The Department for Work and Pensions (DWP) is planning to increase the Financial Assistance Scheme's (FAS's) compensation cap for members with more than 20 years' service.
At present, compensation from FAS is limited to £34,229 a year, but the DWP wants this to be increased by 3% for each year of pensionable service over 20 years when people first became entitled to FAS payments.
The increased cap would be limited to double the standard cap, £68,458.
Amending the rules would bring the cap in line with that of the Pension Protection Fund (PPF) after the DWP introduced the same changes for the lifeboat fund in April this year.
If the rules are amended, members eligible for an increase will have their payments recalculated, and will be notified by the FAS in advance of implementation.
For example, a member with 25 years' service, who currently breaches the cap, could receive an additional £5,134.35 from the change, the DWP calculated.
However, the compensation will not be backdated, the DWP said, while annual increases would only rise alongside the increased cap from the implementation date.
The FAS offers compensation to members of defined benefit (DB) schemes which started to wind up between 1 January 1997 and 5 April 2005, where the scheme did not have enough money to pay member benefits, and the employer cannot pay the shortfall as it is insolvent, no longer exists, or no longer legally has to pay its debt.
It also compensates members where their DB scheme started to wind up after 5 April 2005 but is not eligible for help from the PPF because the employer became insolvent before this date.
The consultation is open for responses until 25 October, with an ambition to increase the cap in April 2018.
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