As the EIOPA consultation period on occupational pension schemes and Solvency II ended this week, the Uk government, the industry, and others said the proposals are unacceptable.
After pensions minister Steve Webb said the capital proposals could cost the industry £100bn and mean a quicker end to final salary schemes, JPMorgan Asset Management has put the cost at £600bn for UK defined benefit schemes. The ABI also said that it opposed the proposals because of its potention adverse impact on schemes.
PwC says that EU proposals to adapt solvency capital requirements to pension schemes could destroy not only defined benefit schemes but any occupational pension provision, whether defined benefit or defined contribution. PwC believes most companies would look to level down to minimum auto-enrolment requirements, to avoid the capital burdens which would go with supporting workplace pension schemes under any likely new regime.
PwC's estimate for the cost for UK business if the rules were implemented is up to £500bn, depending on how much leeway there is for healthier businesses.
Raj Mody, head of PwC's pensions group, comments
"While attempting to improve pension scheme security, these new rules could actually kill off occupational pension schemes altogether. The additional costs for companies would ultimately be borne by individual savers, who would see less generous pensions, whether defined benefit or defined contribution. The plans would therefore work against the initiatives the UK Government is planning to encourage long-term saving.
We reckon the cost on UK business would be in the range of £250bn-£500bn. In terms of the impact on the UK economy this is like wiping out a quarter of the FTSE100.
Other consequences include a bigger administrative burden for businesses as they seek to prove they can stand by their schemes to face less onerous funding requirements. Even then, the extra capital burden would provide companies with greater desire to remove historic defined benefit liabilities from their balance sheets, causing a surge in pension transfer incentive exercises."
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