The money earmarked by the government to help members of insolvent pension schemes will cover only a small fraction of those harmed, according to an adviser to the prime minister.
Ros Altmann, an expert in pensions economics, warned on Tuesday that the sums allocated to the Financial Assistance Scheme (FAS), designed to help at least 65,000 members of underfunded pension plans left stranded when their employer became insolvent, will provide aid to no more than a handful.
The £20m a year which the government had pledged over the next two decades would buy average UK pensions of £6,000 per year for only 135 people going by today's cost of annuities, Ms Altmann said.
Pensions policy has become an increasingly divisive issue between Tony Blair and Gordon Brown.
The chancellor on Tuesday told delegates at the annual conference of the CBI employers' organisation in Birmingham the government could not give further commitments to pensioners without the risk of raising taxes.
“In Britain, because we don't link pensions to earnings, because we are not suggesting that the state takes on additional responsibilities, we have a fiscal position that is sound,” Mr Brown said.
The chancellor has championed means-testing to redirect wealth to the poorest pensioners but he is under pressure from cabinet colleagues to consider shifting towards a universal scheme.
While a decision has been postponed until after the next report, due next year, from Adair Turner, the former CBI head commissioned by the government to examine pensions, Mr Blair recently said a third-term Labour government would “design a pensions system that has the basic state pension at its core”.
Ms Altmann's calculations emerged as the National Association of Pension Funds, the employers' group, said it was seeking clarification on a statement this week from the government hinting that the burden of schemes that should have been covered by the FAS would instead now fall on employers. They had been asked to back an insurance scheme the Pension Protection Fund to take effect next year, on the basis that it would not be retrospective.
“It would be outrageous if the government could resort to a back-door means of forcing employers effectively to subsidise the FAS,” the NAPF said.
David Willetts, Tory pensions spokesman, said government assurances that the new PPF would only cover future insolvent schemes now rang hollow. “It was always clear that funds for the FAS were not enough and now they are raiding the PPF.”
Ms Altmann also accused the government of having misled the public about the extent of the aid the FAS is intended to deliver. She is calling on the government to pay more into the FAS and to manage insolvent schemes more efficiently by pooling their assets. If so, she says, some of those who have saved for as long as 40 years will receive payments closer to what they had been promised.
Ms Altmann said it was morally wrong for the government to refuse more generous compensation for those covered by the FAS because it had been repeatedly warned that its funding standards for occupational schemes were too weak.
