AEA Technology Pension Scheme

Debate between Geoffrey Clifton-Brown and Lord Benyon

Wednesday 18th March 2015 Westminster Hall

[Geoffrey Clifton-Brown]

My hon. Friend makes a really potent point, which I will come on to later in my speech.

People had not been warned of the risks by the official leaflets that they received. The AEA Technology pension scheme received an initial injection of cash from its mother scheme, the UKAEA scheme, based on the accrued service and pension entitlements of the transferred members. The mother scheme was operating with a notional surplus at the time, but none of that surplus was passed to the new scheme, giving the Treasury an increased windfall. Since the AEA Technology pension scheme ran into deficit because of changes in actuarial valuations, it has now become apparent that insufficient funds were transferred into it when it was set up. Moreover, no written agreements appear to have been made to cover such an eventuality. In other words, either the Government have a continuing moral, and possibly legal, duty to those transferred members or they cannot have fully discharged their responsibility under the Atomic Energy Authority Act.

The Department for Work and Pensions has suggested the requirements of the Act may have been fulfilled because when it was launched the benefits from the new scheme matched those of the mother scheme. However, none of the transferring scheme members—my hon. Friend has made the very good point that they were extremely bright and able people—were eligible to draw benefits at the time, because none of them were retired, so the DWP’s claim cannot be true. The Act’s intention must have been that the new pension scheme would not change in future years if the UKAEA one did not, meaning the benefits were secure.

It is now proposed that the AEA Technology pension scheme be transferred to the Pension Protection Fund, where index-linking of benefits would be removed and replaced by an inflationary allowance, capped at a maximum of 2.5% for service from April 1997 onwards. That covers almost all post-privatisation service. It would further mean that all index-linking would be removed from service prior to that date—that is, from all service transferred from the Government sector, which the scheme members were told was secure. In addition, all members below retirement age would suffer a further 10% drop in their pension. The overall effect is a greatly diminished pension that is far less than the benefits that would have been due from the UKAEA scheme. It would not be equivalent, as was specified in the Atomic Energy Authority Act.

[Richard Benyon (Newbury) (Con)]

My hon. Friend is making a good point. The key point to which we want the Minister to respond is that, as a public sector pension, the AEA Technology scheme had full protection linked to the retail price index. That has now been lost, on the basis of wrong advice that was given at the time.

[Geoffrey Clifton-Brown]

As I will explain in a minute, it was partly wrong advice at the time and partly the fact that the subsequent company went into a pre-pack.

As I was saying, the proposed transfer to the PPF means that the scheme would not be equivalent to the UKAEA scheme, as was specified in the 1995 Act. I would be grateful to hear the Minister’s views on whether the AEA Technology pension scheme should present a special case because it was formed as a result of privatisation, as my hon. Friend the Member for Newbury said. Additionally, does the Minister believe that the Government should have a duty of care to those staff who were transferred into the AEA Technology scheme? Do the Government have a moral and legal duty to act to protect the pension scheme members against loss, given the assurances that, as my hon. Friend said, were made to staff as part of the privatisation process both in Parliament and in the printed materials provided to scheme members by an arm of the Government at the time?

I understand that in 2010 AEA Technology made an unsuccessful acquisition of the US firm Eastern Research Group by issuing a large number of shares. Problems arose with ERG the following year because of late payments and delays in the US Government’s awarding of contracts. AEA Technology issued a statement in November 2011, which played down the prospects of the UK-based part of the company and highlighted ERG’s problems. That drove the company share price down to virtually zero. Notwithstanding that, the long-term prospects for ERG appeared good, as it had recently won a £100 million contract, and AEA Technology’s successful UK-based business, which had originated from the privatisation exercise, was profitable and actively recruiting at the time.

Given its financial situation and low share price, AEA Technology ran into cash-flow problems. Therefore, in November 2011, it began negotiating with various parties, including its bank, the scheme trustees, the PPF and the Pensions Regulator. The aim of the negotiations was to improve its financial position, and the plan that was agreed involved arranging a pre-pack administration to allow it to default on its pensions obligations and to start afresh under new, improved trading conditions—AEA’s original pensioners were about to suffer a serious double whammy.

The company’s share price was driven down so low—to about 0.05p, following a peak of almost £10 soon after flotation—that the company’s market capitalisation was less than £l million, which was less than the annual profit from the UK-based business alone. Given the low share price, investors would face no great financial loss from entering administration. The idea was for the PPF to take over the pension scheme and its assets. However, the PPF has fixed rates of compensation and, in particular, limitations on its rates for inflationary allowances. The net effect on scheme members, therefore, would be to reduce their pension pots to less than half of what they might originally have expected. That drop is greater than that explained by the scheme deficit. To add insult to injury, the scheme is contracted out, which means that its members will not be eligible for an additional state pension.

The pension scheme trustees initiated the pre-pack administration of AEA Technology by electing to wind up the pension scheme and to invoice AEA Technology for the full buy-out costs. Such action would be enough to make almost any company insolvent. The argument for entering a pre-pack administration was that it would maximise—that is pretty unrealistic—the company’s value, which would, in turn, maximise the scheme’s value for its members. Of course, that later turned out to be totally false. The money put into the scheme from the sale of the company was negligible by comparison with the losses caused by winding the scheme up. Scheme members could never have benefited from that; the beneficiaries could only ever have been the bank and the PPF.

AEA Technology was profitable and expanding, and it had a healthy order book, when it elected to enter pre-pack administration. The surviving parts of the company have continued to prosper. An air of secrecy shrouds the pre-pack negotiations, with everyone stating they are someone else’s responsibility or that information is commercially sensitive. Who it is who is commercially vulnerable is a big secret. That has also been the disingenuous response of the relevant Departments, while the various ombudsmen have thus far refused to get involved. What is the purpose of an ombudsman if, the moment they encounter a really difficult case, they fold and refuse to investigate?

Pre-pack administrations were set up with the intention of being for the benefit of creditors. The PPF was set up as a safety net for company pension schemes that run into trouble. The Pensions Regulator has a duty to protect pension scheme members’ best interests, as have the trustees. Yet in the case of AEA Technology, it appears that all those parties got together to help the company financially, at the expense, yet again, of those they were supposed to protect—the pension scheme members.

The AEA Technology case is special because the company was formed through privatisation. Many of its pension scheme members are ex-Government employees, who are extremely well qualified and extremely intelligent, and the Government have a continuing duty of care towards them. For that reason alone, the pre-pack administration needs careful investigation.

The case has highlighted other important issues. For example, there is the question whether pre-pack administrations are being abused. Additionally, the implications of defaulting on pensions for commercial reasons need to be understood and controlled if the Government are to be successful in promoting saving for retirement and in introducing a unified, simplified pension system into which transfers are the norm.

Sadly, in this case, it is all too clear that a large number of very bright people were misled by the information issued by a Department. Some of the information—the drafting was heavily influenced to minimise any reference to risk—may also amount to a misleading prospectus, and it needs to be thoroughly examined by the Government regulator.

I end by saying that the pre-pack administration of the AEA Technology pension fund and the information on which members transferred their entitlements need proper and thorough investigation, and scheme members need compensating accordingly. I look forward very much to what my right hon. Friend the Minister has to say, and I thank him for listening.

Flood Risk Management

Debate between Geoffrey Clifton-Brown and Lord Benyon

Wednesday 9th February 2011 Westminster Hall

[The Parliamentary Under-Secretary of State for Environment, Food and Rural Affairs (Richard Benyon)]

The hon. Member for Copeland (Mr Reed), who is excellent in so many ways, has a habit of asking me a plethora of questions and not leaving me enough time to even begin to answer them, but I will see what I can do.

As announced in the Chamber earlier today, the Government have announced £521 million to be invested in flood and coastal defences over the next year. Some 112,000 homes in England will benefit once the work has been completed. That money will help to fund 109 schemes that are already under construction, and work will begin on 39 new flood and coastal defence projects. Of those projects, 18 will provide vital repairs and safety enhancements to existing defences, and the remaining 21 will provide additional protection to 13,000 households at risk of flooding. I am sure that the hon. Gentleman will be pleased that some of that investment is taking place in his constituency.

I pay great tribute to the hon. Member for York Central (Hugh Bayley) for securing the debate and for his undoubted passion in standing up for his constituents on this important issue. One question he asked me is why his region is apparently missing out so much on the allocation of schemes this year. Yorkshire has received a smaller settlement in 2011-12 than in previous years—before he includes that quote in a press release, I ask him to listen on—but that is because a large number of flood defence projects have recently been completed in the region. Hundreds of households in Yorkshire are already enjoying better protection against floods and coastal erosion as a result of projects that have been completed—I concede—over a number of years.

That is an important point because we have to take a long-term view of the spending on flood defences. Very few schemes—almost none at all—go from conception to commissioning in one year. Some of them, particularly the one we have been talking about in Leeds, are very large schemes and run over a number of years. For example, a £2 million scheme in north Doncaster was completed in 2009, which reduces flood risk to 3,000 properties. A £10 million refurbishment of the Hull tidal surge barrier was completed in 2010, and reduces flood risk to 17,000 properties. There are many more schemes.

May I address the specific points that the hon. Gentleman and others have raised in this important debate? He asked what I would do to get the Leeman road scheme back on track. I assure him that the Environment Agency and I will work with him at every stage to make sure that we can get some movement on that scheme, but I cannot guarantee where it will sit in any future year because of the variety of other schemes that will come forward. I can assure him that, if our payment for outcomes scheme becomes the modus operandi of taking forward such initiatives in future years, there will be much more clarity for constituents about where they stand on the issue.

The hon. Gentleman raised a rather more macro issue about the current economic climate, and how this issue sits within it. He is right: the deficit issue is a current account matter. Our national debt is about everything; it is not just current or capital account. There are siren voices that say that we must invest more in infrastructure. We are investing in a variety of infrastructure—not just flooding schemes, but a variety of different ones. It is a question of having a balanced approach.

The hon. Gentleman talked about whether we can assist his flood defence committee in Yorkshire in obtaining European money. I assure him that he will have the full co-operation of my Department, the Environment Agency and other colleagues across Government in trying to secure any sort of funding that we can lever out of any organisation. I very much include the European Union in that. He rightly talked about the need for slow-water schemes and to think up-stream. I have been discussing the value of that with the hon. Member for Wansbeck (Ian Lavery). We recognise that the beneficiaries in one community sometimes pay for flood defences in another area, which may well affect the viability of farming businesses and the like. We have to take a large regional approach to the matter, which is why our new payment for outcomes scheme takes a much broader view. The scheme recognises where beneficiaries are and what can be done to alleviate the problems in affected communities.

I was also asked how we are protecting businesses. The economic benefits from protecting businesses from flooding are taken into account in the prioritisation schemes included in the payment for outcomes system. That has been the situation in the past and it will continue to be so. We are working with the City of York council and the Environment Agency to consider opportunities for external funding. It is crucial that there is greater local involvement at the heart of reforming the funding for flooding and coastal erosion risk management.

My hon. Friend the Member for Suffolk Coastal (Dr Coffey) made an excellent speech and raised some important issues. I was so impressed by the level of innovation from her area. From my visit to her constituency, I remember sitting in the minibus with representatives from the Environment Agency, Natural England, the local authority, local landowners and the local community. We drove along and ensured that none of them could get out, so that we could hack out some of the problems facing landowners who just want to make a small improvement and come up against two different agencies plus the local authority. The complications of the process are, I hope, being ironed out. That was an extremely useful session. My hon. Friend is absolutely right: we need to take a longer-term view, and internal drainage boards are absolutely crucial to many of these schemes.

There was an intervention from my hon. Friend the Member for Stroud—

[Geoffrey Clifton-Brown]

For The Cotswolds.

[Richard Benyon]

For Stroud actually. He was talking about the scheme concerning small changes that can be made. We must have that level of flexibility.

The hon. Member for Leeds North East (Fabian Hamilton) spoke with passion about the Leeds scheme and the cost of flooding to his community. I absolutely understand that and the commercial driver that his community—that great city—is to that region. If we follow that logical argument and consider the 5.2 million homes that are at risk from flooding, for every single one of those homes that can get protection from flooding, there will be a financial return. We have to make sure that the financial return is as high as possible. That is why work can be done on that scheme in particular. As the equally sensible contribution from his colleague the hon. Member for Leeds East (Mr Mudie) made clear, we might risk having a Rolls-Royce when a reasonably priced family car might have served some of the purpose. I cannot go into more detail about the matter now, but I will continue to look at it very closely to ensure that we get a result.

I shall quickly mention the point about the woodlands that were being built over. I cannot remember who raised the matter, but we need to understand the impact of the issue. That is why I have been totally opposed to so much of the infill development that we have seen, with building in back gardens and green spaces. The Government have a very clear policy on that which we want to take forward.

I would love to address many of the other valid points raised by, not least, the hon. Members for Copeland, for Wansbeck and others, but I see that the clock is against me. I do not want to repeat the increasingly sterile debate about where we are and whether we are comparing apples with apples or apples with pears. In the case of the hon. Member for Copeland, I suggest it is the latter.