The Government today announced plans to protect members of final salary pension schemes if their employer goes bust.
Work and Pensions Secretary Andrew Smith said the Government would set up a compulsory insurance scheme to ensure workers did not lose their pension if their employer became insolvent.
The Pensions Protection Fund would be funded through a fixed rate levy on all firms that offered final salary pension schemes, with an additional risk–based levy according to how underfunded a scheme was.
The scheme would guarantee people who had already retired would receive 100 per cent of their pension, while other workers would receive 90 per cent of the savings they had built up.
But the fund, which will not come in until at least April 2005, will not help any workers who have already lost their pension as a result of their employer going bust.
Under current rules, when a scheme is wound up and assets are distributed people who have already retired take priority over those who have not, meaning workers who are approaching retirement can lose all the money they have saved.
Mr Smith said: "We shouldn't accept that just because the firm goes out of business, workers can find a pension they have saved for all their working lives is worth next to nothing."
But he added: "I think it is awful what has happened to workers, such as those at ASW pension, but it is very difficult to see how that (the Pensions Protection Fund) can apply retrospectively."
About 800 staff were told they had lost their jobs and most of their pensions when Allied Steel and Wire collapsed last July.
Mr Smith also said that from today solvent companies which chose to wind up their pension funds would have to meet their pension promises to staff in full.
The Government also plans to introduce legislation to make the distribution of assets when a fund is wound up fairer, particularly to workers who have been paying into the scheme for a long time.
This measure would be introduced ahead of the Pensions Protection Fund.
Today's announcement follows the Government's consultation on its Green Paper, which involves talking to around 2,000 people and considering a further 800 written responses.
The Government also plans to reduce the rate at which firms have to increase their pensions in line with inflation from a maximum of 5 per cent to 2.5 per cent.
Other measures include introducing a new pensions regulator, which would be more proactive and target badly run or high risk schemes, and introducing rules to make it easier for staff who have worked at a company for only a short time to take their pension with them if they leave.
The Government said the cost of today's announcement to business, including levies for the Pensions Protection Fund, would be neutral and could even generate some savings.Reuse content