The Government has put forward proposals to increase the pension payout long-serving staff receive when their employer goes bust.
Length of service is not currently taken into account when a person enters the Pension Protection Fund, the lifeboat fund for members of collapsed defined benefit schemes.
The PPF pays two levels of compensation. Anyone over their scheme’s pension age whose scheme’s employer goes through insolvency gets compensated 100 per cent, uncapped.
However, anyone who is under scheme pension age at that point is entitled to 90 per cent compensation, capped at £31,380.
The DWP says it plans to increase the maximum level for those receiving capped compensation by 3 per cent for every year of service over 20 years.
It says this means someone who has contributed to a pension scheme for 40 years and accrued a pension of £50,000, only for the scheme to wind up and have insufficient funds to pay out, would receive £45,000 rather than £31,380.
Pensions minister Steve Webb says: “People whose employer becomes insolvent can already get compensation when they retire through the PPF. But the scheme does not recognise the long service of those who were members of their pension scheme for over 20 years.
“It cannot be right that someone who has been with a company for much of their working life – and relies heavily on that for their pension income – gets the same in compensation as someone with far shorter service and who could also have other pension income to fall back on.
“I want to ensure that those who are or could be affected will in future have their long service recognised in the form of higher compensation.”