Under new European Union capital rules, UK pensions could be hit with 10-20 percent devaluation.
The Financial Times has reported that Legal & General have foreseen a huge drop in the value of UK pensions.
It seems that Solvency II, which should regulate requirements for insurance firms, cannot go through in its current state as this could ultimately betray savers and lose them anything from 10-20% of their pensions.
Solvency II rules should go through in 2012 and will ensure that assurers have to be more aggressive in marking out ‘annuity liabilities to the market, increasing the volatility of their balance sheets and making them increase capital levels’.
European firms will bear the brunt of increased costs under the new rules for running UK annuity businesses and these costs are more than likely to be passed onto the pensioners. This means that pensioners will then expect lower incomes or less risky investments will be made, which again will hit incomes.
Regulators and politicians (including Alistair Darling) agree and foresee the same problems.