AEA Pension Scheme

Debate between Julian Lewis and Oliver Letwin

Wednesday 26th October 2016 Westminster Hall

[Sir Oliver Letwin]

I am grateful to the former Secretary of State for Work and Pensions, my right hon. Friend the Member for Preseli Pembrokeshire (Stephen Crabb), with whom I have dealt on various occasions in even more vexed circumstances. He is absolutely right. The gist of what I am talking about is the advice these pensioners were given at the time they decided to make the transfer. I will go into that in some detail in just a moment.

[Dr Julian Lewis (New Forest East) (Con)]

I thought I would get this in now before my right hon. Friend gets into his flow. My constituent, Dr Keith Brown, wrote to me quite some time ago, saying:

“Our main complaint is that official information provided to us at the time of privatisation did not tell us that the new pension scheme was at a much greater risk of failure than our old UKAEA scheme.”

That seems to be the nub of the problem: what they were and were not told.

[Sir Oliver Letwin]

My right hon. Friend is absolutely right: that is the nub of the problem—and the nub of the solution is related. It is a good idea to have solutions that relate to problems, and I am going to propose a solution to that particular problem, but let me first enlarge on the point both of my right hon. Friends have just raised, because this is where we get to an extraordinary sequence.

At the time when the pensioners in question were choosing whether to transfer their existing accrued rights from the Government-backed UKAEA scheme into the commercially-backed AEA Technology scheme, they were offered advice by all sorts of people. They were told various things by AEA Technology, the new firm. Needless to say, AEA Technology said the new scheme was wonderful because it wanted to attract people into it. It wanted to do that because anybody who knows about final salary schemes—there are people here who are genuine experts on that—knows that it is necessary to have a large number of employees in such a scheme to make it remotely viable, so AEA Technology had an interest.

I do not know, and I do not suppose we will ever find out, but I suspect that the UKAEA employees—who are not just any old set of employees, they are highly skilled professionals; some of them are extraordinarily clever people—would quite easily have been able to account for the undoubted bias in the advice coming from their prospective employer, so let us forget about that piece of advice. They were also, I think, given a certain amount of steer by UKAEA itself. This is where it gets a little trickier, because UKAEA is a Government body and it had some kind of duty to give people dispassionate and neutral advice. However, UKAEA was in the course of trying to spin off AEA Technology, so it had an interest, too. I genuinely do not know the extent to which the employees did or did not pay attention to whatever they were told by UKAEA. Luckily, for the purposes of the debate, I do not want to dwell on that either, because there is a much more serious issue at stake.

The third set of people from whom the employees received advice—we do not have to speculate about this because it was written, and I am going to describe exactly what it said—was from none other than the Government Actuary’s Department. That is not just any old body. It is the most august body, so far as advice on pensions and pension matters is concerned, in our country. It is exactly what its name says on the tin; it is the Government Actuary’s Department.

The Government Actuary’s Department now has a statement of practice, but at the time it issued that advice it did not. It issued a paper, a copy of which I have in my hand, that discussed transfers from the UKAEA superannuation scheme to the AEA Technology pension scheme. In section 3 of that paper, particularly in subsection 3.2, the Government Actuary’s Department listed what it describes on the contents page as “Advantages of preserving”, which means the advantages of remaining in the UKAEA scheme. Another section describes

“advantages of taking a special transfer value”—

namely, the advantages of moving from the UKAEA scheme to the AEA Technology scheme.

The first strange thing about that is, in section 3, in which the Government Actuary’s Department lists the

“Factors to consider in making the decision”,

and was in particular describing the advantages of preserving the UKAEA scheme benefits—looking at what might influence the employees to remain with the public sector scheme—it said:

“Whilst it is unlikely that the benefit promise made by either the UKAEA Scheme or the AEAT Scheme would ever be broken—”,

and it went on to say that it is even more unlikely that both promises would be broken.

The important point is that not just any old person but the Government Actuary’s Department said it was unlikely that the benefit promise would be broken by either the Government-backed scheme, UKAEA, which is undoubtedly true, or the AEA Technology scheme. I have no doubt that, so far as it went, that statement was accurate, if looked at from the perspective of the date on which the Government Actuary’s Department wrote that it was “unlikely” that the benefit promise would be broken by AEA Technology. Incidentally, I hope the Minister and others will trust me; I am sure the Minister has read the whole thing because I know he has been assiduously preparing for the debate.

What is clear is that nowhere in the rest of the document does the Government Actuary’s Department say what was also patently true—that the risk of the pensioners losing a large part of the value of their pensions if they remained with their accrued rights in the UKAEA scheme was zero, or as near to zero as human beings get. A triple A-rated guarantee from HM Government attended that scheme. No such security was available under the AEA Technology scheme. Commercially-backed schemes do not have a triple A-rated Government-backed guarantee that pensioners will get their money as promised. That is a material difference between the two schemes, and the Government Actuary’s Department, in offering advice to pensioners, had a clear duty to bring out that difference in risk. It did not, and that is the starting point for the compelling argument I will make.