which will be down by an overall 2.5% over the next 15-20 years.
180,000 jobs are expected to be cut and the vlaue of pensions will be reduced, says the analysis.
The CBI cites the Pension Protection Fund, established in 2004, as a mechanism which can already lower the amount of solvency required.
Pension funds, unlike insurance schemes, do not have to pay out all benefits at once, so the CBI are accusing the new reforms as "wrong headed".
Also, by forcing pension schemes to invest in low risk investments, such as government bonds, the analysis indicates that returns will be reduced.
CBI Chief Policy Director Katja Hall said:
“Imposing £350 billion more costs on business would be a disaster for the economy and for pension saving. The long term economic outlook is so fragile and uncertain that it is crazy to entertain proposals which would cost jobs and cut so deeply into our long-term growth and competitiveness.”
“Workplace pensions are vital to ensuring people have enough money for their retirement when life expectancy is rising – so future generations are not hit with huge bills or driven into poverty. The European Commission’s wrong-headed proposal will do nothing to help us cope with the burden of retirement.”
The capital adequacy regime has been predicted to affect the standard of living by reducing consumer spending and to negatively affect the UK export market, reducing Britain’s competitiveness.