Towers Watson/CBI Study: EU Pension Costs Harming Business Growth

(December 12, 2011) — Newly proposed European Union regulations would heighten costs for employers in the United Kingdom managing defined benefit (DB) pension schemes, thwarting business growth, according to research by the Confederation of British Industry (CBI) and Towers Watson. 

Katja Hall, CBI Chief Policy Director, said in a statement: “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.”

The study showed that the cost of running a DB scheme ‘whether open or closed’ remains a hefty concern to businesses as high costs and uncertainty persist at a time when pension deficits are already harming their ability to succeed. 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.

Furthermore, the study noted that that two-thirds (69%) of employers are worried about the prospect of the EU enforcing high-deficit payments over a shorter period of time.

In regards to perceptions of The Pensions Regulator (TPR), the study revealed that employers’ view of the agency are generally optimistic. Almost half (44%) of employers are satisfied with TPR’s interaction with their organization, while just 12% are dissatisfied.

“Plans for repairing pension deficits have been blown off course and employers are hammering out new agreements with pension trustees,” John Ball, UK Head of UK Pensions Consulting at Towers Watson, said. “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.”

He continued: “The eurozone crisis underlines how unforeseen events can increase the cost of pensions promised in the past. For employers, the focus is now on locking these costs down and getting ready to seize opportunities to do that as they arise.