The Post Office Card Account, which offers an account for pensioners and benefit claimants to use at post offices, is safe for another seven years.
The news has been welcomed by isles MP Alistair Carmichael, who said it would protect a key service for vulnerable pensioners and benefit claimants as well as help safeguard the future of the post office.
Mr Carmichael said: “This is great news for our post office network which continues to be at the heart of many communities in the isles.
“Local postmasters and postmistresses have been telling me for some time how important the continuation of this contract is to their business so I know that they will welcome this news.”
The card account is widely used in Shetland, and this week’s announcement by Westminster’s pensions minister Steve Webb that it will continue until at least 2022 in a £250 million contract has delighted subpostmasters.
Aith subpostmistress Mary Henry said: “It’s good news for pensioners, they’re the ones that use our post office the most.”
This was echoed by Scalloway Post Office officer in charge Martin Fisher, who said: “A lot of elderly people will appreciate it.”
Mary Nicolson of East Yell Post Office said: “The Post Office Card Account is one of our most important things, it’s a good line of business.”
The card account was developed when pensions started to be paid into bank accounts, rather than via pension books, and helped people who would not otherwise have had a bank account. Its continuation will benefit post offices, which have recently lost other trade such as TV licences and DVLA work.
Mrs Nicolson added: “The post office is a way of life, people should be able to come to the post office and get everything, the way they used to.”
Mr Carmichael said the retention of the accounts was part of a continued effort to make the post office a “front office” for government services.
He said: “It means that local people can continue to use their local post office branch to access vital services such as receiving their pension or tax credits.
“Many people choose to use the post office to collect their pensions, benefits and other services. This new agreement will also help subpostmasters to attract more business and generate income for their important local businesses. I know that [business secretary] Vince Cable is also working to ensure that more banking transactions can be done in post offices. That too will help to secure their future and help make them more profitable.
“Post offices have been neglected for years and the job of fixing that will not be quick or easy. Despite financial pressures the coalition has put £1.34 billion into the business.
“I’m determined that post offices and subpostmasters in Shetland get the support they deserve.”
The card is used by almost three million UK customers every week to receive their pensions, benefits and tax credit payments.