Firms worried by ‘significant’ cost of proposed EU pension rules

PROPOSED EU pension regulations would add significantly to business costs, according to a new poll of business leaders.

The latest CBI/ Towers Watson Pensions Survey showed the cost and uncertainty of managing defined benefit schemes, including final salary, are holding back business activity and harming companies’ ability to grow.

Two-thirds (69 per cent) of business leaders said they were concerned about the prospect of the EU enforcing high deficit payments over a shorter period of time, under Solvency II-style rules being planned in Brussels to cover defined benefit schemes.

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At its worst, this could cost employers with defined benefit liabilities hundreds of billions of pounds, the CBI said.

It added that the new regulations would divert money away from business investment in growth and jobs at a critical time, and harm prospects for investment in infrastructure.

The CBI is urging the EU to reconsider its proposal.

Katja Hall, CBI chief policy director, said: “What’s completely unacceptable is Brussels’s plan to impose further costs on firms operating defined benefit pensions at a time like this, when the protection in place has already proven itself during the economic crisis.

“We have told the EU, trade unions have told the EU, the pension funds have told the EU. So far they have refused to listen.”

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The cost of running a defined benefit scheme – whether open or closed – remains a big concern to businesses.

The survey showed that close to three-quarters (71 per cent) are worried about the level of funding and firms fear that things will get worse, with over four-fifths (85 per cent) of businesses concerned that market fluctuations could further harm funding levels.

At a time when the economic recovery remains fragile, and credit is scarce, the CBI said this additional cost and uncertainty is doing nothing to help business confidence.

Over two-thirds (69 per cent) of companies said providing defined benefit pensions was having a significant impact on their accounts and close to half (45 per cent) said they had less left to invest to grow the business, up from 38 per cent in the 2009 survey.

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While firms’ perceptions of the Pensions Regulator’s performance to date are generally positive in the survey, the CBI said the regulator must show it understands the added costs and risks as firms negotiate new deficit recovery plans.

Some 44 per cent of businesses said they were satisfied with the regulator’s interaction with their company, while 12 per cent said they were dissatisfied.

The CBI said this positive balance of 32 per cent reflected the additional flexibility the regulator gave firms to cope during the recession.