THE 200 pension scheme members of collapsed construction giant Melville Dundas will see their pay-outs slashed by at least half, and some will only receive the level of the basic state pension, it emerged yesterday.

The scandal at Melville, once one of Scotland's largest privately owned builders, further underscores the pensions insecurity facing employees throughout the country.

The news follows hard on the heels of the recent debacle at Edinburgh-based engineering company Blyth & Blyth, whose 150 employees lost their pensions when the company went into receivership and the pension fund was wound up.

Melville's pension fund has a (pounds) 7m shortfall, comparing assets with the amount due to its members. The scheme, which was wound up about a month before Melville went bust in May, currently holds ''between (pounds) 5m and (pounds) 6m'', according to Allan Martin, an independent pensions trustee appointed by receiver Ernst & Young.

He said: ''This shortfall is pretty much the result of rapid declines in the stock markets over the last few years.'' He also said he was ''pretty sure'' there were no pension contribution holidays taken by the firm - and that while the scheme had been stopped in 2002, the company had continued its contributions up to the point of receivership.

Martin added the fund would continue to pay out the full entitlement to the 40 pensioners who have already retired from the company, although increases in their future pay-outs will be restricted.

However, the members who will now be forced to accept a pay-out at the level of the basic state pension will be no better off than if they had not paid into the fund at all.

Some members are known to have paid into the fund for up to 40 years, first paying into the Lilley group pension fund before transferring to the Melville fund at the time of the management buy-out of Lilley in 1993.

One former employee, who asked that his name be withheld, said: ''I was due to retire in December, which means I've been paying part of my wages into this company's pension fund for 22 years.

''There were five or six of us due to retire before the end of the year and, at least before the company called in the receivers, one of us was ready to go next month and another was going in October.

''None of us know what we're going to do now. There is no financial security to speak of. Over 20 years of loyal service to a company and this is what we get - a kick in the teeth. The banks don't have to worry. They always get their share.''

The government recently proposed a compulsory insurance plan to provide the safety net for workers facing closure of their final salary pension schemes. Under the scheme, workers who had already retired would receive 100% of their pension, while other workers would receive 90%.

Martin said: ''A lot of people forget that pensions are deferred pay. There is no question that they should be a higher priority, particularly when firms go into receivership and funds close.

''While the government plan would undoubtedly have helped the members of Melville Dundas, it is not due to come into effect until 2005. And I don't believe there is any retrospective aspect to it.''

Glasgow-based Melville Dundas crashed into receivership after digging a multi-million-pound black hole in its accounts, largely by overstating the value of its contracts.

The construction group had claimed (pounds) 1.9m, for example, for its work on the Lighthouse building in Mitchell Street, Glasgow. According to construction industry sources, it settled recently for about (pounds) 400,000.

However, the firm's pension scheme members are the latest victims in the messy aftermath of the company's collapse.

Melville, whose books were audited by scandal-ridden accounting firm Arthur Andersen, has left scores of sub-contractor and suppliers in Scotland's construction sector empty-handed.

The Herald revealed yesterday that none of the 1775 unsecured creditors - who are collectively owed (pounds) 36m in unpaid bills - will be able to recoup a penny of their losses.

In this latest bout of bad news, Melville's pension scheme members have now received a letter from the fund's trustees, telling them of the shortfall and the likelihood of vastly-reduced payments.

The letter, obtained by The Herald, states: ''Unfortunately, non-pensioners are likely to suffer a significant cutback in their prospective pension, the exact amount will depend on any benefits transferred into the scheme, salary, and service.

''Whatever the amount of pension secured there is no prospect of increases to the benefit in payment. Existing pensioners will continue to receive their full current pension. However, pensions increases in future will be restricted.''

While this procedure is relatively good for the existing pensioners, it leaves less of the cake for other members, and for most Melville employees has resulted in the double blow of no job and a substantially-reduced pension.