27 March 2012

NAPF: DWP Select Committee told that EU rules based on Solvency II are the single biggest threat to UK DB pensions

In her evidence to the DWP Select Committee yesterday, the NAPF Chief Executive, Joanne Segars, highlighted the full-scale impact of an EU Pensions Directive based on Solvency II on UK pensions.

Ms Segars warned that:

• The introduction of a Solvency II-style approach to pension scheme funding represents the single biggest threat to UK defined benefit pension schemes.
• Just one element of the proposal – the shift to using a risk-free discount rate in valuing liabilities – would increase the liabilities of defined benefit pension schemes by 27 per cent. This would equate to a £291 billion increase in scheme funding requirements.
• The extra funding demands on sponsoring employers would increase their insolvency risk and undermine their credit ratings.
• Employers would be forced to reduce or cease providing pension benefits to their employees, resulting in less generous benefits for scheme members.

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