The additional cash funding imposed on UK companies could have been as much as half of the country’s gross domestic product (GDP) had the IORP directive come into force, Lane Clark & Peacock (LCP) says.
IORP announced earlier this year proposals to implement more stringent solvency requirements for pension provider were on hold for the time being, but according to LCP the cost of implementing the directive would have amounted to 46% of the UK’s GDP – a sharp contrast with the estimated cost to other European countries: for example, Germany and Ireland would both be hit by just 2% and Belgium by 1%.
LCP came to the figure – the increase in pensions schemes’ assessed liabilities and risk reserves as a % of GDP (for funded private sector schemes only) – by analysing the results of the European Pensions Regulator’s (EIOPA) Quantitative Impact Study (QIS), published in July, and identified the UK would have been by far the most impacted country by the pension proposals.
LCP partner Jonathan Camfield said: “Our research demonstrates that the impact of Europe’s pension proposals would have been gargantuan for the UK when compared to other countries. These proposals would be crippling for the UK economy.”
However, he added: “Whilst we are pleased that the European Commission has put these proposals on hold we are concerned that the ongoing work by various European bodies and the statements being made from Brussels, suggest that the issue remains firmly on the agenda, and is not going to go away quickly.
“Even if Europe does not require UK employers to recognise these additional costs at the moment, our research demonstrates the challenges faced by the UK private sector relative to its European counterparts. This begs the question whether the UK private sector can manage to pay off all its pension promises, whilst remaining competitive with other European countries over the coming decades.”
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