LONDON (Reuters) - British businesses could face a 450 billion pound bill as a result of plans to force pension funds to protect themselves from risk with extra capital, data from Europe’s insurance and pensions watchdog showed.
This could hamper companies’ ability to invest and also force some pension schemes to close.
The estimate from the European Insurance and Occupational Pensions Authority (EIOPA) shows the impact of new capital requirements on final salary-linked pension schemes, where benefits are based on salary and duration of employment.
The 450 billion pound estimate is in line with a worst-case scenario contained in figures the UK Pensions Regulator produced for the British government last year.
“This confirms that any such new rules would harm businesses’ ability to invest, grow and create jobs, and many more (pension) schemes could be forced to close,” Minister of State for Pensions Steve Webb said in a statement on Tuesday.
The British pensions industry was also critical.
The National Association of Pension Funds said the high price tag would have a highly damaging effect for the retirement prospects of millions of UK workers.
“Businesses trying to run final salary pensions could be faced with bigger pensions bills to plug an astonishing 450 billion pound funding gap,” Joanne Segars, chief executive at the NAPF, said.
The new capital rules, known as Solvency II, were originally aimed at the insurance industry but the European regulator is proposing to adapt them for the pensions sector to improve standards of governance, risk management, valuation and calculation of minimum capital requirements.
Britain had the highest funding requirement out of the countries covered in the European watchdog’s assessment, which were Belgium, Germany, Denmark, Ireland, the Netherlands, Norway and Sweden.
Earlier on Tuesday, the European watchdog rejected calls for it to cut capital charges on insurance companies’ infrastructure and private equity investments, which politicians are pushing as a way to boost long-term growth.
(EIOPA's preliminary impact assessment can be found at: here)
Reporting by Sarah Mortimer. Editing by Jane Merriman