Pensions red tape to cost up to £34bn, says regulator

FRESH pensions red tape will cost the economy up to £34bn, according to official estimates, amid warnings that tax raids are already hurting growth.

A planned shake-up will force companies to pump more money into underfunded pension schemes and is estimated to cost businesses as much as £34bn, according to official estimates buried in a document released by the Pensions Regulator.

The figure is £4bn higher than private sector forecasts.

Sweeping new rules designed to prevent a repeat of the BHS pensions scandal could leave some firms scrambling to find extra funds as soon as this year.

The plans, drawn up by Mel Stride’s Department for Work and Pensions (DWP), will force companies that offer final salary pensions to switch to lowrisk investments by the time most members are retired. The changes will force companies to find billions more to fund schemes, given the lower returns that low-risk investments generate.

The proposed changes come in the wake of the collapse of retail giant BHS and construction company Carillion, which failed with black holes in their pension funds, leaving them unable to fulfil promises to workers.

But the added cost comes at a time when businesses are already sounding the alarm over the burden of government policies. Sir James Dyson last week accused the Government of “penalising the private sector” with high taxes that were holding back growth.

Jeremy Hunt’s tax grab has already left the country facing the highest tax burden in peacetime, and the Government has been warned that it risks losing key investment if it continues to levy firms into oblivion.

Michelle Wright, partner at consultants LCP, said that while it was vital that company pension schemes were properly funded, a more flexible approach to topping up schemes was needed. LCP has previously warned that around 200 companies face going bust if the new rules are brought in as planned.

A spokesman for the Pensions Regulator said the £34bn estimate was based on “an extreme scenario” and “is not one that we would expect in practice”.

They added: “Reasonable affordability is central to the regulations. Employers will not be forced into contributions that would drive them to insolvency.”

The DWP declined to comment.