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Proposed EU pension regulations could add significantly to business costs at a time when pension deficits are already holding back company performance, research finds.

According to the Confederation of British Industry (CBI)/Towers Watson Pensions Survey, more than two thirds (69 per cent) of business leaders are concerned about the prospect of the EU enforcing high deficit payments over a shorter period of time, under rules being planned in Brussels to cover Defined Benefit (DB) schemes.

DB pension schemes are based on how much a participant earns and how long they are an employed member of the pension scheme.

The cost of running a DB scheme remains a big concern to businesses. Close to three quarters (71 per cent) are worried about the level of funding, and firms fear that things will get worse, with more than four fifths (85 per cent) of businesses concerned that market fluctuations could further harm funding levels.

At its worst, the move could cost employers with DB liabilities hundreds of billions of pounds, according to the CBI. It would divert money away from business investment in growth and jobs at a critical time, and harm prospects for investment in infrastructure, adds the organisation. The CBI is urging the EU to reconsider its proposal.

More than two thirds (69 per cent) of companies say providing DB pensions is having a significant impact on their accounts, and close to half (45 per cent) say they have less left to invest to grow the business, up from 38 per cent in the 2009 survey.

CBI chief policy director Katja Hall says, ‘Employers’ big concern about defined benefit pensions is no longer just around rising contributions. Large and unpredictable liabilities are also harming firms’ ability both to attract investment to grow the business, or to restructure to cope with difficult times.

‘What’s completely unacceptable is Brussels’ 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.’

John Ball, UK Head of UK Pensions Consulting at Towers Watson, adds, ‘The Eurozone crisis underlines how unforeseen events can increase the cost of pensions promised in the past. For employers, the focus is now on locking these costs down and getting ready to seize opportunities to do that as they arise.

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