The government yesterday told workers hit by failed company pension schemes that state cash would be targeted at staff nearing retirement.

Ministers said the £400m pensions "lifeboat", which was launched last year after a string of company failures, would pay about 80% of the pensions promised to workers of companies that went bust, but only if the employees were within three years of retirement.

The pensions minister, Malcolm Wicks, said in the Commons that those facing the "most urgent difficulties" would get most of their promised pension under the government's financial assistance scheme.

Workers who are not within three years of retirement will not know if they are to be protected by the scheme and could face a hardship test. Mr Wicks promised to review the proposals after three years.

Labour MPs and the TUC broadly welcomed the proposals. Some MPs said the commitment went further than expected and revealed that Alan Johnson, the secretary of state for work and pensions, was prepared to defy the Treasury, which is keen to keep spending commitments to a minimum in the run-up to the election.

But the plans were immediately criticised by opposition parties and other critics of the government.

Steve Webb, the Liberal Democrat's spokesman, said the announcement was a blow to workers who were more than three years from retirement.

The shadow work and pensions secretary, David Willetts, said the Conservatives had warned that £400m for the financial assistance scheme "would not be enough".

He added: "The government was very lucky to get away with the £400m announcement they made when it was perfectly clear that it was completely inadequate for the scale of the crisis."

The exact number of people who will benefit has not yet been clarified, a spokesman for the Department for Work and Pensions said.

Overall, the government estimates that about 65,000 people may need assistance with schemes that have become insolvent.

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