EU pension companies are lobbying for the implementation of a directive that would could save them €10 billion annually, writes Simon Targett.

Europe's pension leaders are urging politicians to push through new rules for the creation of pan-European corporate pension schemes that could deliver a €10 billion annual windfall for multinational companies.

It comes amid mounting fears that the rules - agreed this year by the European Union's top politicians as part of the pensions directive - will be undermined by governments under pressure to protect their local investment industry.

It also comes as the world's most powerful investment consultants issue new warnings about the size of the pension black hole in corporate balance sheets.

Watson Wyatt is saying companies will in aggregate have to inject up to $300 billion (€256 billion) each year for the next five years into their pension funds if they are to wipe out the deficit.

A new report, produced by the European Federation for Retirement Provision, a trade body representing pension funds with €2,650 billion of assets, estimates that companies running pension schemes could save as much as 10 billion per year if the directive is introduced into national law in its entirety.

But Mr Alan Pickering, chairman of the Federation and a former pensions adviser to the UK government, said: "There is a fear that some people will use rearguard tactics to undo all the good that has been done. We are concerned to ensure that all the potential gains are not frittered away by national legislators and regulators."

Last week, Mr Pickering led a delegation of pension leaders to see Mr Frits Bolkestein, the European commissioner responsible for the single market and taxation.

He presented the EFRP report, which gave details of the financial bonanza for companies, employees saving for their retirement, and national governments looking to transfer their pension burden to the private sector.

Under the pensions directive, a multinational company will be able to create a single pension scheme for its entire workforce. Under current rules, this is not possible.

Also, the pension fund will be able to invest according to the prudent person rule - investing as it likes, so long as it holds a diversified portfolio of equities, bonds and property.

The EFRP estimates that companies running a pan-European pension scheme could save a total of 3 billion per year because of a series of investment and administrative factors.

It also estimates a further 7 billion of annual savings could be generated by improved investment returns.

The directive, which took more than 10 years to develop, is due to be incorporated into national law by September 2005. It will be a boon for US and UK fund managers - as well as for continental European fund managers who have struggled to break the stranglehold of the insurance giants that dominate the pensions business in many countries.

But Mr Pickering said that some governments might incorporate the directive into national law yet, at the same time, force companies to offer guarantees to pension contributors: either a specific level of return or a "money back" commitment.

If this happened, it would force companies to adopt a less flexible approach to investment and undermine the freedoms under the prudent person rule.

Multinational companies are keen to reduce the costs of running transnational pension schemes at a time when there is a crisis of confidence in employer-led retirement provision.

Watson Wyatt estimates that companies only have about 80 per cent of the assets to honour the pension promises they made to their employees.

Mr Roger Urwin, global head of investment at Watson Wyatt, said this was the worst funding gap in the 70-year modern history of retirement.