EUROPE - UK companies could be forced to pay off pension deficits sooner than later if new proposals to create a harmonised funding regime are passed, Towers Watson has warned.

The consultancy said the European Commission's desire for a revised Pensions Directive that includes "consistent" recovery periods for all member states would shorten the length of permissible recovery plans in the UK to bring them into line with the rest of Europe.

The Commission said its aim was to attain a level of harmonisation where EU legislation did not need additional requirements at the national level. 

The main purpose of the Pensions Directive, according to the Commission, is to enable an employer in one member state to sponsor a pension scheme based elsewhere.

In the opinion of Towers Watson, however, the Commission appears to regard the fact there are fewer than 80 pension schemes operating across borders as "a failure of the Single Market".

The consultancy said the Commission should be aware that, for some UK companies, diverting more cash into their pension funds to would threaten their future.

John Ball, head of UK pensions, said: "The Commission thinks national differences are depriving employers of the right to operate pension schemes that cross borders. 

"However, most employers will be more concerned about how harmonised rules might affect their responsibilities in respect of pensions they have already promised to employees in a particular country."

Ball said 61% of the defined benefit (DB) pension liabilities covered by the directive were in the UK and 24% in the Netherlands, "so a common set of rules will primarily affect employers with DB liabilities in these two countries".

The Commission has asked EIOPA to provide advice by December for a review of the directive governing pension scheme funding. 

Its Call for Advice discusses how defined benefit pension liabilities should be measured and deficits repaid.

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