One easy way to gauge the complexity of any new government rules change is to count how many clauses or sub-sections they contain.
In the case of new EU rules on pension schemes unveiled today, they have ballooned, from 24 articles and rules to 81 articles – leading to much higher costs for pension schemes.
The new rules have even been weighed, and they're 219g heavier than the last, at a whopping 249g.
The proposed rules, catchily titled the institutions for occupational retirement provision II (Iorp II), have been introduced to ensure corporate pension schemes are save and secure for pensioners. But their complexity will hit schemes where it hurts – in the wallet.
UK firms will be in the hook for an extra £328m to help bring in the laws on pension schemes, while the pension schemes – already severely underfunded – will see costs rise an extra £7.5m a year due to the complexity of the plans, according to EU estimates. The EU has calculated this as €22 per pensioner and scheme member as a one off cost, and ongoing costs of €0.27 to €0.80 a year after that.
“The new Iorp directive is far too detailed and prescriptive,” Eversheds head of pensions Francois Barker said.
Some of the proposals look encouraging. For example, pension schemes will be required to disclose how much they pay their senior executives, an area of pension schemes which for too long has been in the shadows. Pension scheme trustees will also be required to have qualifications, which could help add more professionalism to the sector.
Restrictions on long-term investments would also be scrapped, helping give UK pension schemes more scope to hold infrastructure-type assets.
However, there is still far too much red tape. Pension schemes will be required to compile something called a ‘Risk Evaluation for Pensions’ report. Plans for make sure all cross-border pension plans are fully funded at all times are also kept, a move that will put off many conglomerates from offering transnational pension schemes (and which could have drastic consequences if Scotland votes for independence).
There are many good aspects to Michel Barnier’s proposals – it is just a shame they have to be so prescriptive and costly.