The government has rejected opposition demands to compensate those who have lost their pension funds after their employers' firms have collapsed.

Speaking in the Commons, pensions secretary Andrew Smith said the government's new pension protection fund could not apply retrospectively.

Opposition parties had urged ministers to do more to assist the tens of thousands of workers whose pension funds have collapsed.

The Tories and Lib Dems called on the government to give assistance to those workers whose pensions have disappeared following the collapse of their firms.

While the government is set to legislate to create a pension protection fund, it will not apply retrospectively.

Smith told MPs that such a move would cost the Treasury £100 million a year.

He said the system was "essentially an insurance scheme" and could not therefore apply to those not involved in the scheme at the time of the problem.

But the Tories and Liberal Democrats are seeking to amend the legislation, which receives its second reading in the Commons today.

Opposition MPs say those whose pensions have disappeared have a right to compensation.

Poverty

If the government does not accept the change to the Pensions Bill, around 60,000 workers could be left facing poverty in their retirement. 

"The government's proposed pension protection fund will offer nothing to the tens of thousands of workers who have already been robbed of their promised company pensions," said Liberal Democrat pensions spokesman Steve Webb.

"The scheme will only offer protection for occupational pension schemes that collapse after its introduction in 2005."

"The government are betraying a generation who worked hard and saved hard."

Moral duty

The Lib Dems maintain that the government has "a moral duty" to compensate those affected.

"The government must introduce an affordable, time-limited package to help the innocent workers who have been stripped of their pensions." he said.

"The pension protection fund is shrouded in uncertainty. Companies that still choose to provide final salary schemes need to know what the premiums will be from day one and exactly when a risk based element will be built in."