The amount of money which long-serving staff receive in retirement should their company fold will increase, it has been confirmed.
However, the Confederation of British Industry (CBI) has attacked the proposals which will increase the Pension Protection Fund (PPF) cap by 3% for every full year of service above 20 years.
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). But the government will now be increasing the maximum level.
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.
However, Neil Carberry, director for employment and skills at the CBI, said this will come as a bitter blow to firms struggling to drive economic growth and fund their own pension schemes.
He explained: “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.
“Businesses support the PPF, and would have expected more engagement before this announcement was made.”
Steve Webb, the minister of pensions, said people whose employer becomes insolvent can already get compensation when they retire through the PPF.
He added: “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.”
Webb explained that he wanted 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.