Solvency II will kill DB schemes and bankrupt business

THE National Association of Pension Funds, trade union TUC and Confederation of British Industry joined forces today to persuade European policy makers not to make pension schemes subject to Solvency II funding requirements under a new directive.

The trio have written a joint letter to the President of the European Commission, José Manuel Barroso, and commissioners Barnier, Andor and Rehn, reported sister publication Professional Pensions.

The letter comes as European Insurance and Occupational Pensions Authority is due to send its advice on the directive to the EU Commission.

The NAPF said there was a "strong risk" it will recommend Solvency II as a framework for the directive.

The joint letter said: "By demanding dramatic increases in funding from employers, the commission's plans would - at best - force all remaining defined benefit schemes to close and - at worst - push many businesses into insolvency, leading 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."

The letter said Solvency II would force companies to divert cash earmarked for investment, growth and job creation into pension schemes. It added the move would also significantly change scheme investment patterns - with massive outflows from equities into risk-free assets such as 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 €3trn (£2.5trn) in assets, a major switch in asset allocation would have an immediate catastrophic impact on the stability of European financial markets," the letter warned.

The organisations also said they were "deeply concerned" the commission had failed to carry out a comprehensive quantitative impact assessment on its proposals.

NAPF chief executive Joanne Segars, TUC general secretary Brendan Barber and CBI chief policy director Katja Hall all signed the letter.