A proposed pensions directive from the EU could herald a shift away from occupational pensions, acco...
A proposed pensions directive from the EU could herald a shift away from occupational pensions, according to Legal & General.
Speaking at the recent Investment Week pension roadshows, Paul Papadopoulos, pensions manager at Legal and General, said the directive aims to harmonise funded supplementary pension schemes across Europe. This could make it harder for companies to fund their schemes adequately, he said. Measures that may have an impact if they are included are interest rate underpins, which ensure the value of funds does not drop over the working life of employees.
The implementation of this EU directive may make occupational pensions more burdensome to employers who will want to find a cheaper way of providing pensions to their staff. This, added to the pressures on occupational schemes proposed by the Myners report and changes to scheme accounting standards, could lead to the demise of occupational schemes, Papadopoulos said.
The FRS 17, which will be mandatory from 2003, will require liabilities to be based on bond yields and assets at market values, which will put pressure on funds to hold a higher proportion of bonds. The lower resulting performance will mean that finance directors will become increasingly nervous about providing their employees with defined benefits schemes, he said.
Another area that will discourage companies from providing pensions benefits to employees, Papadopoulos said, is the introduction of the need to disclose ethical policy. He said that cases where an employer has tried to force a pension provider to stop investing in oil stocks could now be won.
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