EUROPE - The European Commission (EC) has approved the establishment of the National Employment Savings Trust (NEST) in the UK under State Aid rules on the basis that it would not receive "overcompensation".

It has also sanctioned a €3m compensation payment by the Finnish government to Arctia Shipping Oy for supplementary pension rights accrued before Finland opened up the ice-breaking activity to allow it to compete on an "equal footing" with competitors.

In a statement yesterday, the EC noted that while NEST would be funded by pension contributions and managed commercially with no overall cost to the taxpayer, its start-up costs were being financed by government loans that would be paid back over 20 years.

These loans will be at a commercial rate, but NEST will only have to pay the interest corresponding to the government's cost of borrowing.

Under EU state aid rules, this would be considered a "soft loan" and constitute state aid.

The amount of aid provided to NEST will depend on the number of members and range from £200m to £379m (€245-465m).

However, the EC has ruled this level of aid "would not overcompensate NEST for providing the public service" and was therefore compatible with EU state aid rules.

The EC confirmed the NEST scheme was notified to the Commission because of the government loan covering the funding gap, but it added NEST carried out a service of general economic interest (SGE) that qualifies for state aid and is entrusted by an official act that details all the elements of the service.

Joaquín Almunia, commission vice president in charge of competition policy, said: "Public services play a key role in Europe's model of society.

"The new occupational pension scheme will enhance the UK pension system, thereby making sure people, and their employers, provide adequately for old age, without unduly distorting competition in the marketplace."

Elsewhere, the EC has authorised the €3.2m state aid paid to the state-owned Arctia Shipping Oy for supplementary pension rights after the government decided to incorporate its state shipping enterprise Finstaship in autumn 2009.

Although the company is still state-owned, some employees had accrued pension rights before 31 December 1994, when these were directly financed by the state budget.

But as they have now become private-sector employees, they would be unable to receive these rights from the state pension reserve, so instead the government agreed to transfer the responsibility for the supplementary pension rights, and the corresponding financing, to Arctia Shipping Oy.

The €3.2m covers the cost of a private insurance contract, following a competitive tendering procedure.

The EC ruled that, because the sole purpose was to ensure a level playing field in terms of pension costs between the company and its current, potential and future competitors, the compensation was in line with state aid rules.

It noted the EU treaty allowed for aid for the development of certain economic activities, providing it did not unduly affect trading conditions.

Almunia added: "The changes in the statute of the Finnish shipping company will ensure the company is subject to all usual rules applicable to business activities, including bankruptcy legislation, while remaining state-owned."