Looks at "advice given to members of the UK Atomic Energy Agency (AEA) Pension Scheme" on privatisation. Originally prepared for a Westminster Hall debate on 26 October 2016, it has been updated since.Jump to full report >>
The AEA Technology (AEAT) pension scheme is a defined benefit final salary scheme set up with AEA Technology (previously the commercial arm of the UK AEA was floated on the stock exchange in September 1996. AEA Technology has become a Government owned company that April, although staff remained members of the UK AEA pension scheme until flotation (HC Deb 18 March 2015 c284WH).
The Atomic Energy Authority Act 1995 detailed the conditions for privatisation of AEAT and included specific provision for the pension arrangements of transfering staff. This included a "statutory duty and statutory reassurance" to provide a pension scheme that was "no less favourable" than the UK AEA scheme" (Schedule 4, para 6 and 7).
In November 1996, the Government Actuary's Department (GAD) issued a note outlining the choices available to members of the UK AEA scheme. These were to:
- Leave their preserved benefits in the UK AEA scheme (a public service scheme);
- Transfer them to the AEAT scheme; or
- Purchase a personal pension.
The note said that it was "unlikely that the Scheme would fail or, or that the the benefit promise made by either the UK AEA scheme or the AEAT scheme would ever be broken" (Pensions Ombudsman determination-4816, January 2015).
The AEAT Scheme entered a Pension Protection Fund (PPF) assessment period in 2012 and transferred to the PPF in July 2016. It is estimated that 3,000 people have been affected as a result and are now covered by PPF compensation arrangements (PQ 6580, 7 September 2017).
The PPF was set up under the Pensions Act 2004 to provide compensation to members of defined benefit pension schemes that wind up underfunded on the insolvency of the employer. It provides two levels of compensation (for most of those below pension age at the start of the assessment period, 90% subject to a cap). See PPF website and Library Briefing Paper SN-03917.
An AEAT pensions campaign was set up with the aim of achieving the "reinstatement of pension rights as promised by the government at the time of privatisation." It argued that the GAD document "encouraged employees to transfer to the new scheme" and that scheme members "were only told of the risk to their scheme in August 2012, when the negotiations were all but complete".
The issue was the subject of a Westminster Hall debate in March 2015 (HC Deb 18 March 2015 c284-93WH). Opening a further Westminster Hall debate in October 2016, Sir Oliver Letwin said that the information given to scheme members at privatisation by GAD had not brought out the difference in risk between the two schemes:
What is clear is that nowhere in the rest of the document does the Government Actuary’s Department say what was also patently true—that the risk of the pensioners losing a large part of the value of their pensions if they remained with their accrued rights in the UKAEA scheme was zero, or as near to zero as human beings get. A triple A-rated guarantee from HM Government attended that scheme. No such security was available under the AEA Technology scheme. Commercially-backed schemes do not have a triple A-rated Government-backed guarantee that pensioners will get their money as promised. That is a material difference between the two schemes, and the Government Actuary’s Department, in offering advice to pensioners, had a clear duty to bring out that difference in risk. It did not, and that is the starting point for the compelling argument I will make. (HC Deb 26 October 2016 c163WH)
He suggested the Parliamentary and Health Service Ombudsman (PHSO) should be able to rule on whether there had been maladministration:
It is well established in the case law surrounding the ombudsman that if a Government Department misleads people, that is a form of maladministration, and if it causes them loss, that is a form of maladministration that the ombudsman can rule requires remedy. That is a perfectly well established chain of thought. We might think, therefore, that the Parliamentary and Health Service Ombudsman would be able to rule on whether I am right in asserting that the Government Actuary’s Department misled these pensioners and therefore engaged in an act of maladministration.(Ibid c167WH).
The then Pensions Minister Richard Harrington did not accept that it had a responsibility to compensation scheme members beyond what would be provided through the Pension Protection Fund:
The Government do not believe that we should compensate members of the AEA Technology pension scheme above what is being provided by the Pension Protection Fund. That is very clear. I would rather not be grey about it; that is the Government’s position. We do not accept that the loss of the pensions was the Government’s fault. (Ibid c175WH).
He said the note provided by GAD was not advice:
Whatever it may or may not be, the note clearly states at the beginning that it was a note by the Government Actuary’s Department on the options available in respect of accrued benefits. It states that clearly. I do not wish to be pompous about the word “advice”, which means different things in the financial services world than in the general context of conversation between people and in guidance, but it was not designed to be advice. It provides three options and outlines the main factors that people should take into account when reaching their decision on which option to accept. (Ibid c176WH)
A complaint regarding information provided to employees about their pension rights woud fall within the remit of the Pensions Ombudsman (PO) rather than the Parliamentary and Health Service Ombudsman (PHSO). Decisions of the PO could be challenged in the courts by judicial review or appeal (Ibid c178).
On 14 September 2018, the then BEIS Minister Sam Gyimah said that the Secretary of State had “no plans to make a statement on this matter.”
The AEAT Pension Campaign was set up with the aim of achieving “the reinstatement of pension rights as promised by the government at the time of privatisation.” It explains:
Why does AEAT pension campaign believe members should feel aggrieved?
There are several reasons including the following.
AEA Technology was allowed to enter a pre-pack administration and default on its pension liabilities, despite it being an apparently profitable company and actively recruiting. The transfer of service at the time of privatisation was said to be secure and the government does not intending to honour this promise.
The AEAT pension scheme was set up to be at least equivalent to the UKAEA one, but the government is not intending to fulfil this statutory requirement.
What does the AEAT pension campaign hope to achieve?
The reinstatement of pension rights as promised by the government at the time of privatisation. A thorough investigation into the pre-pack insolvency of AEA Technology, including the roles of various interested parties, including the pensions regulator, the PPF and the trustees.
Commons Briefing papers CBP-7740
Author: Djuna Thurley