Money: Brown owes Barry a pension

This weekend, eight-year-old Jessica will board a coach in Southend with her grandfather for a day trip to London. But not for this little girl the usual boat trip along the Thames or a visit to the zoo. Instead, Jessica will trudge up and down Whitehall, under police escort, holding a banner berating the government. With her grandfather looking on, she will stand in Parliament Square, shouting rude comments about Gordon Brown.

Jessica's grandfather is among the 100,000 people in this country whose retirement plans were shattered when their final-salary scheme went bust. For 38 years, Barry worked for Peri van printers - adding up to 36 years' worth of pension contributions. On retirement, he was in line for £11,000 a year, and a lump sum. But the printing firm closed and, with it, Barry's pension scheme. "I've been robbed," he says. "Final-salary schemes were supposed to be safe - but they've been wrecked by this chancellor."

Since Labour took office, thousands of such schemes have folded. The stress suffered by those who have seen their pensions disappear and lost their income is almost unthinkable. The London demonstration has been organised by the Pensions Action Group. Putting campaigners' grandchildren in the public eye is PAG's latest shrewd tactic. Like hundreds of other children, Jessica has written to Brown asking him "to save my grandad's pension". On Sunday, a bundle of petitions will be delivered to No 11 by two (no doubt highly photogenic) young protesters.

But is the PAG right to demand that the government compensate the roughly 100,000 private pensioners who have lost out? I believe it should. In a recent report, Ann Abraham, the parliamentary ombudsman, deemed this "injustice" to have resulted from "government maladministration".

The ombudsman said that the Treasury acted against professional advice when, in 1998 and 2002, it weakened the minimum funding requirement - designed to make final-salary schemes secure. She judged official literature advising the public on pensions security "inaccurate, incomplete, unclear and inconsistent". And yet, the government continued to issue leaflets reassuring the public that final-salary schemes were "guaranteed" even if firms went bust.

Abraham criticised the Treasury, in particular, for not warning the public - and wondered aloud whether the decision was driven by a desire to keep workers in private schemes, so cutting costs to the state. Final-salary schemes were also dealt a heavy blow when Brown, in his 1997 Budget, removed tax relief on dividends paid into pension funds. Little-noticed at the time, this move has cost schemes at least £100bn, tipping many over the edge.

Ministers recognise the occupational pensions system is in crisis. Last year, they created an industry-funded safety net - the Pension Protection Fund. But those who lost out before then - Barry and the other 100,000 - have to rely on the Financial Assistance Scheme, created in 2004 after intense PAG campaigning and a threatened back-bench revolt. The FAS has been dogged by delays and underfunding. After two and a half years, it has paid only tiny amounts to barely 400 people. The proposed compensation rep resents a fraction of the lost pensions, with no inflation link and very few other benefits.

Ministers have rejected the ombudsman's report and refuse to heed growing evidence of the damage caused by the 1997 Budget change. The Treasury has also inflated the costs of compensating Barry and his colleagues. But whatever it costs - and experts say we are talking about £150m per year - fixing the FAS would be money well spent if it could help rebuild the public's shattered faith in pension saving.

Liam Halligan is economics editor of the Sunday Telegraph