AEA Pension Scheme

Richard Fuller Excerpts

Wednesday 26th October 2016 Westminster Hall

[Sir Oliver Letwin]

I agree that there was probably a subtle incentive, but I will come on to that in more detail in a moment. At this stage of the argument, all I am saying is something that I think is unchallengeably certain: the Government Actuary’s Department gave advice that did not bring to light the material difference in risk between one situation and another. That is fact. Beyond that, one can speculate, but that is fact.

When I say that the Government Actuary’s Department had a duty to highlight that difference of risk, I am again not speculating. Although at the time it did not exist, the Government Actuary’s Department now has a statement of practice. I have a copy of it in my hands. Under the heading “Security”, the statement of practice—essentially a code of conduct—says:

“It is recognised that the security of a private sector scheme cannot be provided in the same form as that applying in the public service”.

It is practically impossible to imagine that the Government Actuary’s Department would offer advice now in the form it did then, because it would be guided by its own code of practice. If it were not, I imagine rapid action would be taken to correct it, because if a Government Department issued a code of practice and then did not follow it, that would lead a Minister quickly to do something. Therefore we know that the Government Actuary’s Department had a duty, which unfortunately was not at that time written down in the code of practice, that it did not observe to bring to light the difference in security between the two positions. It did not do that.

It is important to make one last point about what the Government Actuary’s Department did. A freedom of information request has revealed an interesting sequence of events about which I intend in due course to write a little monograph, because it is very instructive about what happens inside Government and agencies when they engage in commercial transactions. The FOI revealed that there were exchanges of drafts between the Government Actuary’s Department, UKAEA and AEA Technology. The drafts went back and forth, and the various parties commented.

When the draft of the very section to which I am referring, which was at that time labelled 3.1.1 instead of 3.2.3—I will come on to that point, but it is ipsissima verba—was sent to AEA Technology, the person looking at it from AEA Technology noted in handwriting, “Delete”. So even an observation that it was possible the AEA Technology scheme might conceivably go bust, or that the UKAEA scheme might not deliver, was objected to by AEA Technology. It tried to get that deleted. To be fair to the UKAEA people and the Department then in charge of them, which is effectively now the Department for Business, Energy and Industrial Strategy, that did not get deleted.

I mentioned, however, the numbering, which is also instructive. Section 3.1.1 became section 3.2.3 because UKAEA supported the AEAT proposition that the advantages of preserving—in other words, staying in the public sector—should not be presented before the advantages of transferring, as it was in the original draft, but vice versa. Indeed, that change was made. That whole sequence of events illustrates very clearly that AEA Technology and UKAEA had a joint interest in trying to get as many pensioners as possible to transfer into the AEA Technology scheme—not because they were evil schemers, but because they wanted that scheme to be viable. They were putting as much pressure as they could on the Government Actuary’s Department, to get as close as they could get it to go to telling the pensioners that that was a good thing to do.

To be fair to the Government Actuary’s Department, it did not say that that was a good thing to do, but it also did not illustrate the fact that if we looked at the risks, it was a very bad thing to do. That is a very important point. The Government Actuary’s Department did not just fail to point out the risks; it failed to point out the risks under conditions in which some pressure upon it was being brought not to reveal those risks in full.

I want to make one last point about the advice from the Government Actuary’s Department before I move on to the law. The role of the Government Actuary’s Department, which comes out clearly in the whole of its advice, was to look at the benefits of the two possibilities—remaining or transferring the accrued rights—and to see whether, on an actuarial basis, one was superior to the other or the other to the one. The Government Actuary’s Department concluded that there was not really anything to choose between them. That was translated into the view that all in all, the benefits were as good in the one case as the other. Of course, for a particular individual—this was pointed out—it might be different, but by and large, people got the same kind of benefit in the two cases.

We have the word of the Government Actuary’s Department that there would be no financial difference for pensioners, by and large, whether they stayed or went to the AEAT scheme—except, of course, that there was a huge difference. In the one case, they were getting the same benefits guaranteed, and in the other case they were getting the same benefits not guaranteed, because they were supported only by a commercial firm that could have gone bust and did go bust, and whose pension fund could have been in deficit and was in deficit—and lo and behold, they have indeed suffered.

Under pressure from those responsible for the transaction, the Government Actuary’s Department assessed the two schemes as being of equal value to employees without taking account of the difference in risk. It failed to point out that difference and therefore led the pensioners to believe that there was nothing particularly wrong with transferring their accrued rights to the AEAT scheme. They could have had the benefits guaranteed permanently had they remained in the UKAEA scheme, but they did not ever realise that great difference in risk.

[Richard Fuller (Bedford) (Con)]

My right hon. Friend has pointed to advice from the Government Actuary’s Department about a privatisation. There was a period when many other Government businesses were being privatised. Has his research identified whether the advice was similar in other cases, or was this piece of advice unique to the circumstances of AEA Technology?

[Sir Oliver Letwin]

I do not know whether my hon. Friend brilliantly waited until this moment to ask that pertinent question, but he has asked exactly the right question at exactly the right moment. It was generally the case that undertakings were given—I was involved as a financial adviser in many privatisations—about the solidity of the pension scheme that was going to be available for pensioners if they transferred to the new undertaking. I strongly suspect, although I cannot prove, that many of the AEA Technology pensioners who later suffered imagined at the time, not least because the Government Actuary’s Department did not say anything about a difference of risk, that such undertakings were available.

Moreover, the pensioners were probably led to have greater faith by the accident that the provisions of the law that gave rise to the transfer of the undertaking suggested—although did not say, if we read them carefully —that it would be just as good a pension scheme as the one they were leaving. In fact, in this case there were no such undertakings, and therefore there was a difference between this and many other privatisations. That was never brought out in the documentation, and the Government Actuary’s Department did not refer to it. That further strengthens, to my mind, the point that the Government Actuary’s Department advice served to mislead the pensioners.

I apologise, Ms Dorries, for the fact that that was all just the shaggy dog story, and now I am coming to the actual point of the debate. Everything I have described is a series of allegations by a Back-Bench MP—namely me—about what I think the Government Actuary’s Department did, and who the hell cares whether a Back- Bench MP thinks the Government Actuary’s Department behaved well, badly or indifferently? There is another body that judges these things that is much more important than a Back-Bench MP for these purposes, and that is the Parliamentary and Health Service Ombudsman. That body gets to judge whether a Government agency—the Government Actuary’s Department is certainly one of those—has acted in such a way as to maladminister. That is the task of the ombudsman.

It is well established in the case law surrounding the ombudsman that if a Government Department misleads people, that is a form of maladministration, and if it causes them loss, that is a form of maladministration that the ombudsman can rule requires remedy. That is a perfectly well established chain of thought. We might think, therefore, that the Parliamentary and Health Service Ombudsman would be able to rule on whether I am right in asserting that the Government Actuary’s Department misled these pensioners and therefore engaged in an act of maladministration.

If we look at the Parliamentary Commissioner Act 1967—although it has often been amended since—and its original description of what the ombudsman should do, our heart lifts to begin with, because section 4 says clearly that the Act applies to

“government departments, corporations and unincorporated bodies”

listed in schedule 2. If we turn to schedule 2 of the Act, lo and behold, one of the bodies listed is none other than our friend the Government Actuary’s Department. We might therefore think that we do not need to speculate about this; we just need to write a letter—I have written letters, as a matter of fact—to the Parliamentary and Health Service Ombudsman to ask it to investigate the Government Actuary’s Department action in this case.

Alas, it ain’t so, because schedule 2 is subject to the notes to schedule 2, and in those notes—I do not know how this happened—the Government Actuary’s Department is specifically included in the purview of the ombudsman only

“relating to the exercise of functions under—

(a) Part 2 of the Insurance Companies Act 1982, or

(b) any other enactment relating to the regulation of insurance companies within the meaning of that Act.”

I will not trouble the Chamber with what goes on in the Insurance Companies Act 1982, but I assure hon. Members that I have been through it—it is incredibly boring—and there is absolutely nothing that would in any way enable the ombudsman to look at the Government Actuary’s Department’s action in this case.

I imagine that the underlying purpose of that massive exclusion was that someone at the time—in 1967 or later—wanted to ensure that the parliamentary ombudsman would not be able to second-guess the actuarial calculations of the Government Actuary’s Department. I thoroughly sympathise with that. As a former Minister, I would certainly not want to see the Parliamentary and Health Service Ombudsman trying to be an amateur Government Actuary’s Department No. 2. That would be mad, and I am not asking for that.

In this case, we are not talking about an actuarial calculation. I am assuming, as I have done throughout my remarks, that Government Actuary’s Department calculations of the value of the two schemes to the pensioners, if they had been of equal risk, were perfect. My problem is what the calculation did not bring to light. It was not an actuarial calculation. It was a failure of a duty to point out the obvious in an extremely important way to people who may not have known it was obvious.

It is arguably clear that that is maladministration that the parliamentary and health service ombudsmen should be able to adjudicate on. It would require only a small amendment to section 4(1) of the 1967 Act in the forthcoming parliamentary ombudsman Bill to remedy that. We would then be able to go back to the ombudsman and say, “Now you have the power to look at what the Government Actuary’s Department did, whether it constituted maladministration and whether in your view that maladministration was material in having an effect on the pensioners, the choices they made, and hence the losses they incurred.” Then, as with Equitable Life—I threatened to go on hunger strike if the then Government did not bring in the ombudsman and agree to follow its ruling—it would be possible to introduce a scheme with compensation proportionate to the extent to which the losses to the pensioners were caused by the maladministration.

We all know that the Equitable Life scheme is not perfect and does not fully compensate the pensioners, because much of the problem was due to the directors and not the regulators. However, to the extent that it was due to the regulators, there has been a compensation scheme exactly like my proposal. We could do that in this case if we changed section 4(1) of the 1967 Act.

--- Later in debate ---

[Ian Blackford]

I will do so, Ms Dorries, as I was intending to.

I congratulate the right hon. Member for West Dorset on securing this important debate. He has been assiduous in pushing the case, and his suggestion this afternoon of looking at amending the law as it affects the ombudsman certainly has some merit.

I also congratulate the right hon. Member for Wantage (Mr Vaizey). He has very accurately shown what happened with the advice that was given, some of the deficiencies that were there, and the possible interference from AEAT in that process and the advice that was given.

As my hon. Friend the Member for Caithness, Sutherland and Easter Ross (Dr Monaghan) said in his concluding remarks, we need to remember that pensions are a contract, not a benefit. Those who have paid in to pension schemes deserve to get their due entitlement. It is the responsibility of the UK Government to ensure that there is confidence in the pensions industry throughout the UK. We all look forward to a time when people can save in pensions, secure in the knowledge that they will get their due entitlement. We need to have that confidence, and it is the Government’s responsibility to ensure that the Pensions Regulator and the ombudsman discharge their obligations to ensure that the consumer interest is protected.

It is clear that pension scheme members in this case, as we heard last week in a debate in the main Chamber on the BHS scheme, are not fully protected—they are not protected to the extent that they should be. Lessons must be learned and appropriate action taken. Whether that is done through the ombudsman or the regulator is a moot point and we can come back to it in due course. What needs to be remarked on today is that, with the AEAT scheme ending up in the Pension Protection Fund, those who worked for the company when it was in the public sector have, among others, lost pension entitlement. The Government cannot walk away from their obligation to what were public sector workers. That is not acceptable.

It is clear from its conduct that the UK Government Actuary’s Department has ducked its responsibility to the AEAT pension scheme members. Liability has to lie somewhere. As discussed in a Westminster Hall debate on this topic in March last year, the Government Actuary’s Department was the author of a leaflet designed to inform pension scheme members of their next course of action in the light of the creation of AEAT. According to evidence given to the Pensions Ombudsman Service, that leaflet suggested three options, but also said that it was unlikely that the UKAEA scheme would fail or that

“the benefit promise made by either the UKAEA scheme or the AEAT scheme would ever be broken.”

That was in my book an inducement and assurance to the scheme members. Who will stand behind the scheme members who were made those promises? Will the Minister accept that the Government at least have a moral and ethical responsibility?

[Richard Fuller]

I heard the hon. Gentleman make these points in the British Home Stores debate last week. Does he not think that it will be very difficult for the Government to take action on employer behaviour that seems to fall below the norms that they would expect if they do not keep their own ship in order?

[Ian Blackford]

The hon. Gentleman makes a very valid point. I argued last week and argue again today that we must learn the lessons of the failure that has taken place. We have to ensure that we create confidence in pensions—that is what emerges, whether we are talking about BHS, the AEAT scheme or many others. We have to look at the responsibility that the regulator and the trustees have, but it is a responsibility, ultimately, that we all have as legislators.

The pensions ombudsman said that the scheme’s post-privatisation survival, and hence scheme benefits, were not guaranteed:

“AEAT was a private sector company and so there was a risk of the company getting into financial difficulties or failing altogether.”

It is clear that the circumstances surrounding the information provided by GAD at the time of the transfer, or the lack thereof, warrant thorough investigation in the light of AEAT being unable to meet its commitments. If it is the case that vital information was left out of the leaflet, it is a serious matter and must be treated as such.

This would certainly not be the first time that a UK Government Department has been found guilty of misinforming pensioners. The shambolic handling of the notification process for the WASPI women has meant that thousands of women born in the 1950s face hardship, having unexpectedly to push back their retirement by years. The members of the AEAT scheme deserve a full and thorough investigation that incorporates the timelines from the creation of UKAEA to the present so that mistakes can be identified and those responsible held to account. When hard-working employees are promised a pension and it is not delivered, there should be a concerted effort to establish a thorough and independent investigation to determine accountability and all avenues that can be explored to protect pension rights.

The Scottish National party has long called for the establishment of an independent pensions commission to build the architecture to ensure that employees’ savings are protected, and that a more progressive approach to pensions is taken. Will the Minister commit the Government to doing that today? There are far too many issues affecting pensions policy and they need to be addressed in a holistic manner. Establishing a pensions commission would be an important step in ensuring fairness in pensions policy, dealing with problems such as this one and building confidence in pension saving.

In summary, I look forward to hearing the Minister’s response. For the first time in his capacity as Pensions Minister, I welcome him to the debate, and also welcome the Labour Front-Bench spokesman, the hon. Member for Stockton North (Alex Cunningham).

--- Later in debate ---

[Richard Harrington]

I thank my right hon. Friend for those comments. It is certainly true to say that the area of risk is not discussed explicitly and it is reasonable to argue that there should have been a box with a health warning saying that one piece of advice—or not advice, but information—was different from another because of the risk element, but it is also fair to say that the note does not attempt to assess risk. It may imply by default that one was less risky than the other, but it certainly does not say anything that could be interpreted as misleading the people who received it, in my view.

I understand the position of constituents in the Public Gallery today, some of whom are understandably shaking their heads, given their views about what I have just said, but it is very easy, years later, to pick pieces out of documents. If it said that this was advice, that would be one thing, but it clearly says that people should take independent advice.

My right hon. Friend the Member for Preseli Pembrokeshire (Stephen Crabb), the former Secretary of State for Work and Pensions, said that independent advice would not cover the risk of transferring. Please do not misunderstand me: I am not saying that I have no reason to believe him, but I cannot understand why an independent financial adviser would be more or less likely than anybody else to comment on the risk or the lack of risk in giving advice. As I said, I accept that it is easy for us to say things all these years later, but the note does not seem to me to be intended to cover every eventuality. It was eight pages long and it was not intended to cover everything. It does not completely ignore the subject of insolvency.

[Richard Fuller]

I am struggling with something that the Minister said. He indicated that the advice of the actuary was able to be second-guessed by someone then going to an independent adviser. My right hon. Friend the Member for West Dorset (Sir Oliver Letwin) talked about the role of the PHSO and said that it did not investigate the rulings of the actuary so that it could not second-guess the advice the actuary gave on liability. So which way should we have it?

[Richard Harrington]

My hon. Friend knows very well that I did not say that. I said that an independent adviser is no more or less likely to consider the idea of risk. I was actually referring to the view of my right hon. Friend the Member for Preseli Pembrokeshire that suddenly Government advisers did assess risk, but independent advisers could not possibly do so. I will have to make progress, because we are running out of time. I believe that the note was intended as a helpful starting point but did not constitute advice for members.

I will move on to the parliamentary ombudsman—I must deal with the ombudsman service generally and the choice of ombudsman, because they are so important in this case. It is correct that the actions of the Government Actuary’s Department fall generally outside the parliamentary ombudsman’s remit. I understand, however, that is only one of the reasons that the parliamentary ombudsman gave for deciding not to investigate. I hope I am not misrepresenting what she said—I have tried to look into this in some detail—but it seems to me that her decision was made partly on the basis that the complaints were not about the actions of a Government Department in relation to a citizen, which is what the ombudsman service is for. She has concluded that the complaints are about information provided in relation to employees and employees’ pension rights. That is why it is not the concern of the parliamentary ombudsman. If that is a correct interpretation of her opinion, changing the legislation to allow her office to have greater oversight of GAD would not solve the difficulty raised in this debate.