ASW workers have fought a four-year campaign for compensation

The court's advocate general has ruled that the UK government is not breaking EU law by failing to compensate them.

One ex-worker said he was "gutted" by the ruling. More than 800 ASW staff lost their jobs and most of their pensions when the firm folded in 2002.

Unions had argued that the UK government failed to protect savings.

An EU insolvency directive from the 1980s requires member states to take measures to protect employees' pensions.

The advocate general said on Thursday that Britain has flaws in its protections for workers who lose their pensions, but the breach was not sufficiently serious to trigger Britain's liability under EU law.

The advocate general advises judges in the European Court.

Final decision

Her opinion is not binding but usually gives an indication of the likely outcome of a case.

They've suffered long enough and this decision is destroying them - it's soul destroying John Benson, ex-ASW worker

The Luxembourg-based court's final decision is not expected for several months.

Unions representing the ASW workers say the case has implications for around 85,000 people across the UK who lost pensions when a firm goes bankrupt.

The court action was brought jointly by the unions Community and Amicus after more than 800 staff in Cardiff - together with hundreds more in Sheerness, in Kent, and Belfast - lost their jobs when ASW folded in July 2002.

Unions argued the UK government had failed to implement European directives to protect workers when companies collapsed.

The former steelworkers' plight led the UK government to set up a �400m pensions protection fund to protect pension rights when a firm goes bust.

'Moral'

But when the new pensions bill was published early in 2004, there was further disappointment for the workers because the legislation was not retrospective.

Following the court announcement, the Community union said its lawyers were considering the ruling.

Former ASW worker, John Benson, 60, who lost most of his pension entitlement after paying in for 38 years, criticised the court's decision.

He said: "[I'm] absolutely gutted. I feel so sorry for the former ASW workers and all their families.

"They've suffered long enough and this decision is destroying them - it's soul destroying."

Cardiff Central MP Jenny Willott said the pressure was growing amongst MPs and it was not the end of the campaign.

She said: "It is clear that this is not a party political issue, but a moral one."

The UK government said it has done all it was required to under EU law.

A spokesman for the Department of Works and Pensions added: "The government notes the advocate general's opinion, including her finding that the facts of the case would not warrant payment of damages. But we await the court's judgement."