Pensions crisis set to hammer Brown

THE CBI today warns that the £160bn pensions black hole faced by UK businesses will hit corporate investment and lead to lower tax revenues for Chancellor Gordon Brown and the government.

The hard-hitting report says companies will have to double their pension contributions to about £43bn during the next four years.

This will not only hit profits, but leave companies with less money to invest for the expected economic upswing.

Weaker investment would make it hard for the UK economy to grow by more than 3% a year, the CBI warns.

This would hinder the pace of economic recovery, and lead to a £2bn fall in corporation tax receipts in each of the next three years because extra company pension contributions are tax deductible.

Ian McCafferty, CBI chief economic adviser, said: 'The magnitude of the pension deficit has become a serious concern. It leaves companies caught between a rock and a hard place.

'The economy will suffer, with the effects rebounding on the government through lower tax receipts.'

The CBI estimates that companies collectively face a £160bn pensions deficit. It expects extra company contributions will total £8bn in 2003, increasing to £12bn in 2004 and £16bn in 2005.

It warns that the additional contributions, coupled with increased National Insurance costs, would lead to a 0.4% fall in companies' profits for 2003, followed by a 0.6% drop in 2004 and 0.3% reduction in 2005.

Corporate investments will also fall by 2.2% this year, before growing at a rate of just 2.1% in 2004 and 2005, which compares with rises of more than 10% during the investment recovery after the 1990s recession.

Engine maker Rolls-Royce yesterday denied that it was considering raising the retirement age for its workers from 60 to 65 in an attempt to plug its £1.1bn pensions deficit. RR, which currently pays around £60m a year into its pensions scheme, expects to increase the contribution it makes, but rules out getting members to pay more in.