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Last Updated: Wednesday, 7 February 2007, 14:10 GMT
Pensions case battle lines drawn
Protesting pensioners
The issue of lost pensions has sparked many protests
The government acted "unlawfully" in rejecting a Parliamentary Ombudsman report into collapsed pension schemes, the High Court has been told.

The accusation came in the opening statements of lawyers acting for four people who lost their pensions when their company schemes collapsed.

They want the government to compensate people who have lost their pensions.

The Ombudsman report, published last March, criticised government handling of the workplace pension system.

However, the government refused to accept the Ombudsman's findings.

High stakes

Dinah Rose QC, appearing for the four plaintiffs, said that "no reasonable public body" was entitled to depart from the Ombudsman's findings.

If the court rules in favour of the four, the government could have to pay out hundreds of millions of pounds.

But if the four lose their case they could face having to pay government costs, estimated at 125,000.

85,000 people were affected
400 schemes closed with deficits
They were shut between 1997 and 2005
Only limited compensation is available from the Financial Assistance Scheme
The Pension Protection Fund only covers schemes from April 2005

The judicial review, which started on Wednesday, is expected to last three days and it is likely that judgement in the case will be held over for a month.

Ombudsman report

The pensioners want the court to decide whether the government was right to disregard the findings of the Parliamentary Ombudsman's report.

In essence, the Ombudsman called on the government to compensate people who had lost their pensions when their schemes went bust.

An estimated 85,000 workers lost all or part of their pensions when their schemes collapsed.

This happened when there was not enough money in the schemes to pay members their benefits.

The Ombudsman concluded that government's pension advice was "sometimes inaccurate, often incomplete, largely inconsistent and therefore potentially misleading".

The department was asked to waive the right to seek costs in advance - it is our long established practice not to do this,
Department for Work and Pensions spokesman

Campaigners have criticised the government for refusing to say whether it will pursue the plaintiffs for costs should they win.

Three of the four could be left with a massive legal bill if they lose.

One is on legal aid, so will not be hit with case costs.

"It is very worrying. If we lose, we would have to look at the assets we have, in my case that is my home," said Tom Waugh, who lost two-thirds of his pension when his workplace scheme went bust.

Mr Waugh and his fellow plaintiffs want the government to agree to waive costs.

"The department was asked to waive the right to seek costs in advance - it is our long established practice not to do this," a Department for Work and Pensions spokesman said.

"We do not wish to make an open-ended commitment on taxpayers' money at this stage. We will, of course, consider our position at the end of proceedings," he added.

How one former steelworker lost his pension

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