New European Union (EU) rules would have a "catastrophic" effect on workplace pension schemes in the UK, the government has warned.In order to comply with the Solvency II proposals, which are due to come into force in January 2014, pension providers would have to hold more cash reserves as the EU looks to make funds more resilient.This would ramp up the costs for many providers and could result in many schemes closing, with the National Association of Pension Funds estimating that UK businesses would have to find another £300 billion to fund their final salary pensions.Pensions minister Steve Webb has vowed to fight the proposals, which he claims are unviable as there is no "one size fits all" model for pensions across European nations.Despite the European Commission extending its timetable on the issue, Mr Webb warns that the prolonged uncertainty means that many schemes are increasingly unsure about how they are going to invest in the future.He said: "It is unbelievable the Commission is pressing ahead with these pointless proposals which would cost UK employers with final salary schemes hundreds of billions of pounds and lead to defined benefit (DB) scheme closures."We will not let up until we make the Commission see sense."We expect them to publish a comprehensive impact assessment to clearly expose the catastrophic effect these rules would have on British pension schemes. It is horrifying these plans have got so far without this."If the proposals do come into force, they would affect all private sector companies offering DB schemes in the UK. These schemes represent around half the private pension assets in this country, with liabilities of about £1,200 billion.Earlier this month, accountancy firm Deloitte forecast that the legislation would result in annuity rates falling by up to 20 per cent in the worst case scenario, as providers invest in safe government bonds which offer low yields.
In monetary terms, someone with a £100,000 pension pot could be left £1,167 worse off a year.
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