Pensions compensation plan has £2bn black hole, ministers warned

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Ministers Will today be warned of a £2bn black hole in proposals to help 60,000 workers who lost pensions when their employers went bust.

Ministers Will today be warned of a £2bn black hole in proposals to help 60,000 workers who lost pensions when their employers went bust.

Andrew Smith, the Secretary of State for Work and Pensions, will seek support for the £400m compensation fund announced last week. Under the scheme, workers who have lost pensions will be able to apply for help. The Government will pay into the fund over 20 years and believes it may be topped up by industry.

The Pensions Bill, due to be debated in the Commons today, will set up the new compensation fund for people whose company schemes go under in the future. But Ministers produced a last minute amendment setting up help for victims of past failures after more than 200 Labour MPs threatened revolt. Mr Smith will be accused of doing too little too late, after research released by the Liberal Democrats suggested the scheme was £2bn short of the total required to compensate the estimated 60,000 victims of company pension scheme collapse. Yesterday opposition MPs called for more information about the proposed safety net.

Figures produced by Dr Ros Altmann of the London School of Economics, a former Government pensions adviser, suggested that the total cost of compensating victims of past company scheme failures could be up to to £2.3bn over 30 years, far more than the £400m package proposed by ministers.

Professor Steve Webb, the Liberal Democrat Work and Pensions spokesman, said: "This half-baked compensation package is clearly not enough. The Government must come clean about the limitations of the package and how it intends to plug the gap. Many workers have faced years of financial uncertainty. To let them down now would be unforgivable. Pensioners who have been ripped off and lost their pension need proper thought out solutions, not vague and inadequate promises from the Government."

Conservatives also warned of a major shortfall in the Government's compensation package. David Willetts, the Shadow Secretary of State for Work and Pensions, said: "There is a huge gap in what the Government has proposed so far as there is no coverage for people who have lost their pensions while their company was still solvent. The Government seems only concerned when companies have gone bust, but some have remained solvent and wound up their pension scheme leaving workers with little or nothing. I have been struck by the number of people in this situation and what will happen to them?" Willetts wants to use the billions of pounds of unclaimed assets lying dormant in bank accounts to fund compensation payments.

The Government has promised to review the £400m in three years' time. The ISTC steelworkers' union will insist on a further pay out if the fund is falling short. The union has not ruled out legal action against the Government on the issue and has already begun High Court action, using European law that states governments are responsible for safeguarding pension rights. The case is due to start later this year, and the ISTC has yet to decide whether the Government's compensation offer is enough to ward off a court showdown on the issue.

Meanwhile 2,000 pensioners meeting in Blackpool renewed their call for a link between pensions and earnings. Rodney Bickerstaffe, president of the National Pensioners' Convention, said: "On 11 September, two and a half thousand human beings died. It was a bad day for the planet. That winter, here in Britain, 22,000 older people died of cold related illnesses before their time. Similar numbers died the following winter. But where was the public outrage? Where was the war on winter deaths?

"When you stand up for the pensioners it's not just for the 11 million older people, it's also for those who are to come after us."