UK/EU - Many key proposals in the UK's Green Paper will be annulled by Europe's upcoming Pensions Directive, senior UK lawyers claim.
EU plans for solvency requirements, restrictions on equity asset allocations and the prescription that tax-free lump sums are only used to secure life-long income all clash with the government’s proposals.
But lawyers’ chief concern is over the EU’s opposition to UK plans to scrap MFR in favour of a scheme-specific funding requirement.
Eversheds EU partner Harold Lewis pointed out that the European parliament had already made it clear that it wants a stringent funding requirement – similar to the solvency requirement that governs insurance companies.
The draft directive states that schemes must have “sufficient and appropriate assets” to cover liabilities.
Hammonds partner Francois Barker fears a pensions White Paper will lose in a head-to-head battle with the directive.
He said: “The European directive isn’t legislation, but it will require member states to amend legislation to be in line with European convention.”
Although the EU directive was originally intended as a permissive regime for transatlantic pension funds, Barker said its position had shifted and was now obligatory.
Confederation of British Industry pensions officer Jamie Bell said the organisation will be lobbying the European parliament to change its directive – particularly restrictions over the use of the tax-free lump sum.
He said: “If you want to encourage occupational pensions, you need to get people to join them and the lump sum is an effective way of doing this.
“Under the draft directive, people would have to use the lump sum to secure a ‘life-long income’, as a down-payment on a care home, for example.”
The Association of British Insurers has written to members of the European parliament calling on them to reject amendments to the directive that threaten the UK’s tax-free lump sum.
The second reading of the directive is due to take place on March 13 and, if adopted, would become part of British law in 2005.
This week's edition of Professional Pensions is out now.
Laytons partner Jennie Kreser speaks of her concerns over pension outcomes.
Guy Opperman has indicated his support for a fresh pensions commission as the government seeks to understand how to progress pensions policy in a wide range of areas.
Auto-enrolment (AE) minimum contribution rates could rise to 12% by 2030, with a 50/50 split between employer and employee, the Pensions and Lifetime Savings Association (PLSA) says.