More than 135,000 workers who saw the value of their pensions collapse when their employers went bust were celebrating a surprise government rescue package today expected to be worth about £2.9 billion in real terms.

Peter Hain, the Work and Pensions Secretary, told Parliament that the Government would guarantee 90 per cent of the value of a raft of pension schemes at the time their companies collapsed.

The move, which follows a tireless campaign mounted by pressure groups and poverty-stricken pensioners, will be good news for 125,000 workers, including those at the former Allied Steel & Wire and the Danish-owned Maersk shipping line.

These workers saw their pensions wiped out after their previous employers walked away from their obligations when they filed for bankruptcy.

Mr Hain also said that a further 11,000 workers whose employers remained solvent would qualify for the enhanced pensions protection.

The Government's action means that members of the Financial Assistance Scheme (FAS), introduced ten years ago, will now have the same pensions rights as those in the more recent Pension Protection Fund (PPF).

FAS was the official safety net for workers whose schemes went into compulsory wind-up between January 1997 and April 2005.

Despite sustained pressure from campaigners, under FAS the Government would pay out only 80 per cent of a scheme's value, subject to a cap of £12,000.

That will now increase to 90 per cent, with the cap being lifted to £26,000, adjusted in line with inflation.

This will put it on a par with the PPF, the safey net for pensioners as from April 2005.

Both schemes have been much-derided as doing little to protect pensioner poverty or force companies to honour their obligations to their retiring employees.

Pensioner groups had shown their distaste by mounting high-profile demonstrations, including parading naked along Brighton Beach at a Labour Party annual conference.

Mr Hain said that the affected workers had been "cruelly deprived" of their pensions after having "done the right thing" by making financial provision for their lives in retirement.

He said it meant that the Government had commited an extra £3.9 billion of cash, equivalent to £935 million in value now.

Its total commitment of £12.5 billion was worth £2.9 billion in real terms to pensioners, Mr Hain said.

"Although the Government has been criticised over this matter, these are huge amounts and it is right that we have been able to maximise the return from residual assets in the schemes which collapsed so that the public purse has had value for money, too."

The increased protection for pensioners, which follows a report by the Government's own actuary, Andrew Young, this year, was welcomed by high-profile campaigners.

Ros Altmann, head of the Pensions Action Group, said: "This is a fantastic deal for pensioners. It's taken five and a half years, but Peter Hain is to be praised for this. This would not have happened without support from the Opposition, the Tories and Lib Dems. Northern Rock has also made a difference."

Ms Altmann said that the measures "are not perfect". Someone seriously ill but under 60 will not qualify for a penny, she said.

The Conservatives, whose own proposal to set up a Lifeboat Fund for pensioners was blocked this year, welcomed the increased funding but noted that the final details would not emerge until next year.

"Congratulations to all of the campaigners who have spent their own time and money trying to get this Government to right its pensions wrongs," Chris Grayling, the Shadow Work and Pensions Secretary, said.

"We'll be keeping a sharp eye on the DWP over the coming months to make sure they keep their promise to the 125,000 pensioners."

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