Select committee inquiry
AEA Technology Pension Case
Closed
What the inquiry looked at
“Following its work on the British Steel Pension Scheme , the Committee will question Government Actuary Martin Clarke and Karl Banister, Director of Operations, Legal and Clinical, from the Parliamentary and Health Service Ombudsman on the Atomic Energy Agency Technology pension case. This inquiry is based on an ongoing NAO investigation which will set out the facts surrounding the AEA Technology pension scheme restructure in 1996, pension scheme members’ subsequent complaints that they were badly advised by the Government Actuary, and the difficulties they have had in getting their complaints heard. If you have evidence on these issues please submit it here by 6pm on Sunday 5 March. Please have a look at the requirements for written evidence submissions and note the Committee cannot accept material as evidence that has been published elsewhere.”
The committee's words, from the inquiry page on parliament.uk ↗.
What it found
In the committee's words, from the summary of Fifty-Seventh Report - AEA Technology Pension Case ↗
The former civil servants who transferred their pensions to AEA Technology (AEAT)
when it was privatised were badly informed by government at the time, with some losing considerable sums, and have not been treated well in trying to get their complaints heard. The case is another example of the difficulties people face making decisions on complex or long-term financial products such as pensions, and the inadequacy of the support that government provides.
When AEAT was privatised in 1996, its 4,000 employees had the option to keep the pension benefits they had already accrued in the old public sector pension scheme, which is guaranteed by government, or to transfer them to the company’s new scheme.
Scheme members had reason to believe the new scheme would be similarly protected, and none of the information government provided indicated this was not the case.
Nearly 90% of them transferred their pensions and subsequently lost money after the company went into administration in 2012, largely because the compensation paid by the Pension Protection Fund (PPF) does not reflect rises for inflation.
Scheme members have raised complaints with government but have been passed from pillar to post. Nobody in government has taken overall responsibility for the case. There has been no independent review because the relevant ombudsman services have said they cannot investigate the information given to members in 1996, clearly highlighting that there are gaps in the routes of appeal people have for complaints about their pensions.
This is one of several cases we have heard this Parliament highlighting the difficulties people face when making decisions about complex or long-term financial products. The government has a role to help people make good financial decisions, either directly such as in this case, or through regulated financial advice as we have seen in other cases. But once again, we find the government’s oversight to have been lacking, and illustrative of a lack of joined-up thinking and strategy regarding pensions. In the current economic climate, it is essential that the government improves the oversight and support it provides to ensure that people can save adequately for retirement.
What the government said
The government responded on 24 September 2023. The deadline was 14 August 2023.
Correspondence from Peter Schofield CB, Permanent Secretary, Department for Work and Pensions, re Treasury Minute response – AES Technology Pension Case, dated 15 November 2023
Correspondence from Peter Schofield CB, Permanent Secretary, Department for Work and Pensions, re Treasury Minute response – AES Technology Pension Case, dated 15 November 2023, 23 November 2023.
Summary written by Accountability Index from the government's response.The Department for Work and Pensions sets out that it has "no plans to review or extend the legislation relating to PPF compensation" and does not believe a further independent review would reach a different outcome, while saying it agreed to consider the Pensions Ombudsman recommendation.
- On PPF indexation, it says extending the rules "would come with significant risk and uncertainty", including increased costs for the PPF and the wider defined benefit universe.
- On an independent review, it states "I do not believe a further independent review will come to a different outcome" than earlier investigations over around ten years.
- On privatisations before the 2013 fair deal policy, there are "no plans to change the fair deal policy", but if issues about the security of members' pensions arise, it will "look at each case on its own merit".
- On the Pensions Ombudsman, it says next year's independent review "provides an opportunity to look at this recommendation". DWP officials will discuss with Cabinet Office during the review, as the legislation on other ombudsmen "sits elsewhere".
Treasury minutes: Government response to the Committee of Public Accounts on the Fifty-seventh report from Session 2022-23
Treasury minutes: Government response to the Committee of Public Accounts on the Fifty-seventh report from Session 2022-23, 24 September 2023.
Summary written by Accountability Index from the government's response.The government disagrees with the Committee's recommendations on Pension Protection Fund indexation and on independent review of members' complaints, and agrees with the recommendations on ombudsman arrangements and on supporting informed pension decisions.
- On reviewing PPF inflation increases, the government disagrees, stating that the department "cannot respond further" because changing the indexation rules "would require a change in legislation and is therefore a policy matter".
- On independent review of complaints, the government disagrees, saying that changing the remit of an ombudsman "would be a policy matter". It notes that the 2013 Fair Deal policy means the specific circumstances of this case "would not happen again".
- On reviewing ombudsman arrangements, the government agrees, with a target implementation date of Autumn 2024. The Pensions Ombudsman's arm's-length body review is scheduled for 2024, and the department "can, in addition, request" that the reviewer considers other areas.
- The government agrees to write to the Committee on supporting informed pension decisions, with a target date of September 2023, and says it "will write" setting out the action it is taking.
Read the government's response: Correspondence from Peter Schofield CB,… ↗Read the government's response: Treasury minutes: Government response t… ↗ Read the report ↗ Report an error
How the inquiry ran
Each dot is a dated item listed on this page, from the inquiry's opening on 20 January 2023 to 23 November 2023. The dashed mark is the deadline Parliament records for the government's response.
- Oral evidence 13 Mar 2023
- Report 14 Jun 2023
- Government response 2 responses
- Correspondence 3 letters
What it recommended 4 recommendations · 16 conclusions
2Ensure independent review for AEAT pension scheme members' long-standing complaints.
Recommended (the committee's words)
AEAT pension scheme members have been passed from one part of government to another, with no department taking overall responsibility for their complaints. Scheme members have raised complaints with government since 2012 covering a range of issues that involve several government organisations, including departments and regulators. The Department for Work & Pensions (DWP) initially responded in 2013 on behalf of government by providing a factsheet, which summarised the complaints received and the government’s position on each. Six months later, after members were dissatisfied with the response, DWP wrote to them again saying it was not responsible for the case and directing them elsewhere. DWP had to subsequently apologise for the fact that its factsheet added to the confusion over who was responsible for what. Responsibilities for pensions are spread across government, with different departments responsible for private and public sector pensions. The lack of joined-up thinking on pensions allowed the issue to fall between the cracks. Government has not commissioned any independent review into the complaints raised by AEAT members, and all of the relevant ombudsman services have said they cannot investigate the information government provided in 1996. Recommendation 2: The government should ensure that members’ complaints about the AEAT pension case can be independently reviewed, for example by a relevant ombudsman.
3Review ombudsman arrangements to ensure adequate appeal routes for pension complaints.
Recommended (the committee's words)
The AEAT case shows that there are gaps in the routes of appeal available for people raising complaints about their pensions. It is a fundamental right that 6 AEA Technology Pension Case people have appropriate and accessible routes of appeal. Ombudsman services provide a way for people to seek independent review of their complaints without the cost of pursuing action through the courts. In this case, ombudsman services such as the Pensions Ombudsman and the Parliamentary and Health Service Ombudsman (PHSO) ruled that they could not examine key complaints raised by AEAT pension scheme members because the complaints fall outside their statutory jurisdictions. For example, PHSO is unable to look into employment matters, including specifically those relating superannuation and pensions, due to its remit. Legislative amendments would be required to change this. Some aspects may have been within the remit of the Pensions Ombudsman but, because the case was more than 15 years old, the ombudsman would have been unable to award any remedy due to the Limitation Act 1980. Government protocols for retaining data may also often prevent relevant information being maintained for long enough to be reviewed in cases involving pensions. Pensions are long-term financial products, and problems can take many years to become apparent. Recommendations 3: The government should review ombudsman arrangements to ensure that all aspects of people’s interactions with their pensions have an adequate route of appeal. We also ask that the Public Administration and Constitutional Affairs Committee consider examining whether the current time limits on government for retaining information and ombudsmen awarding redress are fit for purpose when it comes to pensions.
4Write to set out support for informed pension financial decisions within three months.
Recommended (the committee's words)
This is another case of government not giving people enough time or support to make complex financial decisions. The government has a role to help people make good financial decisions, because of the detriment that bad choices can lead to. In the case of AEAT, it should have done this directly. This was a complex financial decision where members needed clear information on their options and time to seek appropriate financial advice. AEAT scheme members were only given one month to decide between their pension transfer options, and the information they received was insufficient. We have seen similar issues in other areas, including in the private sector where government oversees the regulation of independent financial advice. For example, our inquiry last year into the British Steel Pension Scheme covered the significant financial harm that many scheme members suffered from transferring their pensions after receiving unsuitable advice. We concluded that the regulatory system had left members open to being taken advantage of and that, seven years after the Pension Schemes Act 2015, regulated financial advisers were still not clear on what was expected of them. DWP is developing several initiatives aimed at supporting people to engage with their pensions, such as ‘Pensions Dashboards’ and a recent call for evidence on the support and information people need when accessing their pensions. However, it is not clear when these initiatives might come to fruition and lead to tangible improvements. Recommendation 4: The government should write to us within three months to set out what more it will do to support people to make informed financial decisions, including regarding their pensions. This should include what changes it will make in light of DWP’s recent call for evidence, and an update on progress with Pensions Dashboards. AEA Technology Pension Case 7 1 AEA Technology pensions
1Evidence heard from DWP, GAD, and PHSO regarding AEAT privatised pensions.
Concluded (the committee's words)
On the basis of a report by the Comptroller and Auditor General, we took evidence from the Department for Work & Pensions (DWP), the Government Actuary’s Department (GAD) and the Parliamentary and Health Service Ombudsman (PHSO) on the pensions transferred to AEA Technology (AEAT) when it was privatised.1
5No less favourable" pension terms excluded government guarantee for AEAT scheme security.
Concluded (the committee's words)
When the Atomic Energy Authority Act 1995 was introduced to facilitate the privatisation of AEAT and outline the pension arrangements, it required that the pension benefits in the new AEAT scheme must be “no less favourable” than the previous scheme. Around that time, other privatisations had included government guarantees on their pensions. Ministers also gave assurances in Parliament that pension benefits would be fully protected in the new scheme.5 We asked DWP and GAD how the AEAT pension scheme’s terms could be no less favourable if, as became clear after 2012, it did not have the protection of a government guarantee. The departments told us their understanding was that the phrase “no less favourable” used in legislation referred only to the pension 1 Comptroller & Auditor General, Pensions transferred to AEA Technology when it was privatised, Session 2022–23, HC 1169, 3 March 2023 2 ATC0023; C&AG’s Report, paras 2, 9 3 C&AG’s Report, paras 10–11, 1.5 4 C&AG’s Report, paras 12–14 5 C&AG’s Report, para 1.5, 1.10 8 AEA Technology Pension Case scheme benefits, not their security, meaning the 1995 Act did not provide for a public sector guarantee on the scheme. GAD said that it was on this basis that it will have certified that the new pension scheme met the terms of the 1995 Act.6
6Government information failed to disclose loss of pension scheme government guarantee.
Concluded (the committee's words)
None of the information government provided to scheme members told them the government guarantee would be lost if they transferred their accrued benefits into the new pension scheme.7 We asked GAD why members were not told this, and whether the note it had provided at the time was therefore misleading. GAD said it did not believe the note was misleading, and that it was intended to assist members with making decisions over their pensions rather than be financial advice which members could depend upon. GAD noted that while the information provided to members did not tell them the new scheme would not have a government guarantee, it had never indicated that the new scheme would still have one either. GAD also argued that some information provided made references to the possibility that the scheme could fail.8 However, those same references also stated that pension scheme assets are protected in law.9
7GAD's note significantly influenced AEAT members' pension transfer decisions, despite caveats.
Recommended (the committee's words)
GAD’s note suggested that scheme members seek independent financial advice if they were unsure of the most suitable course of action.10 We asked GAD whether it was realistic for scheme members to get independent financial advice, particularly when GAD is a well-recognised authority on public sector pensions and members were only given one month to make their decision. GAD told us that the range of individual circumstances which members may have been in would have made it impossible for the note to provide appropriate financial advice for each individual. GAD also said that the fact the note mentions that it was not financial advice should have been a sign that this was a matter to take seriously. GAD told us it did not believe the note would have been the only basis on which members made their decision.11 However, nearly 90% of scheme members transferred their benefits. Scheme members have said their decision was heavily influenced by GAD’s note, given 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 have also reported that independent financial advisors who were consulted largely deferred to GAD’s note.12
8AEAT pension members lose significant real value due to inadequate inflation protection in PPF.
Concluded (the committee's words)
Since the scheme entered the PPF, members have lost money in real terms each year because the compensation they receive does not include rises for inflation. PPF compensation initially provides members 100% of their pension if they had already reached the scheme’s normal pension age, 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, including all benefits transferred in 1996, are not increased for inflation at all.13 Scheme members who wrote to us described the damaging effects of the loss of inflation protection on many years of pension benefits, in one case losing over 40% of their pension in real terms.14 We asked 6 Q 2 7 C&AG’s Report, para 1.10 8 Qq 15, 20, 23–26, 53 9 Q 32; C&AG’s Report, para 1.9 10 Q 33; C&AG’s Report, para 1.11 11 Qq 52, 54–55 12 Q 54; C&AG’s Report, para 1.13 13 Q 79; C&AG’s Report, para 2.6 14 ATC0001; ATC0004; ATC0016; ATC0022 AEA Technology Pension Case 9 DWP whether the mechanism used to provide restitution for Equitable Life pensioners could be used in this case. DWP was unable to comment on any comparison to Equitable Life, but responded that the PPF was the mechanism government had set up to provide compensation in cases such as AEAT’s.15 The government’s response to complaints
9AEAT pension scheme members received unsatisfactory and inconsistent responses to their long-standing complaints.
Concluded (the committee's words)
From 2012 onwards, scheme members raised a series of complaints with multiple government organisations and were dissatisfied with the responses they received. In July 2013, DWP produced a factsheet summarising the complaints government had received and a response to each on behalf of the government. In February 2014, it then sent scheme members a further letter explaining that it was not responsible for the case.16
10Government departments showed unclear responsibility for AEAT pensions, creating further confusion for members.
Concluded (the committee's words)
When we asked it why no part of government had taken responsibility for the issue, DWP described pensions policy as a complex and wide-ranging area which touches on a number of departments. DWP is responsible for private sector pensions rather than public sector pensions, which it told us are the responsibility of HM Treasury and the Cabinet Office.17 We asked why DWP initially responded to complaints on behalf of government, before saying it was not responsible and directing members to other parts of government such as the then Department for Business, Innovation and Skills or the Parliamentary and Health Service Ombudsman (PHSO). DWP responded that its factsheet was aimed at answering questions as well as it could by setting out government’s position on different issues. However, DWP acknowledged that the factsheet had not been clear about who was responsible for what, and that it had to subsequently apologise for the fact that the factsheet added to the confusion.18
11Government has not independently reviewed AEAT complaints, and ombudsman services lack jurisdiction for investigation.
Concluded (the committee's words)
Government has not commissioned any independent review into the complaints raised by AEAT members, and all of the relevant ombudsman services have said they cannot investigate the information government provided in 1996.19 PHSO told us it is unable to investigate personnel and superannuation matters, and that this would require a legislative change to allow it to look into the issue properly.20 We asked DWP what the Minister of State for Pensions was referring to when he wrote in 2020 that the matter had been thoroughly investigated. DWP told us that the Minister was referring to the large amount of correspondence on the issue and two Westminster Hall debates, rather than any specific investigation or review.21
12Government’s Fair Deal policy seeks to prevent future pension issues, yet ombudsman jurisdiction gaps persist.
Concluded (the committee's words)
We asked how government can ensure that, if a similar thing were to happen again, pensioners making complaints would not be shunted from pillar to post in trying to make appeals and getting no advice or satisfaction. DWP told us that the government’s Fair Deal policy introduced in 2013 means that these specific circumstances would be unlikely to happen again, as in cases of privatisation the pensions would now be expected to remain in public sector schemes.22 PHSO said that it would be helpful if government considered ombudsman jurisdictions at the formative stages of policy, to avoid gaps such as these. It 15 Q 79 16 C&AG’s Report, para 3.2, 3.6 17 Qq 28, 32 18 Qq 56–57, 67 ; C&AG’s Report, para 3.9 19 Q 66; C&AG’s Report, para 16 20 Qq 41–43 21 Q 66 22 Qq 31, 68, 80 10 AEA Technology Pension Case also told us it had been working with government departments to produce complaints standards, with an aim to move towards consistent practice in how government handles complaints. PHSO told us that a common theme in its investigations is the need for clear communication of change by government so that people can think properly about the options available to them.23 DWP said it would be careful to ensure responsibilities are set out more clearly in any similar case in future.24 23 Q 74–74 24 Q 67 AEA Technology Pension Case 11 2 Lessons for pensions and financial advice Routes of appeal for complaints about pensions and advice
13Accessible ombudsman services are essential for people to pursue independent, affordable routes of appeal.
Concluded (the committee's words)
It is a fundamental right that people should have appropriate and accessible routes of appeal. Actions by government bodies are in principle subject to judicial review through the courts, but this is an expensive process.25 Ombudsman services provide a way for people to seek independent review of their complaints without the cost of pursuing action through the courts. They are independent statutory organisations set up to make final decisions on complaints that cannot be resolved. Where they make a decision in favour of the complainant, they can typically award or recommend redress.26
14Ombudsman services lack statutory jurisdiction to investigate key 1996 government information in AEAT case.
Concluded (the committee's words)
In the case of the AEAT pension scheme, relevant ombudsman services said they were unable to properly investigate key aspects of scheme members complaints.27 Some aspects of the case could be reviewed. For example, GAD described to us how complaints about work done by individual actuaries who are members of the actuarial profession can be raised through disciplinary and complaints processes of the Institute and Faculty of Actuaries and the Financial Reporting Council.28 The Pensions Ombudsman reviewed the approach taken by scheme trustees when the company went into administration in 2012, and PHSO examined DWP’s 2013 factsheet for scheme members.29 But none of these organisations has examined the information that government provided in 1996, with the ombudsman services saying it is outside their statutory jurisdictions.30
15PHSO's legislative remit contains significant gaps preventing investigation of AEAT pension cases.
Concluded (the committee's words)
PHSO described to us the gaps in its remit which prevent it from providing pension scheme members with a route to appeal in this case or in similar situations. PHSO explained that its jurisdiction only allows it to investigate GAD on a very specific point about insurance companies during a defined period of time, following an amendment to its legislation that allowed it to investigate the Equitable Life pensions case. Apart from this, Schedule 3 of PHSO’s legislation prevents it from looking into personnel and superannuation matters which means it cannot examine information of the type that GAD provided in 1996. An amendment would be needed to the legislation for PHSO to able to look into the AEAT case or similar issues and have powers to make recommendations to government.31
16Pensions Ombudsman faces remit limitations, Limitation Act barriers, and inadequate data retention protocols.
Concluded (the committee's words)
The Pensions Ombudsman may also be a suitable body to investigate the administration and management of pension schemes, as it is the expert in government for investigating pensions complaints.32 However, it has no remit over the role of GAD in providing information to scheme members. The Pensions Ombudsman could in theory have examined UKAEA as the outgoing employer, but not AEAT itself as it no longer existed. However, it decided that even if it did investigate information provided by UKAEA, the Limitation Act 1980 means it would not be able to award any remedy as more 25 Qq 47–48 26 C&AG’s Report, para 3.8 27 C&AG’s Report, para 16 28 Qq 8–9 29 Qq 50, 56; C&AG’s Report, para 3.9 30 C&AG’s Report, para 3.10 31 Qq 41–45 32 Qq 9, 74 12 AEA Technology Pension Case than 15 years had passed between the original transfer of pension benefits and when the complaints were made.33 Government protocols for retaining data may also often prevent relevant information being maintained for long enough to be reviewed in cases involving pensions. Pensions are long-term financial products, and problems can take many years to become apparent.34 DWP told us that the Pensions Ombudsman is reviewed on a regular basis, and that its next review later this year may be a good opportunity to look at the role of the ombudsman.35 Government support for complex financial decisions
17Government provided insufficient and misleading information with restrictive one-month deadline for AEAT pension decisions.
Concluded (the committee's words)
The AEAT case is one where government directly provided information intended to help pension scheme members decide what to do with their accrued pension benefits. Members were only given one month to make the decision, and consider that the information provided was insufficient and misleading.36 GAD acknowledged that in the present day, only giving people one month to make a financial decision of this kind would be judged to be inappropriate.37
18Government and regulators consistently fail to adequately support individuals making complex financial decisions.
Concluded (the committee's words)
This committee has previously found similar issues with how government provides or oversees support for people making complex or long-term financial decisions, including through the regulation of independent financial advice. Most recently, our inquiry last year into the British Steel pension scheme found that pensions regulators had failed to provide adequate information and support to scheme members to make decisions within tight deadlines, leading to unsuitable financial advice that caused serious financial harm. We concluded that the regulatory system had left pension scheme members open to being manipulated and taken advantage of by unscrupulous financial advisers, and that regulated financial bodies were still not clear on what was expected of them.38
19Consumers and students lack adequate support to understand complex financial products and education choices.
Concluded (the committee's words)
This committee’s 2016 report on financial services mis-selling similarly concluded that the Financial Conduct Authority was not doing enough to ensure that consumers understand the financial products they are buying. The report found that even the most knowledgeable consumers can find financial services too complex to understand, which emphasises the importance of providing adequate support to consumers making financial decisions.39 While not a financial product, this committee also saw similar themes in its 2018 inquiry into the higher education market. The report found that young people taking out student loans were not properly supported to make decisions on higher education that affected their future careers, in large part due to insufficient and inconsistent careers advice.40
20DWP initiatives for improving pension financial advice lack clear timelines for tangible improvements.
Concluded (the committee's words)
We asked DWP how government can ensure it gives clearer and more accessible financial advice in similar situations in future. DWP told us that changes to policy on privatisations and transfers of pensions meant that the specific circumstances affecting 33 Qq 50–51; C&AG’s Report, paras 3.10–3.11 34 Qq 44, 51 35 Q 74 36 Q 66; C&AG’s Report: para 1.7 37 Q 55 38 Committee of Public Accounts, Investigation into the British Steel Pension Scheme, Fourteenth Report of Session 2022–23, HC 251, July 2022, paras 2, 5 39 Q 54; Committee of Public Accounts, Financial services mis-selling: regulation and redress, Forty-first Report of Session 2015–16, HC 847, May 2016, para 4 40 Committee of Public Accounts, The higher education market, Forty-fifth Report of Session 2017–19, HC 693, June 2018, para 2 AEA Technology Pension Case 13 AEAT pensioners would be unlikely to happen again. More generally, it told us it has worked with the Financial Conduct Authority and the Pensions Regulator to strengthen the protections around financial advice on pensions. DWP said that encouraging engagement with pensions is difficult, and government has been considering how best to nudge people to seek financial guidance or advice, such as through the introduction of a pensions dashboard. DWP wrote to us after our evidence session to explain the ways it is trying to support people to engage with their pensions. This includes new regulations that came into force in 2022 to ensure nobody can transfer their savings through pension freedoms without either receiving Pension Wise guidance or opting out of it. It also includes initiatives under development such as Pensions Dashboards and DWP’s recent call for evidence on the support and information people need when accessing their pensions. However, DWP did not indicate when these initiatives might come to fruition and lead to tangible improvements.41 41 DWP letter to Committee dated 4 April 2023 14 AEA Technology Pension Case
Evidence
Oral evidence sessions 1
- 13 Mar 2023AEA Technology pension case3 witnesses, listed belowparliament.uk ↗
Who gave evidence 3 witnesses
- Karl BanisterDirector of Operations, Legal and Clinical, Parliamentary and Health Service Ombudsman
- Martin ClarkeGovernment Actuary, Government Actuary’s Department (GAD)
- Tom JosephsDirector Private Pensions and Arms-Length Bodies, Department for Work and Pensions
Correspondence 3 letters
- 11 Jul 2023Correspondence from William Wragg MP, Public Administration and Constitutional Affairs Committee, re Public Accounts Committee – Report on the AEA Technology Pension Case, dated 4 July 2023
- 17 Apr 2023Correspondence from Tom Josephs, Director, Private Pensions and Arm’s Length Bodies Department for Work and Pensions, re DWP follow up to the Public Accounts Committee Hearing on Atomic Energy Authority Technology pension scheme 13 March 2023, dated 4 April 2023
- 17 Apr 2023Correspondence from Martin Clarke, Government Actuary, Government Actuary’s Department, re Public Accounts Committee Hearing 13th March 2023 – AEAT Pension Scheme, dated 27 March 2023