The European Commission's draft directive on Alternative Investment Fund Managers could cost the pension fund industry up to €25bn a year if it is put into place in its current form, warns the Alternative Investment Management Association (AIMA).

Europe's pension funds would be landed with the bill if the alternative assets they have increasingly invested in over the last few years were to suffer from lower returns as a result of the directive, the organisation said.

"This is an estimated figure but it shows the potentially enormous impact that the directive could have on Europe's pension funds and in the longer term, Europe's pensioners," said Andrew Baker, CEO of AIMA.

He explained that consequences of low returns on alternative assets create a need for amendments to the directive. "There needs to be a proper full impact assessment conducted to determine whether the uncertain benefits of the directive justify the certainty of massive costs.

"As it is currently drafted the directive will result in a major reduction in choice for Europe's institutional investors and a big increase in costs and hence a significant reduction in returns. None of this is good for the competitiveness of the European financial services sector or indeed the economies of Europe as a whole," Baker added.

The figure was achieved based on estimated assets under management of the European pension fund industry, the estimated allocation to alternative investments by them, and the estimated reduction in returns they could face should the directive go through in its current form.

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