MPs have urged the government to show what more it will do to help people make informed financial decisions, and to review whether the current rules for increasing Pension Protection Fund (PPF) compensation for inflation are appropriate.

Following its inquiry, the Public Accounts Committee's (PAC) report highlighted the case of the Atomic Energy Agency (AEA) Technology scheme as “another case of government not giving people enough time or support to make complex financial decisions”.

It also said that the case has highlighted gaps in the routes of appeal available for people raising complaints about their pensions, and is "another case of government not giving people enough time or support to make complex financial decisions".

Issues around the scheme first arose after the commercial arm of UK AEA Technology was privatised in 1996, meaning that its employees could no longer pay into the public sector pension scheme.

Scheme members were subsequently given the option to either leave preserved pension benefits in UKAEA pension scheme, transfer benefits into a personal pension, or transfer their benefits into the new AEAT scheme; an offer available for only one month.

AEAT and the Government Actuary’s Department (GAD) also provided information to scheme members to outline their options and the main factors to consider in deciding whether to transfer accrued benefits.

In total, around 4,000 civil servants transferred to the new company, with nearly 90 per cent of them transferring to its new pension scheme.

However, the PAC found that while government gave assurances that the new scheme would have equivalent benefits to the public sector, it did not make clear that the new pension scheme was not guaranteed by government in the same way.

As a result, when AEAT went into administration in 2012, its pension scheme entered the PPF with some members losing significant sums as a result.

Following on from these issues, the PAC has urged the government to make provision to ensure that members’ complaints about the AEAT pension case can now be independently reviewed by a relevant ombudsman.

The committee also encouraged the government to review ombudsman arrangements more broadly, to ensure that all aspects of people’s interactions with their pensions have an adequate route of appeal.

In addition to this, it called on the Public Administration and Constitutional Affairs Committee to 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.

More broadly, the committee also urged the government to share what more it will do to support people to make informed financial decisions, including an update on progress with pensions dashboards.

The committee's report identified the AEA Technology pension case as one of several that demonstrated the difficulties people face when making decisions about complex or long-term financial products, arguing that the government has a key role to help people make good financial decisions, either directly, or through regulated financial advice.

However, it argued that the government’s oversight has been "lacking", with an "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," the report stated.

Alongside this, the PAC encouraged the government to review whether the current rules for increasing PPF compensation for inflation are appropriate, including considering the costs and benefits of extending the rules so that benefits accrued before April 1997 are also increased for inflation and, separately, of raising the cap for annual increases above 2.5 per cent.

Committee chair, Meg Hillier, stated: “In successive inquiries the PAC and other select committees have found a lack of oversight, joined-up thinking and strategy regarding pensions and pensions regulation.

"The government needs to take a long hard look at the lessons of this case and how it frames advice to people affected.”

However, the PPF recently warned that changing the law to introduce indexation on compensation linked to pre-97 service would have "significant" financial impacts for the PPF and wider implications for DB schemes.

Indeed, according to the lifeboat's analysis, indexing pre-97 compensation in the future at CPI subject to a cap of 2.5 per cent would increase current liabilities by £4.3bn, reducing the PPF’s funding level by 17 percentage points.

In addition to the financial impact, the PPF noted that there would be broader implications of any change in indexation, warning that, if there was no corresponding change to the level of pre-97 pension increases offered by all other DB schemes, the benefits offered by the PPF might become more generous than those offered by the scheme itself.

Pensions Age has contacted the Department for Work and Pensions for comment.

Share Story: