Hundreds of people who worked at a shoe factory which went bust could wait two years to find out if their pension pot must be bailed out by the Government.

Nearly 100 people lost their jobs when Equity Shoes – Leicestershire's last large footwear manufacturer – went out of business this year.

Managers at the factory, in Western Road, Leicester, failed to find a buyer to rescue it from financial difficulties and provide enough cash to make up for a "substantial" deficit in the workers' pension fund, which has 260 members.

The Pension Protection Fund (PPF), which was set up by the Government in 2005 to protect employees when companies go bust, has now begun an "assessment period" of the Equity Shoes pension scheme.

The review – which could take up to two years – is to find out whether there is enough money in the pot or if it needs to be bailed out.

When the PPF takes control of a scheme, those who have already retired will have their pensions paid in full.

Others, however, will receive a maximum of 90 per cent.

If a scheme does not need to be bailed out, it is "bought out" by an insurance company.

In this case, members would generally get more money than through the PPF.

Peter Walker, the PPF's director of delivery, said: "Losing your job can be devastating – but the situation can be made much worse if you stand to lose your pension at the same time.

"The PPF is doing what it was set up to do – protecting people's pensions when their employers go bust."

Managers at Equity Shoes, which was run as a workers' co-operative, blamed its demise on falling sales caused by competition from cheap imports.

The factory closed after going into voluntary liquidation in January.

Then, managers said the pension scheme had a deficit "substantially" higher than the £1.3 million previously reported.

Property developer Jamie Lewis Residential Lettings, which bought the site in November, has unveiled £20 million proposals to convert the building into hundreds of flats.