UK – The UK’s employers’ body says corporate pension deficits are set to limit the amount of cash available for investment.

In a report, the Confederation of British Industry says it “conservatively estimates” that extra company pension payments will total eight billion pounds in 2003. It sees this figure rising to 12 billion pounds in 2004 and 16 billion in 2005.

“This would mean total annual contributions would have doubled in just four years to 43 billion pounds,” the body says, adding that the need for extra contributions will hit profits and hamper firms’ investment plans.

The CBI reckons that corporate investment will fall by 2.2% this year and grow on average only 2.1% in 2004 and 2005.

“The decline comes at the worst possible moment with finances weakened by economic downturn and firms reluctant to take on debt with corporate borrowing at historically high levels,” the CBI said.

And the higher pension contributions that companies need to make will mean that they will pay less tax. “The expected higher pension contributions alone would mean a shortfall in corporation tax receipts of up to two billion pounds in each of the next three years. This is because extra company pension contributions are tax deductible.”

CBI economist Ian McCafferty said: "The magnitude of the pension deficit has become a serious concern. It leaves companies caught between a rock and a hard place.”

He added: “The economy will suffer, with the effects rebounding on the government through lower tax receipts."

The CBI puts the pension “black hole” in the UK at around 160 billion pounds, though other estimates put it at as high as 300 billion pounds.

The impact of pension funding was highlighted by airport operator BAA, which said today that its first-half earnings were hit by pension costs. The firm said that its pre-tax profits were down 11.2% to 127 million pounds “impacted by the expected effects of the FRS17 accounting standard on pension costs”.