Currently, only about 50% of all 60-year-olds in the EU are still in employment (although the percentage in the UK who are working on is above average). The EU target is to increase this to 75% by 2020. This would require a massive job creation programme, which presently does not appear on any horizon.

The consultation document, a Green paper, addresses the following issues:

• Ensuring adequate incomes in retirement and making sure pension systems are sustainable in the long term
• Achieving the right balance between work and retirement and facilitating a longer active life
• Removing obstacles to people who work in different EU countries and to the internal market for retirement products
• Making pensions safer in the wake of the recent economic crisis, both now and in the longer term
• Making sure pensions are more transparent so that people can take informed decisions about their own retirement income

The Green paper's analysis of the problems is sound enough, although apart from the worsening effect of the financial and economic crisis it says nothing especially new. If working more and longer has its limitations in practice, and significantly increased pensioner poverty is unacceptable, how feasible might it be to require much higher pension contributions?

What has set alarms bells ringing in the UK is the Green Paper's emphasis on addressing adequacy gaps, and in particular the suggestion that "the Solvency II approach could be a good starting point". This is a reference to the Solvency II Directive 2009/138/EC which introduces fundamental changes to the capital adequacy regime for the European insurance industry from 1 November 2012. If adopted, pension funds would have to substantially increase their capital reserves.

This betrays a fundamental misunderstanding of the nature of occupational pension schemes, at least as established in the UK, by supposing a real risk of catastrophe which would require a sudden disgorgement of large amounts of money. In an actuarially-controlled system the outflow of funds is much more stable.

The Commission appears not to realise that the failure of the IORP Directive 2003/41/EC to facilitate cross-border activity, at least from the UK, has been due to the requirement that the scheme be fully funded at all times (Art 16(3)) - interpreted effectively as funded on a buy-out basis - and subject to annual valuation (see Aries article).

From the perspective of UK occupational pension schemes it is neither necessary nor desirable that all schemes should have to be funded on a discontinuance basis, or anything like Solvency II.