UK COMPANIES could be forced to pay an estimated £1 trillion of extra funds into their pension schemes if EU plans to regulate them in the same way as banks take effect, a leading actuary warned yesterday.

Economists said “Pandora’s Box” plans to pump more capital into retirement fund coffers to make them less risky would have dire consequences for the overall economy.

And they said that the extra cost of imposing a Solvency II-type regime to reduce fund debts would be the final nail in the coffin of final salary pension incomes.

Pensions minister Steve Webb last month attacked the Brussels’ proposals saying they would cost UK companies £100billion and could mean that companies walk away from the generous final salary schemes.

But the Confederation of British Industry and the National Association of Pensions Funds and others believe that underestimates the likely costs. JLT Pension Capital Strategies warns of a “disastrous” £1trillion bill.

Charles Cowling, managing director of JLT, said: “The latest pension proposals from Europe might be laudable, but the harsh reality is that guarantees are very expensive – particularly in current nervous market conditions.

“Widely quoted estimates of a £600billion bill on UK companies could in fact be as much as £1,000billion – depending on how the rules are introduced.

“Forcing UK companies to make additional pension contributions of up to £1,000billion would clearly be disastrous for our economy – and the employment prospects of pension scheme members – and politicians from all countries must realise this.

“It is probably too late for this Pandora’s Box to be closed.

“Probably the best [and likeliest] outcome for UK companies is to plead for a [very] long transition period – possibly as much as 20 years.

“This debate will not go away and the onus is now on companies with large pension obligations to accelerate plans for managing their way out of these very expensive liabilities.”

The European Insurance and Occupational Pensions Authority, the lead European regulator for the sectors, is proposing to adapt the Solvency II capital rules for insurers – due to be introduced in 2014 – for use in assessing the solvency of pension schemes.

The changes will be made as part of the European Commission’s review of the 2003 Institutions for Occupational Retirement Provisions directive.

Britain will be disproportionately affected as its schemes account for 60 per cent of all defined benefit schemes in Europe, followed by the Netherlands, at 24 per cent.