Workers with pension pots entitled to more compensation if firm goes bust under new government plans

WORKERS with pensions pots at firms which go bust will in future be eligible for more compensation, under Government plans.

A cap on the payments people are allowed to receive from the Pension Protection Fund (PPF) will be increased.

It comes after BHS collapsed into administration in April this year with a pension deficit of £571million.

The PPF acts as a lifeboat for pension savers by paying compensation to members of defined benefit pension schemes – such as final salary pensions – when firms have failed.

It provides compensation based on 90 per cent of someone’s accrued pension if they are below the scheme’s normal pension age when the company becomes insolvent.

But PPF compensation is currently capped at £33,678.

From April 2017, the compensation limit is expected to be increased by 3 per cent a year for every additional year of service beyond 20 years, subject to a new maximum of twice the standard cap.

Tom McPhail, head of retirement policy at Hargreaves Lansdown, said the current rules can effectively penalise long-serving employees by treating them the same as higher-earners with shorter service.

He said: “This will deliver more graduated benefits, making a distinction between long-serving middle-earning employees and those fortunate higher-earners who have hit the cap after only a few years’ service.”