Restructuring schemes with a Crown guarantee: the Government’s proposals for the Atomic Weapons Establishment Pension Scheme

The Chancellor’s November 2025 Budget included a number of significant changes for pensions – the new limits on salary sacrifice contributions, changes to DB surplus payments to members and award of increases on pre-1997 benefits to members receiving compensation from the PPF and FAS all attracted headlines. But tucked away in the Red Book was a further announcement relating to the Atomic Weapons Establishment Pension Scheme (the AWE Scheme) which perhaps merits further consideration than it may have received so far.

Page 51 says:

“ […], the government has confirmed £2 billion further asset disposals at the Budget by ensuring its liabilities are funded in the most efficient way. In line with the principles set out in the Balance Sheet Framework, liabilities held by the Atomic Weapons Establishment pension scheme and the Nuclear Liabilities Fund will no longer be pre-funded. This does not change the government’s obligation to pay the liabilities when they are due, nor does it change the terms or benefits of pension scheme members.”

Subsequent House of Lords debate notes that this change was first announced in a Commons written statement in July 2022.

What is the AWE Scheme?

The AWE Scheme is a trust-based defined benefit occupational pension scheme (with DC AVC pots). When it closed to accrual in 2017 it had around 4,000 – 5,000 active members.

According to its 2023 valuation the AWE Scheme was around 93% funded, with assets of c£1.3bn and a £98m deficit. It has the benefit of a Crown guarantee in respect of its liabilities and AWE plc has been wholly owned by the Ministry of Defence (MoD) as a non-departmental public body since 2021.

What has happened so far?

On 2 February the Government published its response to the House of Lords Delegated Powers Committee report on the Pension Schemes Bill. Included at the end of that report was a paragraph outlining a supplementary delegated powers memorandum, prepared by the MoD, being sent to the committee to explain some new delegated powers the Government has tabled for insertion in the Bill (the Memo). The response said that:

“The delegated powers provide for the establishment of a new public pension scheme for the beneficiaries of the Atomic Weapons Establishment Pension Scheme, and for the transfer of scheme assets to the Secretary of State. These provisions reflect an announcement made by the Chancellor at her Budget on 26 November 2025.”

The new provisions referred to are in a proposed new Chapter 2A of the Pension Schemes Bill – amendments 194 to 202 - which were considered by the House of Lords Grand Committee on 5 February 2026 as part of its scrutiny of the Bill. Questions were raised both as to the practicalities of the implementation and proposed drafting – e.g. tax treatment, discretionary increases, discharge of and protections for outgoing trustees – and more fundamentally regarding the policy underpinning the proposed change. These include whether it is appropriate to create a bespoke statutory arrangement for a single named company, and what rights are being preserved for members. 

What does this mean?

The Government is seeking to turn an existing closed private sector funded scheme into a new unfunded public sector arrangement. As part of that process the assets of the AWE Scheme will be transferred to the Secretary of State to be put to use as the Government sees fit – there will no longer be any ring-fenced assets held for the purpose of meeting the c£1.4bn of liabilities relating to the benefits of AWE Scheme members.

The Memo says that:

“In her Budget on 26 November 2025, the Chancellor, as part of her focus on efficiencies and savings, confirmed a further £2 billion of asset disposals to ensure that liabilities are funded in the most efficient way and that accordingly, the liabilities held by the AWE pension scheme should no longer be pre-funded. This is in accordance with principles in Managing Public Money, which provide that where financial risk is borne by the government, the liability should not be funded. The funds could instead be put to alternative use with greater societal returns, and the liability or risk could be more efficiently managed in the round with other unfunded liabilities and met out of general taxation when they fall due.”

What happens next?

Paragraph 4 of the Memo reflects the Government’s intention to progress the changes quickly:

“It is an objective of the Budget measure that asset disposals should begin as soon as possible, and in any event within the next financial year, allowing the money locked within the fund to be used more effectively elsewhere in the public sector. The Government will also establish a new public pension scheme into which the qualifying accrued rights of members will be transferred.”

The proposed clauses implementing the above arrangements for the AWE Scheme were not agreed by the House of Lords Committee during its examination in February, and were accordingly either withdrawn or not moved for Committee consideration. 

However, perhaps unsurprisingly given the statement in the Memo, the proposed clauses have now been re-tabled at the Report stage, which is scheduled to begin on 16 March (the final day of the Committee stage was 23 February). The Report stage is a further chance for the House of Lords as a whole to examine the Bill and make changes to it.

It will be interesting to see how matters progress and whether a similar approach may be considered by the Government in future in relation to any other publicly connected private sector defined benefit pension schemes which benefit from a Crown guarantee.