There are at least six reasons why remaining in the EU will be bad for pensions:
- The EU's socio-political model is completely alien to the UK model:
- This is the dirigiste model of Bismarck – rather than the model of Beveridge which provides minimal state support and expects citizens to take responsibility for themselves above that.
- Occupational pension schemes in UK and other common law countries are voluntary arrangements between the employer as scheme sponsor and employee as scheme member.
- They were offered on a ‘best efforts’ basis, but over the years, promises have been turned into guarantees.
- DB schemes have been killed by over-regulation.
- The EU model is contract-based, completely inconsistent with the anglo-saxon trust-based system.
- This is far too prescriptive cf the flexibility of discretionary trusts.
- It is impossible to have a common European pension system due to divergent views on the role and financing of pensions and the different tax regimes.
- The overwhelming volume of law and regulation is unfairly applied:
- The UK government’s 2104 Competency Review said there had been a 10-fold increase in EU financial services law in 10 years
- Increasing interference in retail markets such as pensions
- The UK accounts for 61% of EU DB schemes and Holland 24%, yet as the PLSA says, 20 member states with less than 1% of DB liabilities collectively have a greater say in supervision and funding requirements than UK or Holland
- It is actually questionable whether there is such a level playing field, although we are to blame by gold-plating EU legislation
- Eg ‘debt-on-the-employer’ legislation in the UK but not Ireland.
- What we get depends on the arbitrariness of who happens to be the EU Commissioner for Financial Services:
- Michel Barnier v Jonathan Hill
- With the end game being ‘ever closer’ movements towards the EU’s ultimate objective of Solvency II for pension funds at the request of continental bank assurers.
But either way, there is a never ending cat-and-mouse game played between the Commission, EIOPA and the national regulators and trade bodies
- The EU is a political project and market reality cannot be allowed to interfere with this. Supporters believe political will can overcome all other forces.
- Any attempt to turn pension funds into insurance companies will destroy not only DB but also the sponsoring companies
- No serious recognition of the pension obligations being built up on state balance sheets.
- Will end up with no secure pensions in either the state or private pension systems with increasing burdens passed to future generations.
So, far from being a bastion of fairness, it will end up being intolerably unfair to future generations. As Angela Merkel says: EU has 10% of the world’s pop, 25% of world’s GDP and 50% of the world’s welfare benefits. This is clearly not sustainable.
Professor David Blake
Director, Pensions Institute
Cass Business School
106 Bunhill Row
London EC1Y 8TZ