A cross-party group of 34 MPs is calling for a Government review on the impact of inflation on compensation paid out by the Financial Assistance Scheme.
The FAS was set up to pay compensation related to workplace defined benefit pensions in insolvent companies which are ineligible for the Pension Protection Fund.
The Early Day Motion, sponsored by former welfare minister Frank Field and work and pensions select committee chair Anne Begg, says inflation has eroded the pension rights of those who are eligible for the FAS.
The FAS was set up in 1997 to make payments to members of pension schemes, or their surviving partners, that are winding-up or have wound-up.
The FAS helps people who were members of an under-funded defined benefit scheme that started to wind-up between January 1 1997 and April 5 2005. The scheme must not have enough money to pay members’ benefits and the employer must be insolvent or no longer exists.
It will also compensate schemes that wound up after 5 April 2005 but who are ineligible for help from the Pension Protection Fund due to the employer becoming insolvent before this date.
The FAS was replaced by the Pension Protection Fund in 2005 and is managed by the PPF board.
It protects 145,000 people up to 90 per cent of the scheme value or a maximum of £31,380 a year from April 2013.
The EDM wants the Government to review the impact of inflation and whether it has watered down the FAS’ commitment to pay 90 per cent. The MPs estimate it currently pays out 76 per cent of the value because of the impact of inflation.
It also argues some 3,000 FAS recipients were given small overpayments through inaccurate DWP calculations, which it is now seeking to recover. The MPs want DWP to waive the clawback.
In addition, the MPs want to ensure all accrued pension rights should be honoured with no changes made to pension rights already been built up.
The EDM states: “The FAS introduced by the previous Labour administration afforded 90 per cent of pension rights but due to inflation erosion and indexation being limited to post 1997 service only, is now in real terms nearer to 76 per cent of what was a guaranteed 100 per cent company pension, meaning that a pension promise made has not been kept.
“This House calls on the Government to review the extent to which the commitment to 90 per cent of expected pension entitlement has not been reached for those involved in the FAS.”