A proposed European Union pension fund regulation would dent long-term economic growth and cause pension funds to dump equity investments in favor of safer bonds, according to a letter to European Commission President Jose Manuel Barroso from three U.K. groups.
“With European pension funds holding over €3 trillion ($3.96 trillion) in assets, a major switch in asset allocation would have an immediate catastrophic impact on the stability of European financial markets,” according to the letter, signed by the heads of the National Association of Pension Funds, the Trades Union Congress and the Confederation of British Industry.
The letter states that the pending regulations would “undermine the retirement prospects of millions of EU citizens” and have “a disastrous impact on the long-term economic growth and employment rate in the EU.”
At issue is a demand for higher solvency rates for pension funds, something the groups support in principle. But by “demanding dramatic increases in funding from employers,” the proposed regulations “would — at best — force all remaining defined benefit schemes to close and — at worst — push many businesses into insolvency, leading to significant job losses,” according to the letter.
Pension fund experts have urged lawmakers in Europe against using similar solvency laws for pension funds as for insurance companies. The European Insurance and Occupational Pensions Authority is expected to send its final recommendation on the proposed regulations later this week.