Towers Watson is warning that proposed revisions to a European Directive could make it harder for employers to review their long-term defined contribution pension offerings in light of 'pension freedom' by stopping them from moving employees' existing savings to a new vehicle. The potential changes could also hamper employers' ability to consolidate pension schemes of all kinds following mergers and acquisitions.  However, the firm is optimistic that the proposals it is worried about will not be in the final Directive.

The EU Pensions Directive is in the process of being revised.  Currently, the European Parliament and Council of Ministers are commenting on the Commission's proposal for a revised Directive.

The Commission proposed that any bulk transfers of members across borders should, subject to national legislation, require the approval of scheme members, or their representatives.

A draft report from the rapporteur appointed by the European Parliament's Economic and Monetary Affairs Committee, Irish MEP Brian Hayes, says that approval should be obtained even in the case of bulk transfers between schemes in the same Member State.  It proposes that this could be given by a majority of members/their representatives.

Fiona Matthews, managing director of LifeSight, Tower's Watson's defined contribution Master Trust, said:

Pension Nest Egg"We're telling clients not to panic – we do not expect this change to survive in the final version of the Directive.  But if it does, it will cause two problems.

"First, it would be a stumbling block where employers with trust-based defined contribution schemes decide to outsource pension provision rather than keeping their own scheme going.  'Pension freedom' has changed what schemes should be doing as a matter of good practice – for example, giving members more choice means they will need more help to decide what to do. Some employers will want their schemes to rise to this challenge but others will prefer to move members' savings across to a multi-employer vehicle with the expertise to do this.

"Second, preventing non-consensual bulk transfers would make it much harder for employers to tidy up pension arrangements following mergers or acquisitions. UK law already provides protections for members around such transfers.

"If the final Directive does contain these provisions, there would need to be clarity about who could count as members' representatives.  It's not clear whether the trustees of a UK pension scheme could fill this role."

About Towers Watson

Towers Watson (NASDAQ: TW) is a leading global professional services company that helps organizations improve performance through effective people, risk and financial management. With 16,000 associates around the world, the company offers consulting, technology and solutions in the areas of benefits, talent management, rewards, and risk and capital management. Learn more at towerswatson.com.

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