The Department for Work and Pensions (DWP) has confirmed that the cap on compensation paid by the Pension Protection Fund (PPF) will increase, much to the chagrin of businesses.
The PPF pays compensation to members whose employers have become insolvent and are unable to pay their pension scheme.
The DWP announced yesterday that the cap would be increased by 3% for every full year of service above 20 years completed by an employee.
Under current legislation the compensation cap for members who have not reached normal retirement age when their employer folds stands at £31,380 a year.
The maximum members will be able to receive under the revised cap will be approximately £63,000.
The Confederation of British Industry (CBI) responded aversely to government proposals labelling them as a “bitter blow”.
Neil Carberry, CBI director for employment and skills, said:
“This will come 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.
“Businesses support the PPF, and would have expected more engagement before this announcement was made.”
Pensions minister Steve Webb said the Government accepted that the PPF compensation cap could have a disproportionate effect on some those who were members of a scheme for a long time.
There was disappointment over the new measures from campaigners who wish to scrap the cap altogether.
Former Turner & Newall senior manager and Early Retirees Pension Action Group chairman Grenville Hampshire said Mr Webb had missed a “golden opportunity”.
“Many of us who have been fighting this battle for over seven years will derive little benefit from the proposed changes and some will derive no benefit at all. The minister has squandered a golden opportunity to address what everyone, including the minister, accepts is gross injustice, with no cost to the tax payer.”