EUROPE - Companies would never have started pension schemes had they known they might be subject to solvency guidelines, according to Danny Wilding, partner at Barnett Waddingham.

The release of the European Commission's Green Paper on pensions has seen actuaries and lobby groups warn of the costs involved in implementing solvency guidelines, with the Confederation of British Industry (CBI) estimating it could cost FTSE350 companies £500bn (€598bn).

Wilding said pension funds should not be scrutinised the same way as insurers, which will soon be regulated by Solvency II.

"There are fundamental differences between a commercial insurer that has always known it must follow strict solvency rules and a pension scheme that was set up voluntarily by an employer with the intention of using best efforts to provide long-term funding," he said.

Wilding said the funds "would not have been set up" had an employer known of possible solvency guidelines.

"It is therefore questionable," he said, "whether it is fair to impose such rules retroactively."

Wilding said that, had solvency rules been in place from the very beginning, this would have meant valuing all benefits on a buyout basis.

"The same level of deficit would have been more expensive than the employer thought they were," he said.

He said employers would have set a lower level of benefits or decided against pension schemes altogether, opting for a different method for ensuring pensions.

Meanwhile, the CBI has warned about the cost of introducing solvency rules in the UK, saying they would cost FTSE350 companies more than £500bn.

Neil Carberry, the organisation's head of pension policy, added he was concerned about the effects such a move could have on the country's economy.

"We are distinctly concerned about the investment impact of moving our defined benefit universe from a world in which they are invested in a mix of asset classes, including equity and corporate debt," he said.

Carberry said investments could start flowing more heavily toward the sovereign debt market

"When that happens, of course, you've got a diminished capital flow that exists, but you also got an effective sovereign market where you have a lot more money coming into the sovereign market," he said.

"That pushes down the return on sovereign debt."

He added that diminished returns would lead to pension funds then having to return to the employer to ask for more money.

"It's a pretty fundamental change in the UK investment landscape," he said.