Blair overstated cost of pension compensation scheme fivefold

Thousands of workers who lost their life savings when their employers went bust, gained new hope of receiving full compensation yesterday as the Government conceded the cost of restoring their pensions in full would be, at most, £3.7bn - not the £15bn which the Prime Minister stated in March.

Publishing its response to the Parliamentary Ombudsman's report into occupational pensions - which found the Government guilty of maladministration - the Department for Work and Pensions (DWP) said the true cost of implementing the Ombudsman's recommendations would be between £2.9bn and £3.7bn.

Nevertheless, the department reiterated that it did not agree with the Ombudsman's conclusions and recommendation to pay full compensation, holding firm on its refusal to provide anything beyond the Financial Assistance Scheme (FAS), which it set up two years ago.

Although the FAS is providing a limited level of compensation for some of those affected, it is subject to a low cap of £12,000 a year, and has no protection against future increases in inflation. Many victims have also struggled to get access to the fund's resources.

Pension campaigners and MPs from all parties yesterday seized on the Government's new calculations, accusing it of misleading the public with its original wild cost estimates.

The Government insisted that the information it gave was accurate, claiming that its original compensation estimates were based on the full cash cost. It was only now that the DWP had calculated the cost in terms of its present value that its numbers were in line with the estimates of the campaigners.

The Pensions Reform minister, James Purnell, said he had great sympathy for those who had suffered losses, but said it could not be the Government's responsibility to underwrite the private sector. "To assert that individuals should be compensated for all their losses - however they occurred - would effectively mean that the pensions promises of employers were underwritten by the taxpayer. No such taxpayer guarantee ever existed," he said.

Ros Altmann, the former government pensions adviser who took the case to the Ombudsman, said yesterday's report showed the DWP still did not understand what it had done wrong. She said those affected were now taking the Ombudsman's decision to judicial review, but were also hoping to get the issue raised at an opposition day before the end of the parliamentary year.

Ninety Labour MPs have signed an early day motion calling for the Government to adhere to the Ombudsman's recommendations. That is more than enough to secure a victory for the Opposition if it came to a Commons vote.

The Public Administration Select Committee is holding an inquiry into the Government's rejection of the Ombudsman's findings, and is expected to report next month.