UK – Observers have slated new government proposals relaxing the terms of the planned Pension Protection Fund, saying they are another “knee-jerk” reaction which could have knock-on costs.

Pensions minister Malcolm Wicks told parliament that the government was aware that trustees of schemes whose sponsoring employers are in financial difficulty were uncertain about whether they would be eligible for PPF compensation, which launches next year.

He said: “The government are now able to state that eligible schemes, whose sponsoring employer has already entered insolvency proceedings may still be able to receive PPF compensation.”

He said the scheme would still have to satisfy other PPF eligibility criteria. “In particular,” he said, “the sponsoring employer will need to have an insolvency event after the introduction of the PPF and the pension scheme must not have commenced wind up prior to that date.”

"Clearly from the point of view of members of schemes potentially benefiting from this relaxation, this is good news,” said Martin Slack, senior partner at Lane Clark & Peacock. “However, any new protection has to be paid for by other occupational pension schemes, potentially forcing some of those to have to call on the PPF as well.

"This is a further example of a 'knee jerk' reaction from the Government: having realised that its Financial Assistance Scheme, to be funded by tax payers, is unlikely to do much more than scratch the surface in relation to schemes already facing insolvent wind up, it is looking to transfer the cost onto other pension schemes.

“If the government wishes to promote a social policy, it should be prepared to explain to voters why they have to pay for it through increased tax."