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Atomic Weapons Establishment Management Limited: Pensions

Volume 699: debated on Monday 3 March 2008

My right honourable friend the Secretary of State for Defence (Des Browne) has made the following Written Ministerial Statement.

The MoD's responsibility for maintaining the UK's nuclear warhead capability is fulfilled through Atomic Weapons Establishment Management Limited (AWE ML) as the prime contractor. The Atomic Weapons Establishment, which was previously a directly employed business within the MoD, was contractorised in 1993 and affected MoD staff transferred to AWE plc under the Transfer of Undertakings (Protection of Employees) Regulations.

AWE plc operate a final salary pension scheme for its employees. This is a funded scheme administered under a trust and, as such, is exposed to the volatility of financial markets. The latest valuation in 2005 revealed a deficit of £73 million against total liabilities of some £589 million. Since then, AWE ML have been developing and consulting staff and trade unions on a range of proposed amendments which would address this deficit. AWE ML is determined to maintain the existing final salary scheme for both existing and new employees but this will require an increase in pension contributions. The alternative would be the closure of the scheme. The present annual value of the required additional contributions to the scheme is estimated to be some £9 million.

During the Committee stage of the Atomic Weapons Establishment Bill in 1991 (Official Report, Commons, 14 February 1991, col. 223), the then Under-Secretary of State for Defence Procurement made an undertaking that any increase in employee contributions would be offset by a compensating adjustment to pay.

This undertaking was made in a very different context to the one in which occupational pension schemes now operate. Pension schemes both in the public and private sectors have undergone major changes in response to improving health and healthcare, longevity and returns on investments. Even if AWE employees had remained as civil servants, they would not have been unaffected by these dynamics; new pension arrangements were introduced for the Civil Service last year and final salary schemes are now closed.

While AWE ML will continue to fund the bulk of the pension costs through its employer contributions, AWE employees will also need to increase their contributions in today's circumstances. AWE ML will implement any changes to the pension scheme only following proper consultation with the trades unions and scheme members.