Staying in the EU will be CATASTROPHIC for state and private pensions, expert warns


By Professor David Blake

1. The socio-political model underlying the EU is completely alien to our way of thinking. It is the dirigiste model of Bismarck – providing state support from cradle to grave. There are many people in the UK who do, of course, like this model. It is the model of a ‘social Europe’. However desirable a ‘social Europe’ might be, there is a small problem with it – it is simply not affordable. That is because the EU is bankrupt. In some EU member states, such as Spain and Greece, youth unemployment is more than 50 per cent.  So rather than these young people being in work and paying the taxes needed to pay the pensions of their grandparents, they are claiming unemployment benefits themselves. The situation in these countries has become so bizarre that grandparents are forced to stay in work to pay the taxes needed to pay the unemployment benefits of their grandchildren. By contrast, our socio-political model is Beveridgean – named after William Beveridge who set up the British welfare state after the war. This model provides minimal state support and expects citizens to take responsibility for themselves above that.

2. Occupational defined benefit (DB) pension schemes in the UK and other common law countries are voluntary arrangements between the employer as scheme sponsor and the employee as scheme member. The employer made a ‘pension promise’ that would be delivered on a ‘best efforts’ basis, but over the years, the promise has been turned into a guarantee. DB schemes have been killed by over-regulation – at both UK and EU level – and have been replaced by defined contribution (DC) schemes where all the risks are borne by the scheme member. Further, the EU model is contract-based, and this is very much at odds with our trust-based system. It is far too prescriptive, compared with the flexibility of the discretionary trusts that underlie our company pension schemes. 

3. The EU wants to have a common European pension system – so workers can easily move from one country to the next and transfer their pension benefits. While this clearly makes sense, it will, in fact, be impossible to achieve due to the divergent views on the role and financing of pensions and the different tax regimes in the various member states.

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