| EU directive "to increase costs and workload for pension funds" |
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| 27/09/2001 | |
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by Nat Mankelow A European Union (EU) anti-discrimination directive will increase the cost and administrative burden of UK pension schemes, according to leading actuary consultant William Mercer. The Directive for Equal Treatment in Employment and Occupation – which prohibits discrimination based on religion, belief, disability or age – is scheduled to be adopted by member states by December 2003. The directive will also affect working conditions and pay. Paul Kelly, partner at William Mercer, said the new directive could create a huge disincentive for companies to offer pension provision, heaping extra work on pension fund trustees as well as having a negative effect on the cost of running a company scheme. Of immediate concern is the EU provision on anti-ageism, which pension consultants believe are excessively stringent since it prohibits discrimination against both older and younger workers. Consultants warn that pension plans will need to be radically restructured by trustees if companies are currently deemed to provide a lower level of contributions for younger employees than for older staff. In contrast, US law concentrates on protecting older workers. "The EU equivalent is a double-edged sword," says Kelly. Final nail in the coffin for defined-benefit schemes? Critics of the directive argue the impact on defined-benefit schemes will be the greatest, since the cost and value of these schemes rises with age and could thus be considered discriminatory. In order for companies to meet the shortfall in pension provision for younger employees, industry observers predict company contributions will need to be increased, thus adding to the cost of defined-benefit ran schemes. "This is a worry for defined-benefit schemes and a nail in the coffin," says Geoff Pearson, pensions manager for Sainsbury's. At present, Sainsbury's contribute 12 per cent of yearly salary for staff aged 50 or over and 4 per cent for under 30s. The wording of the directive is also leaving many puzzled. For example, chapter 25 of the directive states that although acting against age discrimination is an essential part of the ruling, "differences in its treatment may be justified under certain circumstances". "This type of comment is open to interpretation and inevitably we will see a string of legal cases seeking clarification," adds Kelly. The directive is most likely to be felt in the UK, Ireland and the Netherlands, which have highly developed occupational pension systems. Other countries, such as France and Germany, may be affected on a smaller scale. |
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