Solvency II for pensions would force £350bn of extra costs on UK businesses and cut long-term growth by potentially 2.5 per cent, combined with 180,000 job losses and the devaluation of pensions, new independent analysis by Oxford Economics and commissioned by the CBI has found.

Under Solvency II type regulation, schemes would have to hold enough funds to pay out benefits for a catastrophe with a probability of happening once in 200 years, which would force employers to divert hundreds of billions into their DB schemes.

Unlike insurance companies, pension funds never have to pay out all benefits at once, the CBI said, as workers retire over time and schemes can call on additional funds from employers if needed. It added that the regime is unnecessary in the UK, where pensions are guaranteed by businesses and have a robust safety net from the Pension Protection Fund (PPF).

CBI chief policy director Katja Hall said: “We have a tough regulatory system in this country, so these changes are completely unnecessary. It’s alarming the Commission is still turning a deaf ear to calls from businesses, trade unions and pension funds to bin these proposals.

“The European Commission must leave individual EU members to deal with their own retirement saving systems, as they do at the moment – rather than imposing a new system from the centre.”

The analysis showed that, if the regime was implemented now, UK GDP growth would be 2.5 per cent lower over the first 15 to 20 years, and employment would be cut by 0.5 per cent by the mid-2020s as a direct result of the changes.

Furthermore, pension funds will move out of equity into less risky assets in order to have to hold less capital, which will weaken the ability of small innovative growth firms to raise money for expansion and increase the risk of business liquidation. Additionally, having fewer return-seeking assets would lead to higher deficits and thus to further calls on employer funds.

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