LONDON, Dec 17 (Reuters) - British companies may have to stop offering final-salary linked pensions because of the cost of applying proposed European rules, an industry lobby group said.
The proposed regime would force firms to find an extra 300 billion pounds ($484 billion) to strengthen their pension pots, the National Association of Pension Funds (NAPF) said in a report on Monday, arguing this expense would threaten jobs and investment as employers look for alternative ways to fund their capital requirements.
The European Union’s proposed changes would require pension funds to make sure they have enough cash to cover the retirement incomes of its employees if a company went bust.
The plans from the EU are similar to a supervisory regime for the insurance and reinsurance industry across Europe, which require companies to hold enough funds to pay out for a once-in-200-years catastrophe.
Final-salary linked pension schemes, which promise staff a pension based on their salaries, are already struggling to generate adequate returns due to weak stock markets and low interest rates.
Last week, business lobby group the Confederation of British Industry said the EU rules would drive some companies into bankruptcy, cut the value of pensions and lead to 180,000 UK jobs being lost over 10 years. [ID: nL5E8NBBG5]
Pension funds are field-testing the new rules in a quantitative impact study - known as QIS - to see how they will affect capital and risk management systems.
The NAPF, which speaks for 1,300 pension schemes with some 16 million members and whose members include BT Group Plc , British Airways, Lloyds Banking Group Plc and Barclays Plc, criticized the test for being too expensive - citing a bill for 15,000 pounds for one of its members to run the calculations from the EU.