The amount of money which long-serving staff can receive in retirement if their company folds is set to increase.
Long service is not currently taken into account when a person whose defined benefit pension scheme collapses and is then taken over by the Pension Protection Fund (PPF). Now the government is to increase the maximum level for those receiving capped compensation by three per cent 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.
Minister for Pensions Steve Webb said on 25 June: “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.
The decision comes after a review of how the PPF compensation cap operates, following the collapse of car parts firm Visteon in 2009.