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SESSION 2022-23
3 MARCH 2023
HC 1169
Pensions transferred to
AEA Technology when
itwasprivatised
Cross-government
REPORT
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Report by the Comptroller and Auditor General
Ordered by the House of Commons
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This report has been prepared under Section 6 of the
National Audit Act 1983 for presentation to the House
ofCommons in accordance with Section 9 of the Act
Gareth Davies
Comptroller and Auditor General
National Audit Office
23 February 2023
HC 1169 | £10.00
Pensions transferred to
AEATechnology when
itwasprivatised
Cross-government
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013710 03/23 NAO
This report sets out the facts on the pensions
transferred to AEA Technology when it was privatised
in 1996, and what happened when the company went
into administration in 2012 and the pension scheme
subsequently entered the Pension Protection Fund.
Ithas been produced in response to interest from
several members of Parliament.
© National Audit Office 2023
Contents
What this report is about 4
Summary 6
Part One
Transfer of pension benefits on
privatisation in 1996 10
Part Two
Pension scheme changes in 2012 16
Part Three
Complaints made to government 19
Appendix One
Our approach to this briefing 25
Appendix Two
Summary of scheme
members’complaints 27
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The National Audit Office study
teamconsisted of:
Annabelle Brown,
WilliamJohnson and
RichSullivan-Jones, with
assistance from Rita Galica,
under the direction of
CharlesNancarrow.
This report can be found on the
National Audit Office website at
www.nao.org.uk
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report in an alternative format
for accessibility reasons, or
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4 What this report is about Pensions transferred to AEA Technology when it was privatised
What this report is about
1 The UK Atomic Energy Authority (UKAEA) is the government body responsible
for research into nuclear fusion and related technologies. It was formed in 1954
to develop the UK’s nuclear research programme. UKAEA offers a defined benefit
pension scheme, which provides a guaranteed income to members in retirement
based on how many years they have worked and the salary they have earned.
2 AEA Technology (AEAT) was formed in 1989 as the commercial arm of
UKAEA, and later privatised in 1996. Employees who were transferred to AEAT
joined the company’s new pension scheme and had several options for what to
do with the pension benefits they had already accrued in UKAEA. This included
a special transfer offer to move their accrued pension to a closed section of the
AEATscheme, which would have equivalent benefits. This option was taken
bynearly 90% of eligible members.
3 In 2012, AEAT went into administration and the pension scheme subsequently
entered the Pension Protection Fund (PPF). This fund is a statutory compensation
scheme designed to protect members of a defined benefit pension scheme where
the sponsoring employer has become insolvent. However, the compensation it pays
is typically lower than the original pension benefits. Many pension scheme members
now have lower pension benefits than they would have had if they had kept their
accrued benefits in UKAEA’s public sector scheme.
4 Since then, scheme members have raised concerns with various parts of
government – including departments, regulators and ombudsman services –
about information provided to employees in 1996 that informed their decision to
transfer their pensions, and about the impact of the company’s administration in
2012. Therehave also been two parliamentary debates on the subject, in2015
and 2016, where members of Parliament raised concerns on behalf of the
pensionscheme members.
Pensions transferred to AEA Technology when it was privatised What this report is about 5
5 In response to interest from members of Parliament, we have prepared this
factual briefing. The report is primarily based on publicly available information and
is also informed by documentation provided to us by scheme members and public
bodies. It sets out the facts around:
•
what the privatisation of AEAT in 1996 meant for its pension scheme,
includingthe options and information available to scheme members;
•
the subsequent changes to the AEAT pension scheme following the
companygoing into administration in 2012 and the impact this had on
schememembers;and
•
the actions taken by scheme members to make complaints to, and seek
redressfrom, government, and the responses they have received.
6 The report does not seek to examine and report on value for money,
nordoesitseek to examine the merits of actuarial decisions. The report also
doesnot examine the adequacy of AEAT’s privatisation or pension settlement.
6 Summary Pensions transferred to AEA Technology when it was privatised
Summary
Key findings
Transfer of pension benefits on privatisation in 1996
7 When AEAT was privatised in 1996, transferred employees joined the
company’s new pension scheme, which had similar benefits to the previous scheme.
AEAT’s privatisation meant that scheme members were no longer eligible to pay
into UKAEA’s public sector defined benefit pension scheme, which was guaranteed
by government. The Atomic Energy Authority Act 1995 facilitated the privatisation
and outlined key conditions, such as pension arrangements. This required that the
pension benefits within the new AEAT pension scheme must be “no less favourable”
than the previous UKAEA scheme for transferred staff (paragraphs 1.3 and 1.5).
8 The Government Actuary’s Department (GAD) provided advice to the then
Department of Trade and Industry (DTI) on the terms and overall value of the
AEAT scheme at the time of privatisation. In September 1996, at the request
of DTI, GADconducted a comparative assessment of the UKAEA and AEAT
pension schemes’ benefits. It concluded that the new pension scheme was no
less favourablefor employees than their previous UKAEA scheme at the time
ofprivatisation (paragraph1.6).
9 GAD and AEAT provided information to pension scheme members on their
options for the pension benefits they had already accrued. In November 1996,
AEATand GAD provided information to scheme members outlining their pension
options, which were to:
•
leave their preserved pension benefits in the UKAEA pension scheme;
•
transfer their benefits into a personal pension; or
•
take a special transfer offer to transfer the benefits into the new AEAT pension
scheme. This offer was only available for one month until December 1996
(paragraphs 1.7 and 1.8).
Pensions transferred to AEA Technology when it was privatised Summary 7
10 The information provided by GAD stated that the pension benefits promise was
unlikely to ever be broken by either scheme. Information provided to members by
AEAT suggested that, as a private company, it would be subject to the fluctuations
of the market it occupied, and subject to specific laws regarding pensions
management. GAD also provided a note to members to outline the main factors
to take into consideration in deciding whether to transfer their accrued benefits.
Thissaid it was unlikely that the benefit promise made by either scheme would ever
be broken. It also said that it is still more unlikely that both would be broken, which
could be viewed as a reason to preserve the benefits in the old scheme where
other factors are finely balanced. None of the information indicated that members’
transferred benefits may be less secure due to the scheme not being guaranteed
by government. Some other privatisations in the 1980s and 1990s did have a
government guarantee for their pension schemes. Scheme members later learned
from freedom of information requests that GAD had made changes to the note at the
request of AEAT and UKAEA, including addressing concerns raised by AEAT that
the way it was written would discourage members from transferring their pensions.
These changes included amending the language used to describe the relative
benefits and risks of the different pension options (paragraphs1.6and1.8to1.12).
11 Nearly 90% of members transferred their pension benefits to the new scheme,
which some attribute in part to the information from GAD. Almost 90% of members
took the special transfer option and transferred their accrued benefits into the new
AEAT pension scheme. Some scheme members have stated that their decisions
were heavily influenced by the information note that GAD provided, which they
regarded as a key piece of advice at the time (paragraph 1.13).
Pension scheme changes in 2012
12 After AEAT went into administration in 2012, the pension scheme was
assessed for the PPF, which it subsequently transferred to in 2016. In the first few
years after privatisation, AEAT’s profits increased. However, in 2000-01 the company
experienced a loss of £8.6 million. Around this time, AEAT began to sell the nuclear
engineering and consulting areas of the business. By 2008, the pension scheme
was significantly underfunded, with a shortfall of around £150 million between its
assets and liabilities. The scheme’s trustees agreed a recovery plan with AEAT to
pay additional contributions to the scheme, which the Pensions Regulator reviewed
and provided feedback on. However, by July 2012 the deficit had grown to around
£165 million. In February 2012, the trustees and AEAT concluded that insolvency
was inevitable. They decided that a pre-pack administration (wherebyan insolvent
company negotiates the sale of its assets before appointing an administrator)
would be better than an unplanned insolvency for creditors, including scheme
members. After AEAT’s business and assets were sold in November 2012, the
scheme entered an assessment period for the PPF, and transferred to it in July2016
(paragraphs2.2to 2.5).
8 Summary Pensions transferred to AEA Technology when it was privatised
13 Compensation provided by the PPF is lower than pension scheme members’
benefits, particularly for the benefits transferred in 1996. The PPF was set up to
pay compensation to members of defined benefit pension schemes where the
sponsoring employer has become insolvent and the scheme assets are not enough
to pay at least PPF compensation levels. PPF compensation initially provides 100%
of pension benefits for members who had already reached the scheme’s normal
pension age at the date of insolvency, or 90% for those who had not. However, the
compensation is only increased to reflect inflation based on benefits accrued from
April 1997, up to a maximum of 2.5% a year. For members who transferred their
benefits at the time of AEAT’s privatisation in 1996, their compensation reduces in
real terms each year as it does not include rises for inflation (paragraphs 2.5 to 2.6).
Complaints made to government
14 Scheme members have raised a series of complaints with government since
2012, particularly that it did not tell members the new scheme had no government
guarantee. The complaints cover a range of issues and involve several government
organisations, including GAD, DTI (and its successor departments) and the
Department for Work & Pensions (DWP). In these complaints, scheme members
argued in particular:
•
that the legal duty to ensure the benefits of the AEAT scheme were no less
favourable than the previous pension should include an equivalent guarantee
tothe UKAEA scheme; and
•
that the information provided by GAD in 1996 did not say that the new AEAT
scheme was not guaranteed by government, which was therefore misleading
as it failed to highlight the risk of transferring accrued benefits to the scheme
(paragraphs 3.2 to 3.4).
15 The government has responded to the complaints, but scheme members have
been dissatisfied with the responses. DWP produced a factsheet on behalf of itself
and other parts of government in July 2013, which summarised the main complaints
government had received and set out responses to each. The government’s
responses have explained that the benefits promise did not include any government
guarantee, and that the information from GAD was not intended as advice and
did not seek to compare levels of risk across different options. Following scheme
members’ dissatisfaction with these responses, the government advised that they
should refer their complaints to ombudsman services for independent review
(paragraphs 3.2 to 3.7).
Pensions transferred to AEA Technology when it was privatised Summary 9
16 Relevant ombudsman services have said they cannot review key aspects
of scheme members’ complaints because they fall outside their jurisdictions.
Ombudsman services are independent statutory organisations set up to make
final decisions on complaints that cannot be resolved, such as complaints about
a pension scheme by its members. Where they make a decision in favour of the
complainant, they can typically award or recommend compensation or other redress.
Some aspects of scheme members’ complaints have been reviewed; for example,
thePensions Ombudsman observed that the Atomic Energy Authority Act 1995 did
not provide statutory protection for the AEAT pension scheme, and that scheme
trustees acted reasonably when managing the impact of AEAT’s insolvency on
the scheme in 2012. However, complaints regarding the information provided to
help members make their decisions have not been reviewed. Both the Pensions
Ombudsman and the Parliamentary and Health Service Ombudsman have said that
they are unable to investigate the complaints about GAD, and that the information
itprovided in 1996 is outside their statutory jurisdictions (paragraphs 3.8 to 3.11).
10 Part One Pensions transferred to AEA Technology when it was privatised
Part One
Transfer of pension benefits on privatisation in 1996
1.1 This part sets out the events leading up to the privatisation of AEA Technology
(AEAT) in 1996 and the implications for its employees’ pensions. Figure 1 provides
asummarised timeline of key points.
The privatisation of AEAT
1.2 The government formed the UK Atomic Energy Authority (UKAEA) in 1954
to oversee the UK’s nuclear research programme and later to provide commercial
services for industry. UKAEA is the government body responsible for research into
nuclear fusion and related technologies.
1.3 Like much of the civil service, UKAEA offers its employees a ‘defined benefit’
pension, which provides a guaranteed income to members in retirement based on
how many years they have worked and the salary they have earned. This differs
from ‘defined contribution’ schemes, in which members contribute to a pension fund
but the amount later paid out in retirement depends on how much money that fund
has made in the intervening years. As a public sector pension, the pension benefits
(inparticular, the amount paid out to retirees) are underwritten by government.
This means that, unless Parliament approves a change to the terms and conditions,
thebenefits are guaranteed to be paid in full.
1.4 In 1989, the government created AEAT to act as UKAEA’s commercial arm,
earning money by providing services to industry. It initially remained part of UKAEA,
and its staff were members of the organisation’s pension scheme.
Pensions transferred to AEA Technology when it was privatised Part One 11
Source: National Audit Offi ce review of publicly available information
1954 1989 19951994 1996
Figure 1
Timeline of events relating to the privatisation of AEA Technology (AEAT) in 1996 and the transfer of pension benefi ts
AEAT was formed as the commercial arm of the UK Atomic Energy Authority (UKAEA). It was later privatised and employees were required to choose
betweenpensionoptions
1954
UKAEA isformed.
1994
The government announces
it intends to privatise AEAT.
Mar 1995
The Atomic Energy
Authority Bill 1995
is published and
debated inParliament.
Aug 1996
Terms of bulk transfer between
pension schemes are established
between AEAT and the Government
Actuary’s Department (GAD).
Aug 1996
AEAT produces a document for
employees called ‘Pensions: What
you needto know’.
1989
AEAT is formed
as part of the
commercial arm
of UKAEA.
Nov 1995
The new AEAT pension scheme is
announced, saying that the benefits
would be no less favourable than
the previousscheme.
Sep 1996
GAD advises government that the pension
arrangements proposed for the new AEAT
scheme would be no less favourable
assuming commitments are fulfilled.
Sep 1996
GAD produces a first draft note for
employees comparing the advantages and
disadvantages of each option for pension
benefits already accrued. UKAEA and AEAT
are given opportunity to comment and
suggest edits. The note is drafted four times
between September and November.
Sep 1996
AEAT is divested
and floated on the
stock exchange.
Nov 1995
The Atomic Energy Authority
Act 1995 is enacted to facilitate
privatisation and outline
keypension arrangements
foremployees.
Mar 1996
Staff are transferred from
UKAEA to AEAT, to become
asubsidiary organisation
within government.
Sep 1996
AEAT produces
an explanatory
booklet outlining
details ofthe closed
section of the
pension scheme.
Nov 1996
AEAT issues a statement
requiring employees to make a
decision on their chosen option
by 23 December 1996.
Nov 1996
AEAT issues the final GAD note
to employees, alongside an
information sheet, explanatory
booklet and‘frequently asked
questions’document.
12 Part One Pensions transferred to AEA Technology when it was privatised
1.5 In 1994, the government announced that it intended to privatise AEAT.
It developed the Atomic Energy Authority Act 1995 (the Act) to facilitate the
privatisation, which took place in 1996. During parliamentary debates before the
Act was passed into law, ministers stated that the government had “no intention of
selling employees short, and I am sure that the House will welcome the statutory
reassurance that we are proposing”, and that the “terms and conditions and pension
rights will be fully protected”. The Act outlined specific conditions of privatisation,
including future pension arrangements. Employees transferring to the new company
would no longer be eligible to pay into UKAEA’s public sector pension scheme and
would become members of a new AEAT pension scheme, which was also a defined
benefit scheme. The Act became law in November 1995 and required that the terms
of the AEAT pension scheme were to be “no less favourable” than the previous
UKAEA pension scheme:
“[…] the Authority shall […] satisfy themselves that in his case the provisions of
that scheme (taken as a whole) confer benefits which, taking into account other
benefits which he will obtain as a result of his employment by the transferee,
are no less favourable than the benefits conferred by the provisions, as in
force immediately before the coming into force of the transfer scheme, of
the Authority pension scheme in which he is then or, as the case requires,
wouldbeentitled to become, a participant.”
[Source: Atomic Energy Authority Act 1995]
1.6 The Government Actuary’s Department (GAD) provides actuarial support to
government to facilitate effective decision-making that considers financial risk and
certainty. GAD was involved in the privatisation process in three separate ways:
•
The Department of Trade and Industry (DTI)
1
, as the UKAEA’s sponsor
department in government at the time, appointed GAD to conduct a
comparative assessment of UKAEA and AEAT pension scheme benefits.
InSeptember 1996, GAD advised DTI that the AEAT scheme benefits were no
less favourable than the previous pension scheme at the time of privatisation,
based on the assumption that AEAT would fulfil its commitments and
undertakings. This assessment was not made available to scheme members.
•
On behalf of government, GAD determined the amount of money to be
transferred from the UKAEA scheme to the AEAT scheme to ensure it could
fund the accrued benefits.
•
At UKAEA’s request, GAD also produced an information note for the
employeesbeing transferred, which outlined the options regarding their
benefits previously accrued in the UKAEA pension scheme. The facts
aroundthis information noteare set out in paragraphs 1.8 to 1.12.
1 DTI’s functions are currently part of the Department for Business, Energy & Industrial Strategy.
Pensions transferred to AEA Technology when it was privatised Part One 13
Implications for pension benefits already accrued
1.7 While AEAT employees could no longer accrue further pension benefits from
the UKAEA scheme, they had three options for the benefits they had already
accrued while they were UKAEA employees. These were to:
•
leave their preserved pension benefits in the UKAEA pension scheme;
•
transfer their benefits into a personal pension; or
•
take a special transfer offer to transfer the benefits into the new AEAT pension
scheme, which was only available for one month until December 1996.
Information provided to scheme members
1.8 In November 1996, AEAT sent all pension scheme members an estimate of
their accrued UKAEA benefits, the information note produced by GAD outlining
their options and the main factors to take into consideration when deciding between
them, and a transfer option form that needed to be completed by the end of
December 1996. The company also provided members with an information sheet,
anexplanatory booklet detailing the arrangements of the new pension scheme,
anda ‘frequently asked questions’ (FAQ) document.
1.9 The FAQ document noted that the company would be subject to the markets
itoperates within, but that pension scheme assets are protected in law:
“What happens to the pension scheme if AEA Technology fails or is taken over?
AEAT, like any private company, will be subject to the fluctuations of the
markets it occupies. The pension scheme assets are, however, protected
under pensions law and the Employer cannot use the pension fund to support
the business. The scheme’s assets will be managed by a Trustee Company
whose existence is not subject to the status of AEAT. The Trustees are legally
responsible for the proper management of the scheme, including making
appropriate arrangements for future benefits if AEAT ceases to exist.”
[Source: AEAT Pensions Office Human Resources Group, Answers to some
Commonly Asked Questions, September 1996]
1.10 None of the information from UKAEA, AEAT or GAD explained that, as a private
company, AEAT’s pension scheme did not have the same protections as the public
sector UKAEA scheme as it would not be underwritten by government. Some other
privatisations in the 1980s and 1990s did have a government guarantee for their
pension schemes. Later publications by GAD, including a 2006 information note,
explain the differences between public service and private sector pension schemes
including security of benefits. This was not available to scheme members at the
timeof their decision.
14 Part One Pensions transferred to AEA Technology when it was privatised
1.11 The information note produced by GAD in 1996 was provided to outline
the main factors to take into consideration in deciding whether or not to transfer
accruedbenefits. It said:
“This note is not intended to suggest that any one course of action is better
than any other. This would depend on individual circumstances, and if you are
unsure of the most suitable course of action you should seek Independent
Financial Advice which would take into account your particular circumstances”.
[Source: Government Actuary’s Department, Note on the options available
inrespect of accrued UKAEA benefits, November 1996]
The note explained the relative advantages of either keeping the benefits in the old
scheme or transferring to the new one. It stated that it was unlikely that the pension
benefits promise would ever be broken for either scheme:
“Whilst it is unlikely that the benefit promise made by either the UKAEA
Scheme or the AEAT Scheme would ever be broken, it is still more unlikely
that both promises would be broken, and this could be viewed as a reason to
opt for preservation. However, this consideration should not normally outweigh
those in relation to salary and inflation, although it might be taken into account
wherethe other relevant factors were very finely balanced.”
[Source: Government Actuary’s Department, Note on the options available in
respect of accrued UKAEA benefits, November 1996]
1.12 Scheme members later obtained information through freedom of information
requests which indicated that GAD had made changes to the note at the request
of AEAT and UKAEA. This addressed concerns raised by AEAT that the general
tone of the way the note was written was likely to discourage members from
transferring their pensions. It included changes to the order with which information
was presented, and the removal of specific language regarding the relative benefits
and risks of each scheme. For example, the same paragraph in GAD’s earlier draft
of thenote included a more detailed explanation of why someone may prefer to
keeptheir accrued benefits in the previous scheme:
“It is unlikely that the benefit promise made by either the UKAEA Scheme or
the AEATPS would ever be broken. Nevertheless, some people rest easier
with the feeling “that the eggs are not all in one basket”. Preserving the past
UKAEA scheme benefits whilst joining the AEATPS for the future has the effect
of “keeping the eggs in different baskets”. The argument is that whilst it is very
unlikely that either promise would be broken, it is still more unlikely that both
promises would be broken. By itself, this argument is unlikely to be strong
enough to persuade someone to preserve their UKAEA Scheme benefits.
Itmight, however, clinch the decision in borderline cases.”
[Source: Government Actuary’s Department, Note on the options available in
respect of accrued UKAEA benefits, draft version one, November 1996]
Pensions transferred to AEA Technology when it was privatised Part One 15
Scheme members’ decisions
1.13 By December 1996, nearly 90% of members had chosen the special transfer
offer and transferred their accrued benefits into the new AEAT pension scheme.
Scheme members have stated that they regarded the information note produced by
GAD as a key piece of advice that influenced their decision to transfer. This was due
to GAD’s role as a professional body independent of the pension scheme, and the
stated intention of the note to “outline the main factors to take into consideration in
deciding whether or not to transfer”. Scheme members also reported that some had
consulted independent financial advisers about their pension options, many of whom
had deferred to the expertise of GAD, which was seen as an independent actuary
with access to key information regarding risk.
16 Part Two Pensions transferred to AEA Technology when it was privatised
Part Two
Pension scheme changes in 2012
2.1 This part sets out the events leading up to AEA Technology (AEAT) going into
administration in 2012, the pension scheme subsequently entering the Pension
Protection Fund (PPF) and the impact on pension scheme members. Figure 2
provides a summarised timeline of key points.
AEAT’s financial difficulty before 2012
2.2 AEAT’s profits increased in the first few years after privatisation, but it later
faced financial difficulty. Share prices for AEAT rose from £2.80 at the point
of privatisation in 1996, to £6.18 in February 1998. In 2000-01, the company
experienced a loss of £8.6 million and decided to sell the nuclear engineering
andconsulting areas of the business.
2.3 The financial difficulties affected AEAT’s pension scheme. To be sustainable,
apension scheme needs to have sufficient assets (typically in the form of money
and investments) to be able to pay its liabilities (the pension benefits owed to
current and future retirees). As AEAT’s stock value fell, its pension liabilities began
to outweigh its assets. By 2008, the AEAT defined benefit pension scheme was
significantlyunderfunded, with a shortfall of around £150 million.
2
2.4 The Pensions Regulator (TPR) provides oversight and support to pension
scheme trustees and uses its regulatory role to ensure they comply with their
obligations. In 2009, AEAT decided to protect its pension liabilities by closing the
scheme to future accruals. This meant that scheme members could no longer
make new contributions to the pension, and the amount owed to future retirees
would be frozen. AEAT and the scheme trustees also agreed a schedule of further
contributions that the company would make, which TPR reviewed and provided
feedback on. This was aimed at eliminating the shortfall between assetsand
liabilities over 20 years. However, by July 2012 the shortfall had grown to
adeficitofaround £165 million.
3
2 The £150 million deficit is as set out in a 2009 AEA Technology Pension Scheme report covering the 2008-09
financial year.
3 The £165 million deficit is as set out in a 2015 Parliamentary and Health Service Ombudsman report regarding
complaints raised about the AEAT pension scheme.
Pensions transferred to AEA Technology when it was privatised Part Two 17
Note
1
The PPF assessment period is when the PPF determines whether it should take responsibility of a defi ned benefi t pension scheme. It only does so if the scheme cannot
be rescued and is not in a position to secure benefi ts at least equal to PPF compensation levels. If the PPF assumes responsibility for the scheme at the end of the
assessment period, it will pay compensation to members in accordance with the Pensions Act 2004.
Source: National Audit Offi ce review of publicly available information
2008 20112009 2012 2016
Figure 2
Timeline of events relating to AEA Technology’s (AEAT’s) pension scheme changes in 2012
The deteriorating financial position of AEAT’s pension scheme led to its trustees winding up the scheme, which subsequently entered the Pension Protection Fund
2008
AEAT pension scheme
goes into deficit.
Scheme trustees and
AEAT agree a recovery
plan, with AEAT to pay
additional contributions
to the scheme over a
20-year period.
Jul 2009
AEAT pension
scheme is closed
to future accrual.
Nov 2011
AEAT issues a statement
regardingits deteriorating
financial position and informs
the Pensions Regulator.
AEAT asks trustees to defer
the company’s contributions
under the recovery plan
untilJune 2012.
Dec 2011
AEAT and scheme trustees
agree a revised recovery
plan. This includes separating
the pension scheme from
AEAT as part of a restructure,
with the scheme to be
taken over by the Pension
Protection Fund (PPF).
Feb 2012
Scheme trustees and the PPF conclude that a
pre-pack sale of AEAT is likely to yield a greater
value to creditors than an unplanned insolvency.
Aug 2012
Scheme trustees announce to scheme members that the
scheme would be unable to pay the full benefits, and later
say the scheme will likely be taken over by the PPF.
Apr 2012
Scheme trustees decide they will have to wind
up the scheme, but do not initiate the process
until they have worked with AEAT, the Pensions
Regulator and the PPF to explore the options
available to them.
Nov 2012
AEAT enters administration and is sold to Ricardo plc on
the same day. The insolvency event causes the scheme
toenter an assessment period for the PPF.
Jul 2016
The AEAT pension scheme
is transferred into the PPF.
18 Part Two Pensions transferred to AEA Technology when it was privatised
Changes to the pension scheme and impact on members’ pensions
2.5 In February 2012, scheme trustees and AEAT concluded it was inevitable
that AEAT would become insolvent. They decided that a pre-pack administration
(whereby an insolvent company negotiates the sale of its assets before appointing
an administrator) was likely to yield greater value than an unplanned insolvency
for creditors, including scheme members. In November 2012, AEAT entered
administration and its business and assets were sold. The pension scheme entered
an assessment period for the Pension Protection Fund (PPF) and transferred to
the PPF in July 2016. The PPF was set up under the 2004 Pensions Act. It pays
compensation to members of pension schemes where the sponsoring employer
has become insolvent and the pension scheme assets are not enough to pay at
leastPPF compensation levels.
2.6 For members who transferred their benefits at the time of AEAT’s privatisation
in 1996, their compensation reduces in real terms each year as it does not include
rises for inflation. PPF compensation provides members 100% of their pension
if they had already reached the scheme’s normal pension age at the time of
insolvency, or 90% for those who had not. Compensation on pensions earned
after 6 April1997 increases each year in line with inflation, up to a maximum
of 2.5%. However,benefits accrued before 6 April 1997 are not increased.
Calculatingindividual levels of loss for scheme members is complex and generally
done by actuaries. However, the PPF’s compensation rules mean that many of the
members who transferred their accrued pension benefits to the AEAT pension
scheme now receive a smaller pension than they would have if they had preserved
their benefits within the UK Atomic Energy Authority pension scheme in 1996,
andthe difference grows each year.
Pensions transferred to AEA Technology when it was privatised Part Three 19
Part Three
Complaints made to government
3.1 This part sets out the complaints that members of the AEA Technology (AEAT)
pension scheme have made to government and ombudsman services since 2012,
and the responses they have received. Figure 3 on pages 20 and 21 provides a
summarised timeline ofkey points.
Complaints to government
3.2 Following the insolvency of AEAT and the impact on their pensions, members of
the AEAT pension scheme have raised complaints with several parts of government.
These complaints cover a range of issues, including the original privatisation deal,
the information members received from the Government Actuary’s Department
(GAD), the Pensions Regulator’s involvement with AEAT’s pension scheme changes,
and the levels of compensation now paid from the Pension Protection Fund (PPF).
Appendix Two illustrates the range of issues these complaints have covered, and
the public bodies involved. In July 2013, the Department for Work & Pensions (DWP)
produced a factsheet that summarised the complaints it and several other parts of
government had received, and a response to each on behalf of the government.
3.3 Scheme members first raised complaints with DWP and the Department of
Trade and Industry’s successor, the Department for Business, Innovation & Skills
(BIS), regarding the conditions of the Atomic Energy Authority Act 1995 (the Act).
In particular, the complaints argued that the legal duty to ensure the benefits of
the AEAT scheme were no less favourable than the previous UK Atomic Energy
Authority (UKAEA) pension scheme should include an equivalent to its government
guarantee. Through its factsheet, DWP responded on behalf of government that the
Act did not provide any guarantee to underwrite the pension scheme, only assurance
that, at the time of transfer, the design of the scheme’s pension benefits would be
of equal or better value than the previous scheme. During Parliamentary debates
in 2015 and 2016, the then Ministers of State for Pensions provided the same
response. This position was consistent with the comparative assessment that GAD
produced at the time of privatisation (paragraph 1.6). However, this information had
not been given to scheme members at the time they were making their decisions.
20 Part Three Pensions transferred to AEA Technology when it was privatised Pensions transferred to AEA Technology when it was privatised Part Three 21
2013
2012 2014 2015 2016 2020
Dec 2013
Complaint made to Parliamentary and
HealthService Ombudsman (PHSO).
2013
The Pensions Ombudsman (TPO)
and PHSO advise that they could
notinvestigate GAD.
Sep–Dec 2012
AEAT pensioners
submit complaints to
the Department for
Business, Innovation
& Skills (BIS),
Department for Work
& Pensions (DWP)
and Government
Actuary’s
Department (GAD).
Oct 2014
Complaint made to the Department
of Energy & Climate Change.
Nov 2014
Complaint made to
thePensionsRegulator.
Dec 2014
Group complaint made to BIS.
Jul 2013
DWP responds
to complaints
on behalf of
government in
a‘factsheet’.
Nov 2015
Joint complaint, signed by 119
members, made to TPO which
says it could not accept it.
Nov 2015
A group of 43 MPs, representing
145 co-signatories, submit
complaints to PHSO.
Feb 2014
Complaint made that DWP’s factsheet
is inaccurate. DWP says it is not
responsible for the area and directs
complainants to BIS or PHSO.
Mar 2016
Complaints made to BIS and DWP via
scheme members’ MPs.
Mar 2015
MPs raise the issue in
Parliament on behalf of
theirconstituents.
Apr 2014
Complaint made to the Pension
Protection Fund.
Apr 2016
Complaint made to minister at BIS calling
foran independent inquiry.
May 2015
PHSO agrees to investigate
complaints about DWP’s
2013factsheet.
May 2014
Complaint made to TPO.
Oct 2016
MPs raise the issue in Parliament. Minister of
State for Pensions suggests members direct
complaints relating to GAD to TPO.
May 2020
PHSO makes final response to
complaint about TPO, saying
the ombudsman is out of its
jurisdiction. The response makes
it clear this is the final piece of
correspondence on the issue.
Sep 2015
Joint complaint, signed by 140
members, made to PHSO.
Oct 2016
MP writes to TPO asking it to answer
reasonable questions asked of it.
Dec 2016
TPO makes final decision that it does
nothave jurisdiction toinvestigate
GADorUKAEA in relation to the
complaintsreceived.
Government departments Regulators and ombudsmen Parliamentary debate Pension Protection Fund
22 Part Three Pensions transferred to AEA Technology when it was privatised
3.4 Scheme members also raised complaints that the information provided to them
by GAD in 1996 had not indicated that the new scheme would not be guaranteed
by government. They argued that it failed to highlight the risk of transferring
accrued benefits to the AEAT pension scheme and had therefore misled them
into transferring their benefits. By comparison, GAD’s note did set out some risks
of transferring the benefits to a personal pension, although not in relation to the
security of the pension provider. In particular, their complaints argued that GAD’s
note to scheme members – intended to help them choose between the options
available – did not explain that the new scheme was not underwritten by government
and therefore had an inherently higher level of risk than their previous public sector
pension. The government has responded that:
•
while GAD’s note did not say that the AEAT scheme was at greater risk than
the UKAEA one, it was not intended as advice and did not seek to compare
levels of risk across the different options, and it therefore could not have
misled members;
•
GAD’s note could not have covered every possibility, and including every
caveatwould render it meaningless; and
•
the assertion in GAD’s note that the benefit promise made by the AEAT pension
scheme was unlikely to ever be broken had been a reasonable assumption,
considering the company’s profitability at the time.
3.5 Scheme members later raised complaints that the changes made by GAD
to the wording of the note, at the request of UKAEA and AEAT, contradicted
GAD’s position as a body independent of the pension scheme. GAD responded to
explain that it is standard practice when producing such documents to allow the
stakeholders involved to comment on the drafting.
3.6 Scheme members were dissatisfied with the responses they had received.
They continued to correspond with a range of government bodies, raising further
complaints and highlighting what in their view were inaccuracies within the
responses received. While DWP had initially provided a summarised response on
behalf of government because of the number of complaints it had received by
2013, it sent scheme members a further letter in February 2014 explaining that it
was not responsible for the case. DWP’s letter suggested that scheme members
refer any further complaints to BIS (as the government department responsible for
overseeingthe 2012 changes to AEAT’s pension scheme) or to the Parliamentary
and Health Service Ombudsman if they were not satisfied with the outcome of
theircomplaints to DW P.
3.7 Members have corresponded with BIS and later its successor, the Department
for Business, Energy & Industrial Strategy (BEIS). During this time, BEIS’s responses
have reiterated the position that DWP had originally set out, and it has advised
members to refer any complaints to the Pensions Ombudsman.
Pensions transferred to AEA Technology when it was privatised Part Three 23
Complaints taken to ombudsman services
3.8 Ombudsman services are independent statutory organisations set up to make
final decisions on complaints that cannot be resolved, such as complaints about
a pension scheme by its members. Where they make a decision in favour of the
complainant, they can typically award or recommend compensation or other redress.
The Pensions Ombudsman (TPO) has powers to investigate and determine disputes
about occupational and personal pension schemes. The Parliamentary and Health
Service Ombudsman (PHSO) has powers to handle complaints about the NHS in
England, UK government departments and some other public bodies.
3.9 Following the responses received from government departments, scheme
members referred various complaints to the two ombudsman services.
The ombudsmen reviewed some aspects of these complaints and provided
final decisions.
•
In January 2015, TPO published a determination on a scheme member’s
complaint, following an investigation regarding the pension benefits promise
in the 1995 Act, and on the handling of the changes to the AEAT pension
scheme in 2012. TPO observed that the Act did not provide a government
guarantee for the AEAT pension schemes benefits and determined that scheme
trustees’ decision to support the pre-pack sale of AEAT in administration was
reasonable. The ombudsman also commented that TPO could not investigate
some aspects of the complaint, such as the Pension Regulator’s involvement
with the scheme during its pre-pack administration in 2012, as they were
outside of TPO’s jurisdiction.
•
In May 2015, PHSO agreed to investigate scheme members’ complaint
that DWP’s 2013 factsheet included misinformation. It partially upheld
this complaint, finding that, while the factsheet was clear and accurately
represented the government’s position, it was incomplete because it failed
to set out the roles and responsibilities of DWP and other organisations
involved. It found that the factsheet should have provided clearer information
about the complaints process, an omission that had caused unnecessary
confusionfor complainants.
24 Part Three Pensions transferred to AEA Technology when it was privatised
3.10 However, both ombudsman services have said they cannot review scheme
members’ complaints about the information that government provided in 1996
because the complaints fall outside their jurisdictions.
•
PHSO responded that its statutory remit means it can only investigate GAD’s
work if it relates to the regulation of insurance companies. Therefore, members’
complaints about the information GAD originally provided in 1996 regarding
their pension options are outside PHSO’s jurisdiction. A private members’ bill
was first presented to Parliament in June 2019 that would amend PHSO’s
jurisdiction in a way that would allow it to investigate the case. The bill was
presented again to the new Parliament in July 2021. It was initially due to have
its second reading in the House of Commons in December 2021, which was
later changed to May 2022. However, this did not happen, and the bill has not
received a further update since then.
•
PHSO also said that it could not investigate on the grounds that it concerned
public sector pensions, which had a different route for appeal. However,
scheme members found that this other route was not available because,
atthetime of the GAD note in 1996, they were already in the private sector.
•
Despite government’s responses indicating that scheme members could
refer complaints to TPO, the ombudsman said that it was not able to accept
these complaints for investigation. TPO responded that its investigatory remit,
as set out in legislation, allows it to investigate the employer, administrator,
trustee or pension scheme manager of an occupational or personal pension,
but that it has no remit over the information that was provided by GAD or the
Departmentof Trade and Industry.
3.11 Scheme members have also tried referring a complaint to TPO about UKAEA,
which the ombudsman said it was also unable to investigate. As the outgoing
employer, UKAEA does fall within TPO’s remit. The complaint argued that UKAEA
had provided misleading information to members regarding their pension options.
However, under regulations governing TPO’s jurisdiction, Parliament has set a
time limit of three years between when the complainant first becomes aware
of the issue and when they refer the complaint to TPO. TPO ruled that more
than three years hadpassed, and it therefore could not review the complaint.
Schememembers disputed this timescale. However, TPO also said that, as the acts
which the complaints were about had occurred more than 15 years ago, evenif
it were to investigate the complaint, it would not be able to provide any remedy
to the complainant due to the Limitations Act 1980. TPO also said that it could
not investigate complaints where a decision may negatively affect other pension
scheme members, as it did not have powers to do so. It argued that if it reviewed
the complaint and found that UKAEA should provide compensation, this could
haveanegative effect on other membersofthe scheme.
Pensions transferred to AEA Technology when it was privatised Appendix One 25
Appendix One
Our approach to this briefing
Scope
1 In response to interest from members of Parliament, we developed a factual
briefing into the pensions transferred to AEA Technology (AEAT) when it was
privatised. The briefing covers:
•
what the privatisation of AEAT in 1996 meant for its pension scheme,
includingthe options and information available to scheme members;
•
the subsequent changes to the AEAT pension scheme following the
companygoing into administration in 2012 and the impact this had on
schememembers;and
•
the actions taken by scheme members to make complaints to, and seek
redressfrom, government, and the responses they have received.
2 The briefing does not seek to examine and report on value for money.
Itdoes not seek to examine the merits of actuarial decisions, nor does it seek
toexaminethe adequacy of AEAT’s privatisation or pension settlement.
Methods
3 To set out the facts in this briefing, we reviewed a range of publicly available
documents, many of which we were directed to by the campaign group run by
someAEAT pension scheme members. These included:
•
a published dossier which includes scheme members’ accounts of the
eventsofthe privatisation, restructure and complaints processes;
•
information provided to scheme members at the time of privatisation;
•
government documents that scheme members obtained through freedom
ofinformation requests; and
•
correspondence between scheme members, members of Parliament and
arange of government bodies regarding members’ complaints.
26 Appendix One Pensions transferred to AEA Technology when it was privatised
4 We also drew on other public documents, including transcripts of
parliamentarydebates, parliamentary research papers, and decision notices
published by relevantombudsman services.
5 We reviewed a small number of unpublished documents or correspondences
provided by scheme members or public bodies, to ensure that our descriptions
of the facts were accurate. However, we did not conduct an overall review of
unpublished documents for the purpose of this briefing, due to the availability
of public information. Where possible, we have triangulated scheme members’
personalaccounts with documentary evidence.
6 Where financial figures have been quoted, these have not been adjusted
forinflation.
Pensions transferred to AEA Technology when it was privatised Appendix Two 27
Appendix Two
Summary of scheme members’complaints
1 Since 2012, members who transferred their pension benefits to the AEA
Technology (AEAT) pension scheme in 1996 have raised a series of complaints with
government regarding their pensions. These complaints cover a range of issues,
including: the original privatisation deal; the information members received from the
Government Actuary’s Department at the time; the Pension Regulator’s involvement
with the changes to the AEAT pension scheme in 2012; the levels of compensation
now paid from the Pension Protection Fund; and the government’s handling of
complaints since 2012. Figure 4 on pages 28 to 30 illustrates the range of issues
covered within members’ complaints and the public bodies involved.
28 Appendix Two Pensions transferred to AEA Technology when it was privatised
Figure 4
Complaints raised with government since 2012 by AEA Technology (AEAT) pension scheme members
Pension scheme members have raised complaints on a range of issues to various government bodies and ombudsman services
Members’ complaints Government’s response Ombudsman involvement
Complaints about the privatisation deal
The details of the Atomic Energy Authority Act 1995
(theAct)should provide the AEAT pension scheme
withagovernment guarantee.
The Act did not provide a government guarantee for the AEAT
pension scheme benefits, it only ensured that the benefits
were no less favourable than the previous UK Atomic Energy
Authority (UKAEA) scheme at the time of privatisation.
The Pensions Ombudsman (TPO) observed that the Act did
notprovide a government guarantee for the AEAT pension
scheme benefits.
The Parliamentary and Health Service Ombudsman
(PHSO) said this was outside of its jurisdiction and that
theDepartmentfor Business, Innovation & Skills (BIS)
wasthebody responsible for complaints.
The transfer payment that government made for the AEAT
pension scheme was underfunded.
The amount transferred from government to AEAT was
agreed between the two parties. GAD calculated the transfer
amount using financial assumptions agreed at the time.
PHSO said it could not investigate GAD because the
complaintwas not within its jurisdiction.
Complaints about the information provided to scheme members in 1996
Information provided to scheme members by UKAEA,
AEATand the Department of Trade and Industry (DTI)
failedto make it clear that the new pension scheme
wouldnot be covered by a government guarantee.
When responding to complaints about the information
provided to scheme members, government has only
referred to the note provided by the Government Actuary’s
Department (GAD) and not to any other bodies.
TPO said it could not investigate DTI or its successors as
itwas a government department and therefore outside
ofitsjurisdiction.
TPO could not investigate AEAT as it no longer existed.
TPO said it could not investigate UKAEA because more than
three years had passed since the complainant first became
aware of the issue. Scheme members disputed this. However,
TPO said that, as the acts which the complaints were about
had occurred more than fifteen years ago, even if it were to
investigate it would not be able to provide any remedy to the
complainant due to the Limitations Act 1980. TPO also said
it could not investigate UKAEA because a determination may
have had a detrimental effect on other scheme members.
PHSO said it could not investigate on the grounds that it
concerned public sector pensions, which had a different route
for appeal. However, scheme members found that this other
route was not available because, at the time of the GAD note
in1996, they were already in the private sector.
The note provided to scheme members by GAD in 1996
failed to outline the risk of transferring to the AEAT pension
scheme, which did not have a government guarantee.
Ittherefore misled them into transferring their benefits.
Bycomparison, the note did set out some risks of
transferring the benefits toa personal pension, although
notin relation to the securityof the pension provider.
GAD’s note did not constitute advice, and its statement
that the benefits of each scheme were equivalent was
based on the point of transfer only. While the note did not
say if the AEAT scheme had greater risk than the previous
UKAEA scheme, information provided to scheme members
acknowledged that the AEAT scheme could fail. The note also
could not have covered every possibility and including every
caveat would render it meaningless.
TPO and PHSO said they could not investigate GAD because
thecomplaint was not within their jurisdictions.
Pensions transferred to AEA Technology when it was privatised Appendix Two 29
Members’ complaints Government’s response Ombudsman involvement
Complaints about the information provided to scheme members in 1996 continued
The 1996 GAD note was not independent as it was changed
at the request of AEAT and UKAEA, contravening the
Memorandum on Professional Conduct issued by the
Facultyand Institute of Actuaries.
1
It was standard practice to offer stakeholders such as the
employer the opportunity to comment on drafts of information
such as GAD’s note.
TPO and PHSO said they could not investigate GAD because
thecomplaint was not within their jurisdictions.
GAD did not conduct a full assessment of risk, even though
its note was intended to help support decisions relating to
the transfer of accrued pension benefits.
GAD’s note did not seek to compare levels of risk across
thedifferent options, and its assertion that the AEAT pension
scheme was unlikely to fail had been a reasonable assumption
considering the company’s profitability at the time.
TPO and PHSO said they could not investigate GAD because
thecomplaint was not within their jurisdictions.
Complaints about the changes to the AEAT pension scheme in 2012
Trustees of the pension scheme did not act in the best
interests of members.
It would be inappropriate for the government to comment on
the management decisions of trustees, and members should
raise complaints directly.
TPO found that trustees had not acted perversely at the time
of pre-pack administration.
PHSO said it could not investigate the scheme trustees as
theywere not within its remit.
The Pensions Regulator (TPR) failed to adequately regulate
the scheme and approved trustees’ actions that were not in
the members’ best interest.
TPR does not have power to approve actions of trustees or to
advise them, and it cannot explain actions taken in respect of
the scheme as this would include restricted information.
N/A
Complaints about the compensation provided by the Pension Protection Fund (PPF)
The figures used by the PPF to calculate the scheme’s
eligibility are incorrect and the levels of PPF compensation
aretoo low considering the pension promise within the Act.
The PPF’s determination of the scheme’s eligibility followed
established regulations. The Act did not provide AEAT with
a government guarantee. The PPF is limited by statute in the
compensation it is allowed to provide.
The PPF ombudsman said that the only part of the referral
within its jurisdiction was PPF’s funding determination. It found
that the PPF’s calculation of the scheme’s assets and liabilities
complied with regulations.
The PPF rule that no compensation based on benefits
accrued before 1997 would receive inflation protection is
agediscrimination.
The government does not believe the PPF rules discriminate
based on age.
N/A
Complaints about government’s handling of complaints
Government departments handled complaints about the
AEAT pension scheme poorly.
N/A This issue was not within the scope of PHSO’s investigation
in2015.
The Department for Work & Pensions’ (DWP’s) 2013
factsheet failed to address scheme members’ complaints
adequately and contained inaccuracies.
The factsheet was a summary of the positions of various
government departments that had been involved in setting
upthe pension scheme.
PHSO investigated DWP’s administration in producing the
factsheet and partially upheld this complaint. It deemed
that the factsheet accurately represented the government’s
position but failed to outline DWP’s role or the complaints
procedures, which caused unnecessary confusion. PHSO’s
report did not investigate the underlying complaints referred
toin the factsheet about GAD, BIS or the PPF.
Figure 4
continued
Complaints raised with government since 2012 by AEA Technology (AEAT) pension scheme members
30 Appendix Two Pensions transferred to AEA Technology when it was privatised
Figure 4
continued
Complaints raised with government since 2012 by AEA Technology (AEAT) pension scheme members
Members’ complaints Government’s response Ombudsman involvement
Complaints about government’s handling of complaints continued
The Minister of State for Pensions suggested in Parliament
in October 2016 that scheme members could complain
to TPO about the 1996 GAD note, despite TPO already
having suggested in 2013 that legislation prevented it from
investigating the complaints about GAD.
The 2013 TPO suggestion that it could not investigate was
contained in an opinion issued by a TPO adjudicator, not a
decision made by the ombudsman, or a statutory limit on
itsremit.
TPO initially suggested in 2013 that it could not investigate a
complaint about GAD because it is not an administrator of the
scheme. The ombudsman later made a final decision not to
investigate further in December 2016.
The Department for Business, Energy & Industrial Strategy
(BEIS) was slow to respond to freedom of information
requests regarding the government’s claims that a thorough
investigation into the case had been conducted.
Scheme members say the Information Commissioner’s Office
(ICO) found that BEIS’s response was late and incomplete.
However, the ICO has not been able to confirm this because
its policy is to retain case documentation for two years only.
N/A
Notes
1
Pension scheme members may also have raised complaints relating to the GAD note with the Institute and Faculty of Actuaries, which is the chartered professional body for actuaries,
butanysuch complaints would be confi dential.
2
This table provides an overview of complaints raised with government by members who transferred their pension benefi ts to AEAT in 1996, and the responses they received
from government. It is not an exhaustive list of all relevant complaints.
3
Some complaints may have been made in different ways, at different times and to a range of government bodies. Some of the responses may therefore have come from several
different parts of government.
Source: National Audit Offi ce review of publicly available information and additional documents provided by members of the AEA Technology pension scheme
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