Long service is not currently considered when a person’s defined benefit pension scheme collapses and is then taken over by the Pension Protection Fund (PPF), the statutory pensions safety net funded by the private sector.
The Government said it is to increase the maximum level for those receiving capped compensation by 3% for every year of service over 20 years.
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 the current capped amount of £31,380.
“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,” said Steve Webb, minister for pensions.
The CBI described the proposed changes as a “bitter blow to firms struggling to drive economic growth and fund their own pension schemes”.
“The fund is paid for by business, not the Government. At a cost of over £600m a year, it is already more than double the original plan, and the levy is likely to rise again this year. An even greater levy will hold back business investment and growth,” said Neil Carberry, CBI director for employment and skills.
“Businesses support the PPF and would have expected more engagement before this announcement was made.”
