The European Parliament has narrowly voted to reject proposals to ban fund managers from receiving bonuses amounting to more than their annual salary, following concerns that the plans could have an impact on pensions by driving up costs and curtailing returns.

The draft rules, which were to be added to new UCITS regulations for fund managers, were stricter than the planned EU limits on bankers' pay that will allow bonuses of twice fixed salary. They were voted down by 348 votes to 341.

Supporters of the measure argued it was necessary to curb irresponsible risk taking, and that consistent pay rules should be applied across the financial services industry. Its opponents said it would increase fixed costs and result in a bidding war for top traders.

Leo Ringer, CBI head of financial services, said: 'The European Parliament has sensibly voted against extending the ill-conceived bonus cap beyond banks. A cap on bonuses works against the idea of performance-related pay, undermines shareholder engagement on pay strategy and does nothing for financial stability. This decision should be seen as drawing a line under this flawed idea for good.'