December 12, 2012 / 7:26 AM / 5 years ago

EU pension changes will hammer UK economy, says CBI

LONDON (Reuters) - European rules that will force companies to spend an extra 350 billion pounds to beef up the safety cushion on pension schemes could drive British businesses into bankruptcy, a report said on Tuesday.

Recent figures from the Pension Protection Fund showed that the total deficit of British final-salary pension schemes more than doubled to 231 billion pounds within a year, hit by weak stock markets and low interest rates.

The European Union’s proposed changes are intended to ensure that such pensions would be covered if an employer went bust.

However, Tuesday’s report from business lobby group the Confederation of British Industry said that the measures would cut the value of pensions and lead to 180,000 UK jobs being lost over ten years as companies seek alternative ways to fund the capital requirements.

There would also be increased dependence on many kinds of debt finance, which would “tend to increase the risk of bankruptcy in the event of any renewed economic downturn”, it said.

Pension funds are among the biggest investors in the European economy, and the British government has been keen to encourage them to invest in large infrastructure projects such as building hospitals and power plants.

However, the CBI says that the pension funds will be forced to divert cash away from investment and growth if the new rules go ahead and that GDP growth would be 2.5 percent lower over the first 15 to 20 years of a new regime.

“The long-term economic outlook is so fragile and uncertain that it is crazy to entertain proposals that would cost jobs and cut so deeply into our long-term growth and competitiveness,” CBI chief policy director Katja Hall said.

The lobby group, which represents 240,000 businesses that employ about a third of the private sector workforce, received support from the National Association of Pension Funds.

“These plans would kick our economy when it is down, and the damage to jobs, growth and living standards would be felt for decades,” NAPF Chief Executive Joanne Segars said in a statement.

“Europe is pushing for a dangerous solution when there is no problem in the first place.”

Editing by David Goodman

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