The FSA will now cover 8,000 more savers, including those whose schemes wound up between January 1st 1997 and April 5th 2005.
But the Conservatives, who led calls for the "pensions lifeboat", said its rejection meant many pensioners now face "devastation".
Shadow work and pensions secretary Phillip Hammond accused the government of "missing the opportunity" to build a cross-party solution to the pensions crisis.
"The pensions lifeboat would have greatly helped those who have lost their pensions," he argued. "Now Gordon Brown and his crew have sunk it."
But pensions minister James Purnell insisted that "the government should not write a blank cheque but organise a remedy".
And in prime minister's questions earlier today Tony Blair insisted it would be "cruel" to reassure savers that the government could bail them out if it could not afford to do so.
"We cannot make an additional commitment unless we are sure the finances are there to finance it," he told MPs.
In last month's Budget Mr Brown committed to expanding the FSA to help 125,000 savers, with funding set to increase from £2 billion to £8 billion.
The landmark pensions bill is expected to raise the state pension age to 68 by 2046 and restore the link between earnings and the basic state pension by 2012.
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