Serco Pension And Life Assurance Scheme Section F · CAS-11778-X7B6

CAS-11778-X7B6

Ombudsman’s Determination Applicant Mr Y

Scheme Serco Pension and Life Assurance Scheme Section F (SPLAS)

Respondents Magnox Limited (Magnox), Amec Foster Wheeler Plc. (AMEC), Nuclear Decommissioning Authority (NDA), Serco Group PLC (Serco), the Trustees of the Serco Pension and Life Assurance Scheme (the Trustees)

Complaint Summary

1 Magnox Limited, Amec Foster Wheeler Plc., Nuclear Decommissioning Authority, Serco Group PLC, The Trustees of the Serco Pension and Life Assurance Scheme CAS-11778-X7B6

Summary of the Ombudsman’s Determination and reasons

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1 The term ‘transfer date rights’, which is used in Regulation 7 of the Protected Persons Regulations, is defined in section

65 of the Electricity Act 1989. 3 CAS-11778-X7B6

“(a) taking into account the other benefits (if any) that are conferred on or made available to him as a result of the employment that he will hold after the relevant time, and

(b) taking the benefits that are available under the provisions of that pension scheme as a whole,

the benefits that are available under those provisions are no less favourable than the benefits available under the provisions (taken as a whole) of the nuclear pension scheme in respect of which he is entitled to protection under this Part of this Schedule.”

2 Paragraph 11(3)

4 CAS-11778-X7B6 “This booklet is intended to be an easy to read and non-technical guide to the main features of the [ESPS] as they apply to employees and pensioners of the Magnox Electric Group. It is not intended to cover all eventualities. The comprehensive details of the [ESPS] are contained in the Clauses and Rules of the [ESPS], a copy of which can be obtained from the Pensions Section at Berkeley.

If any statement made in this booklet conflicts with anything contained in the Clauses and Rules of the Scheme, those Clauses and Rules shall apply.”

“If the Company retires you early because of redundancy or reorganisation and you are 50 or over, you have the right to receive an immediate pension and lump sum. In the same way as voluntary early retirement the pension and lump sum will be calculated as for normal early retirement except that service will be to the date of compulsory early retirement and no discounting will be applied for early payment. If you are under 50, then you will have the same choices as if you had stopped work voluntarily except that any deferred benefits will be payable to you at age 50 instead of at normal retirement age. If you choose at the time of leaving to receive these benefits at normal retirement age, then in addition to your Scheme benefits, you may also receive a lump sum from the Company.”

“You have been advised of the intended transfer and sale in team meetings, individual briefing, Company communications, briefing notes, and correspondence since December 2004. The transfer has also been the subject of detailed consultation with the Trade Unions. A draft version of the transfer booklet was previously issued to you as part of the ongoing communications process on 15 June 2005.

I confirm that neither your transfer to E&TS Ltd nor its sale to Serco will affect your terms and conditions of employment or pension entitlements…” 5 CAS-11778-X7B6

3 The 2005 Booklet was signed by representatives of Magnox and the trade union Prospect.

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“At the point of transfer and sale, the transferred staff will be deemed to have joined [SPLAS], which will be enabled to provide ESPS equivalent benefits for your future service from the transfer date…Providing ESPS equivalent benefits for transferred staff is a requirement of the commercial agreement between [Magnox] and Serco as well as complying with the requirements of the Protected Persons Regulations and the Energy Act.”

“A key decision for you will be whether to leave your accrued pension benefits in the [ESPS] and join SPLAS for future service only, or whether to transfer 7 CAS-11778-X7B6 your accrued service to SPLAS, on a year for year basis. A feature of the commercial agreement between [Magnox and Serco] is that, regardless of your decision on this matter, the severance benefits which you would receive if you later took redundancy from Serco would be the same.”

“By contrast, if you leave your accrued pension benefits in the [ESPS], rather than transferring them into SPLAS, early retirement benefits from Serco would be based on pensionable service since the transfer; undiscounted [ESPS] benefits would be payable from normal retirement age.”

‘As a result of [the TUPE transfer of the transferring employees from Magnox to E&TS and E&TS’ subsequent sale to Serco], the transferring staff are performing essentially the same work for the same clients within Magnox as before the transfer, except that they are now employees of E&TS Ltd, part of the Serco Group. Serco is paid for this work through an amendment to a pre- existing contract for services between [Magnox] and Serco (and others), the

8 CAS-11778-X7B6 Alliance Agreement, whose scope was expanded slightly to include the work performed by [E&TS].

Within this arrangement, the rights of employees are maintained by a combination of the provisions of the TUPE regulations, and the additional protections written into the transfer contracts. These are at two levels: the obligations of [E&TS] to employees, and, perhaps more importantly, the obligations of Serco itself.

[E&TS]’s obligations are in part captured by the TUPE regulations: since an undertaking was transferred from [Magnox] to [E&TS] TUPE applies to all the transferring staff and means the contracts of employment transfer to [E&TS] as if they had been made with the new company in the first place. Continuity of service for statutory and contractual purposes is preserved and the terms of the contracts remain unchanged. Serco has made it clear that any subsequent changes will either be through collective agreement for generic terms, such as pay structures, or through individual agreement, in instances such as promotion. In addition, the transfer agreements specify that [E&TS] is obliged to maintain salaries, severance and pension rights.

Obligations solely on [E&TS] may, however, be insufficient if that left Serco with the theoretical option to sell, wind-up or otherwise dispose of [E&TS]. Such a manoeuvre would be outside the spirit of this arrangement, and Serco would be inherently unlikely to contemplate such an action, given Serco’s principles and the importance to Serco of its reputation in both the nuclear and the general outsourcing markets. Nevertheless, it was considered important in these agreements to close this potential loophole. This was done in the following ways:

4 The LPA was a ‘Lifetime Partnership Agreement’, signed by representatives of Magnox and of various trade unions on 11 December 2001, the existence of which was of no consequence to Mr Y in respect of his redundancy benefits from AMEC. 9 CAS-11778-X7B6 In summary, we believe that employees’ rights have been preserved through the transfer agreements, through the protection offered by TUPE regulations, as reinforced by [Magnox]/Serco contracts putting obligations on both [E&TS] and more importantly on Serco itself. It is worth also reflecting that, in the negotiations with Serco, these provisions were not contentious: Serco accept them as fundamental to the principle of the transfer, and noted that the damage to Serco’s reputation caused by being seen to try to circumvent them would be significant.’

“For the SPLAS Section F members – you will have the option to transfer your past pension and past service liabilities to [the ASPS]. This would be on a like for like basis and you would therefore no longer have a Serco linked pension.”

5 In a letter from Serco to Mr Y and others, dated 25 June 2012, transferees were informed that “from [the TUPE transfer from Serco to ESRC] until the onward point of transfer of [ESRC] to AMEC, there shall be no change to your pension arrangements or terms and conditions of employment.” 6 As stated in a deferred benefits statement, dated 28 September 2012.

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“…in the event of redundancy, the rules of the Magnox section of the [ESPS] state that a deferred member is only entitled to retire from age 50 if they left service prior to age 50 as a result of redundancy or reorganisation. As you left [SPLAS] after age 50 this does not apply to you and you would now be unable to draw your benefits until age 60, unless you qualify for ill-health retirement.”

7 The Rules of the ESPS that dealt with redundancy are detailed in Appendix 3.

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Summary of Mr Y’s position

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I sent my Preliminary Decision on Mr Y’s complaint on 13 November 2023.

In response to my Preliminary Decision, Mr Y made further submissions. He sought to simplify his complaint, so that it covered only what he considered to be his right to an early pension on the transfer of his employment out of Serco. A summary of his response to the Preliminary Decision is set out in the sub-paragraphs below:-

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8 Serco has referred to the paragraph of the Severance Benefit Statement that is set out in paragraph 26 above, in support of this submission. 26 CAS-11778-X7B6

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9 This Rule is set out in Appendix 2.

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Conclusions

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10 [2019] UKSC 38 11 Dring, at paragraph 41. 12 Dring, paragraphs 42 to 43. 13 Dring, paragraph 45.

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“The position in law seems to me abundantly clear. The duty to state reasons is a duty to tell the parties whether they have won or lost. The decision-maker must have regard to every material consideration; but he does not have to state every material consideration to which he has had regard. The classic statement on a statutory duty to give reasons is that given by Megaw J in Re Poyser and Mills’ Arbitration [1964] 2 QB 467 at 478, where he said this:

Parliament provided that reasons shall be given and in my view that must be read as meaning that proper adequate reasons must be given. The reasons that are set out must be reasons which will not only be intelligible, but which deal with the substantive points that have been raised.

The parties are entitled to be told why they have won or lost. There should be a sufficient account of the facts and the reasoning to enable the EAT or on further appeal this court to see whether any question of law arises.”

14 Dring, paragraph 46. 15 Section 151(3) of the Pension Schemes Act 1993. 16 [2001] 18 PBLR – [2001] PLR 155 – [2001] OPLR 113

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17 That is, Rule 4(b) of The Personal and Occupational Pension Schemes (Pensions Ombudsman) Rules 1995, which provides that “The complainant may withdraw his complaint or dispute – (a) at any time before the end of fourteen days from the date he receives a copy of the [respondent’s reply]…; or (b) thereafter with the leave of the Pensions Ombudsman which shall not be unreasonably refused.”. 36 CAS-11778-X7B6

18 IBM United Kingdom Holdings Ltd v Dalgleish [2015] EWHC 389 (Ch), (2015) Pens LR 99 (Warren J)

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19 Continuity of employment is defined in Regulation 5 of the Protected Person Regulations.

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20 ‘Pensionable Service’ is defined, in Section F, Rule 1.4.15 of the SPLAS Rules, as ‘(a) any period of continuous Service during which the person pays contributions to the Scheme or during which the person is listed as an active Protected Magnox Member; plus [any further pensionable service credited to the member, for example under a transfer in from another pension scheme]. 21 For example, in order for a member to receive a normal retirement pension under Rule 6.2.1, that member need only have ceased Pensionable Service. 40 CAS-11778-X7B6

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“(1) The Secretary of State may make regulations for the purpose of securing that—

…

(c) no person to whom paragraph 3(1) below applies[22] is placed in any worse position by reason of any change of employer which does not affect his continuity of employment but prevents him from continuing to participate in or acquire pension rights under a relevant scheme;

and the references in paragraphs (a) and (c) above to any worse position shall be construed, in relation to a person to whom paragraph 3(1) below applies who, after the transfer date, ceases to participate in or acquire pension rights under the scheme, as references to a position which is any worse than his position immediately before he so ceases.

(2) Regulations under this paragraph may impose duties (whether as to the amendment of the scheme, the provision or amendment of other schemes, the purchase of annuities, the making of payments or otherwise) on persons who are or have been employers of persons to whom paragraph 3(1) or (2) below applies; and duties so imposed on any person may include duties owed to persons of whom he is not and has not been an employer.”

“(1) In this Schedule—

22 Paragraph 3(1) applies to employees who participated in the ESPS immediately prior to the “transfer date”, so included Mr Y. 43 CAS-11778-X7B6 “pension”, in relation to any person, means a pension of any kind payable to or in respect of him, and includes a lump sum, allowance or gratuity so payable and a return of contributions, with or without interest or any other addition;

“pension rights”, in relation to any person, includes—

(a) all forms of right to or eligibility for the present or future payment of a pension to or in respect of him; and

(b) any expectation of the accruer of a pension to or in respect of him;

and includes a right of allocation in respect of the present or future payment of a pension.”

23 Alternatively, under Regulation 7(2), where the alternative scheme already has protected persons participating in it, the transferring protected person has a right to accrue pension rights on the same basis as that applicable to those other protected persons. This is not applicable in Mr Y’s case. 44 CAS-11778-X7B6

24 ‘protected employee’ is one of the two categories of ‘protected person’, the other being a ‘protected beneficiary’ (which does not apply to Mr Y) as defined by Regulation 4. 45 CAS-11778-X7B6

“If a protected employee changes his employer and does not require the accrued pension rights to which he is entitled immediately before the change to be transferred to the relevant scheme provided by his new employer in accordance with these Regulations, any former employer of whose relevant scheme those rights remain a liability shall be treated as the employer of that person for the purposes of these Regulations in respect of those rights until they are transferred to another relevant scheme.”

“The [Protected Persons] Regulations lay a duty on employers to ensure the protection of the pension rights of protected persons in the event of:

• the partial or total winding up of the [ESPS] or any alternative scheme;

• the restructuring or change of ownership of the participating employers; or

• the transfer of employees (whether at the requirement of the employer or on a voluntary basis) from one employer to another within the electricity supply industry.

The [Protected Persons] Regulations provide that, as far as possible, a protected employee shall be enabled to remain a member of the Pension Scheme. If this is not possible (for example in the case of a partial or total winding up of the Pension Scheme), the employer is required to provide his protected employees with an alternative scheme which offers future pension rights which are no worse than those they enjoyed immediately before ceasing to participate in the Pension Scheme. The protection extends to circumstances where an alternative scheme is wound up. There is also a duty on employers to protect the accrued pension rights of protected persons, including benefits in payment to pensioners and dependants.

The protection continues to apply when a protected employee moves within the industry and the Regulations set out the level of pension rights to be provided on transfers between companies in different circumstances. The

46 CAS-11778-X7B6 protection will cease to apply if continuity of employment in the industry is broken.”

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25 For example, there is no signature block which could have been signed by Serco had that been the intention. 48 CAS-11778-X7B6

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26 As has been confirmed in the case of Edge v Pensions Ombudsman [1999] 4 All ER 546, TPO’s jurisdiction does not allow me to consider class actions. 50 CAS-11778-X7B6

27 I note that Mr Y has referred to the other transferees as having interpreted this provision of the 2005 Booklet in the same way as he did. 28 Regulation 19(1)(a) provides that any duty owed under the 1990 Regulations by the employer of a protected person shall also be a duty owed by the parent company (if any) of that employer. 51 CAS-11778-X7B6

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29 In particular, the statement that “Serco is prevented from selling E&TS without the consent of [Magnox].”

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Anthony Arter CBE

Deputy Pensions Ombudsman

30 September 2024

58 CAS-11778-X7B6 Appendix 1 Relevant sections of the Electricity (Protected Persons) (England and Wales) Pension Regulations 1990 (SI 1990/436)

Regulation 2:

“Interpretation

2. - (1) In these Regulations—

… “accrue” means to become entitled to pension rights in respect of employment while a member of a relevant scheme, including increases in accrued pension rights under that relevant scheme arising pursuant to increases in remuneration; “accrued pension rights” means the pension rights, other than future pension rights and (except where the context otherwise requires) any pension rights provided by a state pension scheme, to which a protected person is from time to time entitled; “alternative scheme” means a scheme to which regulation 8 applies;…”

Regulation 5:

Continuity of employment

“5.- (1) Subject to paragraph (2), references in these Regulations to a protected employee being in continuous employment shall be construed in accordance with paragraph 4 of Schedule 14 to the Act…”

Regulation 6:

Accrued pension rights

“6. - (1) Subject to paragraphs (2) and (3), the employer of a protected person shall at all times ensure that, in respect of each protected person in his employment, the assets of the relevant scheme provided by the employer in respect of that person are such that, in the event of the winding up of that scheme, there would be available to provide accrued pension rights for such protected person a sum equal to or exceeding the liability of that scheme in respect of those accrued pension rights.

…

(4) If a protected person shall transfer or be transferred to a relevant scheme, and if a transfer payment shall be made in respect of his accrued pension rights to that scheme, the employer providing that scheme shall procure that the rules of that scheme will secure accrued pension rights which, on the basis of good

59 CAS-11778-X7B6 actuarial practice, are at least equivalent in value to his accrued pension rights so transferred from the former scheme.

(5) Any new employer shall also procure that if the protected person notifies or is deemed to have notified his new employer in accordance with the terms (if any) of the relevant scheme provided by the new employer, and otherwise within two years of transferring to the new employer, that he desires to transfer his accrued pension rights to the relevant scheme provided by the new employer, he shall be entitled to transfer to that relevant scheme in accordance with paragraph (4) any accrued pension rights which are capable of being transferred…”

Regulation 7

Future pension rights

“7. - (1) The rights described in paragraphs (2) and (3) are the future pension rights for the purpose of these Regulations.

(2) The right of a protected employee to participate in a relevant scheme and (subject to paragraph (5))—

…

(d) in the event of a change of employer to an employer who participates in an alternative scheme, to accrue pension rights on the same basis as that applicable to protected employees in that scheme,

…

Provided that the pension rights referred to in sub-paragraphs (b) and (d) of this paragraph do not include any addition to or improvement of the pension rights provided by the alternative scheme in question which is made after the date upon which it is provided pursuant to these Regulations.

(3) Subject to paragraph (4), the right of a protected employee, who is participating in a relevant scheme and who changes employer to an employer who provides a relevant scheme in which no protected employees are then participating, to accrue pension rights which are no worse than transfer date rights.

(4) Where an employer has no protected employees participating in a relevant scheme which he provides to a protected employee pursuant to these Regulations at any time after the date of commencement of the total winding up of the Pension Scheme and—

(a) he has at any time since that winding up provided a relevant scheme for protected employees who participated in the Pension Scheme on that date; or 60 CAS-11778-X7B6 (b) he has not provided such a scheme but is a wholly owned subsidiary of a parent company which has provided such a scheme,

there shall be substituted in paragraph (3) for the reference to transfer date rights a reference to the rights so provided…”

Regulation 19

Persons owing a duty

“19.- (1) Any duty imposed by these Regulations on the employer of a protected person shall also be a duty owed by—

(a) the parent company (if any) of the employer of the protected person;

…

(2) If a protected employee changes his employer and does not require the accrued pension rights to which he is entitled immediately before the change to be transferred to the relevant scheme provided by his new employer in accordance with these Regulations, any former employer of whose relevant scheme those rights remain a liability shall be treated as the employer of that person for the purposes of these Regulations in respect of those rights until they are transferred to another relevant scheme…”

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Key provisions of the SPLAS Rules

GENERAL RULES

SCHEDULE 1

Definitions and Interpretations

Associated Employer means any company, firm or person which is associated with the Principal Company. For this purpose, an employer is associated with another employer where one is controlled (either directly or indirectly) by the other or both or all are controlled by a third party. The word “control” shall be construed in accordance with Section 840 of the Taxes Act or, in the case of a close company, Section 416.

…

Employer means such of the Employers as shall employ the Member for the time being.

Employers means the Principal Company and any Associated Employers which are participating in the Scheme.

…

Service means permanent employment with any of the Employers and Service shall be deemed continuous although broken by periods of one month or performed partly with one Employer and partly with another Employer.

MAGNOX SECTION: SECTION F – MAGNOX MEMBERS

1.2 In respect of Protected Magnox Members, these Sub-Rules (when read in conjunction with the Rules) are intended to meet the requirements for an alternative scheme for the purposes of the Protected Persons Regulations and are subject to those Regulations.

1.3 Where an individual benefit provided to a Protected Magnox Member under the Scheme is less than the equivalent individual benefit which would have been provided to a Protected Magnox Member on the basis of the provisions of the ESPS as at 31 March 1990, the Trustees shall take such steps as are required in order to deal with the discrepancy.

…

1.4.15 Pensionable Service means: (a) any period of continuous Service during which the person concerned pays contributions to the Scheme or during which the person is listed as an active Protected Magnox Member; plus (b) any credited pensionable service provided to or in respect of the Magnox Member;

62 CAS-11778-X7B6 plus (c) any Added Years to which a Magnox Member is entitled, provided that the calculation of a period of Pensionable Service:

1.4.15.1 is subject to Sub-rule 2.2;

1.4.15.2 is counted in complete years and proportionately in days…

1.4.15.3 is subject to a maximum of 45 years.

…

4 BENEFITS ON RETIREMENT APPLICABLE TO GENERAL RULE 4

4.2 Early retirement of an Active Member applicable to General Rule 4.2

4.2.1 A Normal Pension and Retirement Lump Sum shall be payable under General Rule 4.2.1 where an Active Member retires:

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4.2.1.3 on or after age 50 where the Member is compulsorily retired from Service by his Employer due to redundancy or a reorganisation of the Employer’s business;

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4.2.2 The Normal Pension and Retirement Lump Sum payable under General Rule 4.2.2 in respect of an Active Member shall be:

4.2.2.1 if the active member retires in circumstances other than because of Incapacity, an amount equal to the Normal Pension and Retirement Lump Sum which would have been payable to him at Normal Pension Age but calculated at the date of his actual retirement. Unless the Magnox Member has reached his 50th birthday and has 10 years’ Pensionable Service or is compulsorily retired from Service by his Employer due to redundancy or a reorganisation of the Employer’s business, the Normal Pension and Retirement Lump Sum will be reduced by the Trustees on Actuarial Advice to take account of early payment in respect of the period between the date of retirement and Normal Pension Age…

6. TERMINATION OF PENSIONABLE SERVICE

6.2 If a Magnox Member leaves Pensionable Service other than on death or retirement having completed more than one years’ [sic] Qualifying Service or in respect of whom a transfer payment has been received from a Personal Pension Scheme, he shall be entitled to the following benefits:

… 63 CAS-11778-X7B6 6.2.3. Early retirement due to redundancy or reorganisation

6.2.3.1 Subject to Sub-Rule 6.2.3.2, where the Magnox Member’s Service ended, in the Trustees’ opinion, due to redundancy or a reorganisation of the Employers’ business, the Magnox Member will receive a Normal Pension payable during his lifetime and Retirement Lump Sum immediately (or, if later, from age 50) calculated as at the date when the Magnox Member’s Service ended (or, if later, from age 50).

6.2.3.2 Where deferred benefits would otherwise come into payment prior to the Magnox Member’s Normal Pension Age in accordance with Sub- Rule 6.2.2, the Magnox Member may, within 12 months of leaving Service and subject to the consent of the Principal Company, elect by notice in writing to the Trustees to defer the payment of such benefits until his Normal Pension Age (and, in those circumstances, his benefits will become payable at his Normal Pension Age).

64 CAS-11778-X7B6 Appendix 3 The Rules of the Electricity Supply Pension Scheme that deals with redundancy.

“The Benefits specified in and calculated as provided by Rule 14 shall, in the case of a Member who is retired compulsorily by the Employer employing him on or after attaining age 50, be paid to him if such Retirement is consequent on reorganisation or redundancy and may, in the discretion of such Employer, be paid to him if such Retirement is for any other cause.”

Rule 17(1):

“A Member who leaves Service (otherwise than with an entitlement to Benefits under Rules 4(1), 14, 15, 16 or 17A) and who at the time he leaves Service has at least one year’s Qualifying Service or in respect of whom a Transfer Value Payment shall have been received from any Personal Pension Scheme shall be granted Frozen Benefits of a value and payable on the terms set out in paragraphs (1A) to (1H).”

Rule 17(1A):

“Benefits calculated as specified in Rule 14 shall be paid to a Member entitled to Frozen Benefits, and he shall be treated as having retired:

…

(c) on his reaching age 50 where he has ceased to be a Contributor on leaving Service prior to that age consequent on reorganisation or redundancy unless, with the consent of his Employer, he has waived his right on so leaving to have his Frozen Benefits payable from that age.”

65 CAS-11778-X7B6 Appendix 4 Regulation 4(1) TUPE

4 Effect of relevant transfer on contracts of employment

(1) Except where objection is made under paragraph (7), a relevant transfer shall not operate so as to terminate the contract of employment of any person employed by the transferor and assigned to the organised grouping of resources or employees that is subject to the relevant transfer, which would otherwise be terminated by the transfer, but any such contract shall have effect after the transfer as if originally made between the person so employed and the transferee.

(2) Without prejudice to paragraph (1), but subject to paragraph (6), and regulations 8 and 15(9), on the completion of a relevant transfer—

(a) all the transferor's rights, powers, duties and liabilities under or in connection with any such contract shall be transferred by virtue of this regulation to the transferee; and

(b) any act or omission before the transfer is completed, of or in relation to the transferor in respect of that contract or a person assigned to that organised grouping of resources or employees, shall be deemed to have been an act or omission of or in relation to the transferee.

…

(7) Paragraphs (1) and (2) shall not operate to transfer the contract of employment and the rights, powers, duties and liabilities under or in connection with it of an employee who informs the transferor or the transferee that he objects to becoming employed by the transferee.

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