Proposed EU rules could hit pension funds

A draft directive drawn up by the EU could curtail the range of investments available to pension fund managers, it has been claimed.

The directive, if implemented, would affect hedge and private equity funds.

The rules would mean that pension scheme investments could only be made in those hedge and private equity funds that are domiciled in the EU.

The purpose of the draft directive is to impose stricter regulation on those aspects of the financial industry that contributed so much to the credit crunch.

Under the new rules, a study conducted for the Financial Services Authority (FSA) estimated that pension schemes would be barred from 40 per cent of hedge funds and 35 per cent of private equity funds.

Richard Lambert, the CBI’s director general, said that the directive should be changed if it is not to have an adverse impact on pension funds and pension contributions.

Mr Lambert argued: “We are concerned that these proposals could limit the choices available to investors, including pension funds, by restricting the use of non-EU domiciled funds.

“This could reduce investment returns, making it harder for people to pay for retirement, worsening deficits in pension schemes and requiring higher pension contributions from employees.”