AEAT Pension Scheme PAC inquiry findings imminent – Law & Regulation

The inquiry is based on an investigation by the National Audit Office into the AEAT pension scheme restructure in 1996, scheme members’ complaints that they were badly advised by the Government Actuary, and the difficulties they have had in getting their complaints heard. 

What’s it all about? 

The members claim they were misled by government – through GAD – about the equivalence of a scheme they were urged to join when their employer was privatised in 1996. As a result of this, many of them have lost, on average, a third of their pension benefits, a figure that will increase considerably, over time.

In its written evidence, Prospect, a trade union representing employees and freelancers across the public and private sectors called upon the committee: “to acknowledge the impact that misleading information has had on these members and to recommend that government legislate to allow the Parliamentary and Health Service Ombudsman to investigate this matter and recommend appropriate compensation.”    

The union said this had “contributed to significant pension losses that have had a devastating impact on the retirement and future plans of thousands of people” and was “exacerbated by the calculation and payment of an inadequate bulk transfer value to the AEA Technology Pension Scheme in respect of past benefits that were transferred from the UKAEA’s pension schemes”.

A sense of injustice

Layla Moran MP for Oxford and Abingdon West, said: “Many pensioners living in my constituency have been fighting incredibly hard for a number of years to have their case heard. 

“I know they have felt an acute sense of injustice at the way their case has been handled.”

Former pensions minister, Baroness Altmann, said she had seen the situation AEAT members found themselves in on many occasions.

“The misleading reassurances given to pension scheme members by official bodies was at the heart of my many years trying to help the 140,000 families who lost their whole pension, despite always being led to believe their scheme was protected by law and safe, regardless of what happened to their employer”.

Altmann was an outspoken supporter of the ‘pensionstheft’ campaign from 2002 that aimed to secure benefits workers whose pensions were lost when their employers went bust. 

The work she and her fellow campaigners undertook resulted in the creation of the Financial Assistance Scheme (FAS) and PPF. 

“I do believe these members were badly misled, but at least they have PPF protection, which was more than was available to those whose privatised companies failed before 2006. 

“That does not make any of this right and our high court case, then court of appeal upheld the Parliamentary Ombudsman’s verdict that the misleading information given to these workers by DWP and other official bodies was maladministration that required proper compensation.”  

In Altmann’s case, the judge recommended full restoration of lost benefits, but it was later settled that PPF level benefits would be sufficient.

Slapdash or misleading? 

The members’ position focuses on what they believe was misleading information provided in a letter from GAD to AEAT members.

This said that it was “unlikely” that the benefit promise made by either scheme would ever be broken, nor did it indicate that members’ transferred benefits may be less secure due to the scheme not being guaranteed by the government, yet other privatisations in the 1980s and 1990s did have a government guarantee for their pension schemes.

In fact, 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. 

Following a freedom of information request, members discovered that GAD made changes to the note at the request of AEAT and UKAEA before it was issued. 

These changes included addressing concerns raised by AEAT that the way it was written would discourage members from transferring their pensions and amendments to the language used to describe the relative benefits and risks of the different pension options.

“This is the same wording I’ve seen so many times from other schemes, which blithely told people their pensions were safe or led them to believe that their money was not at risk because it was held separately from the employer,” said Altmann.

Moral high ground, but shaky legal position

Lesley Browning, a partner at Norton Rose Fulbright, said that although the GAD letter states: “it is unlikely that the scheme would fail or that the benefit promise by the employer would ever be broken”, it does not constitute a guarantee, though a member would not be expected to be able to make that distinction. 

“Unfortunately, the GAD position is likely to be that it is not in the position of giving financial advice on an individual basis. 

“While morally it might seem that the members are right, they don’t have a strong position, legally. 

“It’s a sad tale for the affected members.” 

Further ironic twist of the knife

Andrew Turner,  an AEAT member and campaign organiser says there may be around 1,400 AEAT members still affected.

“Originally, there were 3,000, but some will have died,” said Turner. “Some have transferred to other pension schemes, but it’s difficult to get a hard and fast number.” 

The situation is all the more galling for those like Turner, who were members of the closed section and paid 30% higher pension contributions – 7.5% as opposed to 5.75% – to specifically ensure their pensions were protected by RPI.

At the time of the scheme entering the PPF, Turner thinks there were around 1,245 members in the closed section. 

AEA Technology (AEAT) was formed in 1989 as the commercial arm of the UK Atomic Energy Agency, later privatised in 1996. 

On privatisation employees who transferred to AEAT joined the company’s new pension scheme and were given several options about the treatment of their pension benefits accrued in UKAEA. These options included a special transfer offer to move their accrued pension to a closed section of the AEAT scheme, which would have equivalent benefits, an option taken by nearly 90% of eligible members.

In 2012, AEAT went into administration and the pension scheme subsequently entered the Pension Protection Fund (PPF). Here, in addition to the cap or 10% haircut all non-retired members receive to their benefits, indexation is limited to 2.5%. And there is no indexation for benefits accrued before 1997. This loss of indexation has had a disastrous effect on their levels of income.

The PAC’s findings are expected to be published on Wednesday 14 June.