The Government is bracing itself for a crunch parliamentary vote tomorrow over the funding of a pensions “lifeboat” set up to help to pay for the retirements of 125,000 workers abandoned by their employers.

Banks and insurers fear that they will be left vulnerable to a windfall tax if the funding proposal, tabled by the Conservatives as an amendment to the Pensions Bill, is voted through.

The Government could choose to finance the scheme by raiding dormant bank accounts and unclaimed pension and savings assets, hitting the savings of thousands of people, lobby groups for the financial services industry said.

The insurance industry is already on alert for the publication this week of an interim reportby Andrew Young, the deputy Government Actuary. He was asked by ministers to see whether the Financial Assistance Scheme (FAS)could be funded in part by “other sources of nonpublic funding which have not already been allocated”.

Insurers fear that Mr Young will also recommend a raid on their £20 billion inherited estates – large pools of capital built up in life assurance funds.

The Tory amendment returns to the House of Commons tomorrow for what is expected to be a close vote, after being defeated in April by a Government majority of just 22. Since then, supported by the Liberal Democrats, it has won the support of the House of Lords.

Chris Grayling, the Shadow Work and Pensions Secretary, said: “We know many Labour backbenchers support the pensions lifeboat and that many voted against the Government last time. It will only take a few more MPs to vote with their conscience to defeat the Government this time.”

An estimated 125,000 people lost their final salary pensions savings when their company went bust with a deficit in its pension scheme. Under the Conservatives’ proposal, the lifeboat would pay additional pensions contributions through the FAS, an existing government compensation scheme that has been widely criticised as being inadequately funded. Pensioners getting assistance from the FAS get 80 per cent or less of their true pension entitlement and must forgo index-linked increases, spouses’ benefits and lump sum payments.

An initial taxpayer loan would finance the scheme, according to the Conservatives, who say that the idea of tapping unclaimed assets is only at the exploratorystage. They previously estimated that the lifeboat would cost £30 million annually its early years. The total cost over 50 years has been put at £640 million.

Stephen Haddrill, director-general of the Association of British Insurers, said that he understood the importance of funding the FAS but believed that it would be wrong, even if practicable, to damage the interests of pensioners and investors in insurance funds: “This amendment effectively proposes to rob Peter to pay Paul, since it would reduce returns for millions of savers and pensioners.”

Ros Altman, an adviser to the Government on pensions policy, accused the financial services industry of scaremongering.

FAS facts

— The Financial Assistance Scheme was set up in 2004

— It has helped just 1,300 of the estimated 125,000 people who lost their pensions

— The FAS has paid out about £4 million but cost £10 million to administrate

— Payments start when a worker turns 65, even if their company retirement age was 60 years

— Most recipients receive 60 per cent of the pension they were promised by their employer

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