Proposed pensions changes from the European Commission could impose £350 billion in extra costs on UK employers, according to a report commissioned by the Confederation of British Industry (CBI).
The economic impact for the EU of a Solvency II-inspired funding regime for pension funds, collated by independent economic consultancy Oxford Economics, looked at the commission’s proposed requirement for employers with defined benefit (DB) pension schemes to ensure these plans were fully funded at all times to cover risks, such as the company going into insolvency.
This would mean increased costs to UK business of £350 billion to fund the change. This could result in a cut in potential investment of 5.2% a year in the mid-2020s if the scheme was introduced in the next two year and a cut in employment of 180,000 jobs by the mid-2020s as a direct result of the changes.
The report also found that pension schemes would be forced to invest in low-risk investments in safer products, such as government bonds, which could reduce returns.
Katja Hall, chief policy director at the CBI, said: “Imposing £350 billion more costs on business would be a disaster for the economy and for pension saving.
“The long-term economic outlook is so fragile and uncertain that it is crazy to entertain proposals which would cost jobs and cut so deeply into our long-term growth and competitiveness.
Joanne Segars, chief executive at the National Association of Pension Funds (NAPF), added: “We have been concerned about these plans for a long time, and are alarmed they are still on the table.
“Businesses running final salary pensions would be hit with needless extra costs, and would be forced to divert cash away from investment and growth. Many would opt to close their final salary pension schemes altogether, so millions of workers would lose out.”