The government outlined proposals yesterday to protect workers losing their pensions if their employer goes bust or closes their company scheme.

These are the first steps the government is taking following the consultation on the Pensions Green Paper. Andrew Smith announced a number of measures safeguarding the rights of members of occupational schemes:

• Pensions Protection Fund - first ever UK protection scheme for Defined Benefit pensions in the UK, protecting pension rights accrued when a company goes bust.
• Full Buy Out - ensuring that where a solvent company chooses to wind up its scheme it should fully buy out members' benefits.
• New Pensions Regulator - with new activity targeted on badly run and high-risk schemes putting consumers first and ensuring secure schemes continue without unnecessary regulatory burden.
• Changes to the Priority Order - guarantees remaining assets of a scheme in wind-up are distributed fairly among the workforce reflecting the length of service of employees.

The ‘full buy out’ means that if firms choose to close a solvent scheme they will have to buy an annuity, income for life, for retired scheme members. They will also have to pay scheme members below retirement age money that they can invest elsewhere.

Pension scheme operators are also to be forced to pay into the new pension protection fund, an insurance that will protect 90% of the value of current workers' pensions and the full value of retired members.

But the Confederation of British Industry (CBI) gave a cool welcome to the proposals saying business would take a serious look at them but warns that making pension schemes too costly could "do more harm than good".

John Cridland, CBI Deputy Director-General, said: "Employers will want to take a serious look at this. They are concerned that confidence in pension schemes has suffered and some people have lost out through no fault of their own.”

"Insurance could be one solution but the cost of providing occupational schemes has shot up hugely and anything that added to that could be extremely damaging.”

"It will also be important that employers with good schemes do not subsidise those with weak schemes. Companies with strong pensions schemes will be reluctant to pay for those without."

The Consumers’ Association (CA) was scathing about the proposals saying that although government is introducing an insurance fund for final salary schemes it is not addressing the wider picture which is that the public no longer trust the financial institutions.

Also, it says, it will take some time until this scheme is up and running and the government is proposing nothing to protect current scheme members if companies go bust in the meantime.

The CA believes that the Government's reliance on the financial services industry to provide pensions is a flawed and high-risk strategy. A consumer retiring in December 2002 after investing for 25 years would have built up a pension worth just half that of someone retiring in December 2000.

Sheila McKechnie, Director, Consumers' Association said:

"If the Government thinks the action it has proposed today solves the pension problem then it either doesn't understand what the crisis is or it lacks the political courage to deal with it."

"Many changes apply only to current employer schemes and the simple issue that we are not saving enough is being side-stepped."

"The Government has completely bottled out of facing up to the problems in the private pensions sector, which they are expecting current generations to rely on to fund their retirement. The industry cannot deliver a viable model for individual pensions. It is inefficient, expensive and contemptuous of its customers."