Gordon Brown has announced the government is to extend the budget of the Financial Assistance Scheme in an attempt to help all of the 125,000 workers who lost their pensions when their occupational schemes collapsed.
In his Budget speech, Brown stated the Secretary of State for Work and Pensions will later today announce the total budget for the FAS will increase from £2bn to £8bn, which he says will ensure each one of the 125,000 affected workers will receive 80% of the core pension rights accrued in their scheme, while the maximum pension will be increased to £26,000.
The chancellor also confirmed the government will investigate the assets within these wound-up pension schemes to see how they can help those workers affected by the collapse.
In addition, the chancellor announced measures to increase the number of pensioners who will not pay income tax by raising the tax free allowances for those under the age of 75 to £9,770 by 2011, and to £10,000 for those over 75.
Couples aged below the age of 75 will see an increase to £19,540, while over 75s will be given an allowance up to £20,000 by 2011, which Brown says will mean 600,000 pensioners will no longer have to pay income tax.
But David Laws, Liberal Democrat Shadow Work and Pensions Secretary, says the announcement on occupational pension compensation is just more half-measures from a government which is "having to be dragged kicking and screaming towards a fair solution".
Meanwhile he says vulnerable people are being kept in poverty and forced to wait years for compensation.
He adds: "Many people who lost their pensions will continue to get a very raw deal from more tinkering with the FAS. The only way pension's justice will be delivered is if MPs impose a decent package on Ministers."
"When the Pensions Bill returns to the Commons, the Liberal Democrats will ensure that MPs have the opportunity to vote on upgrading the compensation package to Pension Protection Fund (PPF) levels of award."
But Mike Smedley, partner in KPMG Pensions, says the Chancellor has not made it clear how the extra £6bn cost will be funded or how he will balance the books.
He says; "Does this mean the FAS and the PPF will be combined? If so, solvent private sector pension schemes may have to share the cost of this, which will put additional unwelcome pressure on UK pension schemes. Schemes could see their PPF levies at least double if this is the case."
If you have any comments you would like to add to this story or would like to speak to its author about a similar subject, telephone Nyree Stewart on 020 7034 2681 or email [email protected].IFAonline
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