Pensions World

Proposed EU pension regulations would add significantly to business costs according to the latest CBI/Towers Watson Pensions survey.

Indeed, two thirds (69%) of business leaders are concerned about the prospect of the EU enforcing high deficit payments over a shorter period of time, under Solvency II-style rules being planned in Brussels to cover defined benefit (DB) schemes.

At its worst, this could cost employers with DB liabilities hundreds of billions of pounds. It would divert money away from business investment in growth and jobs. The CBI is urging the EU to reconsider its proposal.

The cost of running a DB benefit scheme – whether open or closed – remains a big concern to businesses. Close to three quarters (71%) are worried about the level of funding, and firms fear that things will get worse, with over four fifths (85%) of businesses concerned that market fluctuations could further harm funding levels.

Over two thirds (69%) of companies say providing DB pensions is having a significant impact on their accounts, and close to half (45%) say they have less left to invest to grow the business, up from 38% in the 2009 survey.

So far, 44% of businesses are satisfied with the Pensions Regulator (TPR)’s interaction with their company, while just 12% are dissatisfied. This positive balance of +32% reflects the additional flexibility TPR gave firms to cope during the recession.

Scheme closures

Faced with rising pension costs, most employers have already taken action, be it closing their final salary scheme to new members, changing terms for existing members, or freezing the scheme altogether.

This is set to continue. Nearly a third (29%) of companies say their DB scheme is already closed to future accrual by existing members, and this is expected to rise to 43% in the next two years. Two thirds (64%) of employers who currently offer DB benefits to at least some employees are either planning to close their scheme completely or make changes to it within the next two years.

Commenting on the survey, Katja Hall, CBI chief policy director, said: “Businesses remain committed to providing good quality pensions to help their workforce plan for retirement, and understand the benefits this brings the company as well as its staff.

“But employers’ big concern about defined benefit pensions is no longer just around rising contributions. Large and unpredictable liabilities are also harming firms’ ability both to attract investment to grow the business, or to restructure to cope with difficult times.

“What’s completely unacceptable is Brussels’ plan to impose further costs on firms operating defined benefit pensions at a time like this, when the protection in place has already proven itself during the economic crisis. We have told the EU, trade unions have told the EU, the pension funds have told the EU. So far they have refused to listen.”

John Ball, UK head of UK pensions consulting at Towers Watson, adds:
“Plans for repairing pension deficits have been blown off course and employers are hammering out new agreements with pension trustees. For the 62% who are worried about contributions going up, the key issue is how much they can afford to pay without undermining the long-term strength of their business. Some of these negotiations will be difficult but employers would be given far less leeway if the Commission’s proposals were in force.

www.cbi.org.uk