THE Government has threatened to pursue impoverished pensioners for massive legal costs if they challenge its decision to ignore the Parliamentary Ombudsman’s ruling on pensions compensation.

Pensioners who were denied compensation after losing their life savings when their companies collapsed were warned by the Department for Work and Pensions (DWP) two days ago that it would seek unlimited legal costs if they continued with their claim for a judicial review.

Andrew Parr, one of the pensioners seeking the review, said: “The Ombudsman ruled that Government maladministration caused us to suffer terrible injustices and losses.

“If the DWP really believes it’s right, it should be happy to have that tested in the courts in the public interest without resorting to bully-boy tactics to deter us.”

Pensioners brought the claim against the DWP last month after John Hutton, the Work and Pensions Secretary, said that compensation, at about £15 billion by DWP calculations, would be too expensive. The DWP later admitted the cost would be £3.7 billion at most.

Ros Altmann, an economist advising pensioners on the case, said that the DWP had a long-established practice of dropping costs against unsuccessful litigants, most of whom are or will be on benefits, in cases of public importance.

But in a letter to the claimants’ solicitor, the DWP said its duty to safeguard public funds meant it would not guarantee that it would not pursue the pensioners for defence costs it may incur. A pensions lawyer told The Times that the cost of such a case could run to seven figures if subject to several appeals.

A DWP spokesman said: “Our approach is to deal with each matter on a case-by-case basis. We will, of course, consider our position at the end of proceedings.”

In her March report, Ann Abraham, the Parliamentary Ombudsman, found the Government guilty of maladministration because it had assured workers of the safety of final-salary schemes, while its own requirements on the funding of schemes gave employees only a 50-50 chance of getting their benefits if their company went bust. As many as 125,000 people lost 20 per cent or more of their savings when their employer collapsed with a deficit in its final-salary scheme.

Ms Abraham’s report described the information given out by the Government as “inaccurate, incomplete and inconsistent”. In a memo to the Commons Public Administration Committee last month, she gave warning that Mr Hutton’s hardline stance on compensation could lead to a constitutional crisis.

In a further blow to pensioners, the Government this week applied to have the vast majority of workers who lost their pensions shut out of a European Court of Justice (ECJ) ruling that could force it to pay compensation for failing properly to implement Article 8 of the EU Insolvency Directive.

Article 8 requires governments to protect pensions in insolvency cases. Two unions took the case to the ECJ on behalf of members employed by Allied Steel & Wire. A decision is expected by the end of the year. The DWP wants all pensioners not signed up to the case by a set date to be cut out of any judgment on compensation.

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