EU threat to private pensions

THE private pensions system could be devastated by a Brussels directive which threatens to dramatically cut pay-outs. Its proposals would govern how money was invested, forcing millions of Britons to pay much higher pension contributions or be condemned to a poorer retirement.

Concern centres on plans to limit how much of their contributions can be invested in stocks and shares. There are indications Europe wants to impose a restriction of 50%, whereas the UK ceiling is 70%. If pension fund managers face artificial restrictions on how to invest money, there are fears that returns will be much lower than hoped.

The changes aim to standardise private pensions but British pensioners would be among those hit hardest. Here, despite concerns about pension returns, there are many more workers saving and investing for their future. However, the new system could still be imposed by a majority vote of other European Union nations. Details of the plan, being considered by the EU Council of Ministers, emerged on Thursday at the National Association of Pension Funds (NAPF) conference in Edinburgh.

Opposition came from Ruth Kelly, Economic Secretary to the Treasury, who said: 'We will not allow inappropriate regulation to threaten our objectives. The pensions' directive must not become an attempt to interfere with member states' pension systems.'

The Association of British Insurers, whose members control billions of pounds in pension funds, also attacked the changes. A spokesman said UK pension investments were run on the 'prudent person' principle, meaning fund managers invested where they saw fit to get the best and safest return. 'We strongly support this and are working closely with the Government to ensure this is maintained,' he said.

Ireland and Holland would also suffer as they had a high proportion of workers paying into private pensions. France and Italy would not be affected as they had a 'pay-as you go' system where contributions paid in by the young were immediately handed to the elderly. Spain, the current holder of the EU presidency, is keen to push the directive through within six months so it can become law within two years.

Rosalyn Roberts, European representative of the NAPF, said the measure would be 'yet another nail in the coffin' of schemes based on workers' final salaries, which have relied heavily on good stock market returns.

'Any additional restrictions could only increase the reluctance of employers to provide such schemes,' she said. 'We already have lots of our own rules and we wouldn't want another layer imposed by Europe.'

The directive also flies in the face of Government policies encouraging private pensions as it threatens to make returns so poor that there is no incentive to leave the State system.