Up to 60,000 workers will benefit from the deal worth around £400 million over the next 20 years.

There has been growing pressure on the Government to act on the issue with MPs threatening to revolt unless compensation for workers who have lost their retirement savings was included in the Pensions Bill.

While the proposed Pensions Protection Fund will offer help to workers whose schemes collapse in the future it offers no redress for those already affected.

Pensions minister Andrew Smith stated: “The protection the fund gives is cover for the future, and cannot help those who have already lost out. The severe losses that some individuals have already suffered in insolvent pension wind-ups has caused considerable hardship.

“The Government will therefore make available £400 million, of public money to be paid in instalments over 20 years, with the possibility of further contributions from industry, to provide assistance in such cases.”

Unions warmly welcomed the announcement, with the general secretary of the TUC Brendan Barber praising ministers and unions for working hard to secure the deal.

“The task now is to make sure that each individual who has lost out gets a fair deal from the funds announced today,” he added.

“Yet this is not the only pensions issue. The retreat from good salary-related pensions continues, fewer people have any access to a pension at work and the state pension is not keeping up with earnings.”