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					                                    Atos Origin
                   Proposed Changes to Pensions Arrangements
                  Report for Information and Consultation Council

This note is a summary of the key points of my report to the Information and
Consultation Council dated 18 October 2007. For full details of the issues discussed,
please see the more detailed report.

1      Introduction to the report

1.1    The report is addressed to the Information and Consultation Council of Atos
       Origin (the “I&CC”).

1.2    The purpose of the report is to give an overview of the impact of the Company’s
       proposed changes to help the I&CC with their response to the Company about the
       consultation. It should not be used for any other purpose, and, in particular,
       neither the report nor this summary is designed to provide advice to individual
       about the best course of action for them – the right choice for an individual will
       depend upon that individual’s own circumstances.

1.3    I have been asked to comment on the proposed changes to the Company’s
       pensions arrangements from an independent point of view.

1.4    In particular, I have been asked to:

          Comment on the Company’s proposals in terms of the legality of the
           proposals, and also the reasons given for the changes, and general trends in
           private sector company pension arrangements;

          Describe what the effect of the proposed changes might be on the benefits for
           individual members of the affected pension schemes; and

          Comment on the consultation process adopted by the Company.

2      Definitions used in the report

2.1    There has been a general trend to move from “defined benefit” (or “DB”) pension
       schemes (of which the most popular type is “final salary” pension schemes) to
       “defined contribution” (or “DC”) schemes (also called “money purchase”

2.2    In a DB scheme, the pension promise is defined by a formula; it cannot
       (generally) be significantly altered retrospectively. However, the cost of a pension
       in the future cannot be known in advance. It depends upon a number of
       uncertainties, such as how much investment return is earned on the scheme’s
       assets, and how long members will live.
2.3   In a DC scheme, the amount paid into the pension arrangement is defined in
      advance, but the pension members will get is unknown.

2.4   I have been informed of the following pension schemes which are affected by the
      proposed changes:

         The Atos Origin (Sema) Pension Scheme, which I shall call the “Sema
          Scheme”. This is a DB scheme, which also has an executive section with
          higher benefits.

         The Atos Origin Pension Fund. The fund has three separate sections. “Plan 1”
          and “Plan 2” are DB sections, and there is a further DC section, which I shall
          call the “Money Purchase Plan”.

         A “Stakeholder Plan” – which is a contract-based (so no trustees) DC

3     Conclusions from the report

3.1   The Company has the right to propose the changes suggested. The trustees of the
      various schemes involved have a role to play in agreeing to some of the changes,
      and they are getting legal advice on that. The trustees’ role is not to negotiate,
      though, and just because a change results in reduced benefits going forward, does
      not mean that the trustees should object. Generally, companies do have the right
      to reduce pension benefits going forward, though they must consult.

3.2   It is likely that for most of the members of the DB Schemes and the Money
      Purchase Scheme, the change will result in a worsening of benefits. It will,
      however mean that most employees (other than those with protected benefits) will
      be on comparable pensions terms.

3.3   For members of the DB Schemes and the Money Purchase Scheme, the change
      also represents a move from trust-based to contract-based, and it might be
      sensible to consider whether there could be a body (an internal committee,
      perhaps) which could replace the role of trustees in looking after the stakeholder

3.4   For the members of the DB Schemes, the move from DB to DC is also a big
      change in terms of certainty of benefit at retirement. The issue relating to choice
      over whether or not to keep salary linkage is complicated and hard for individuals
      to make informed choices about.
3.5   The consultation period of 2 months is not out of line with other periods that I am
      aware of, and the consultation documents appear accurate (though to some extent
      I have based my knowledge of the proposals on those documents – I do not have
      an independent comparison). I know a lot of members have had concerns about
      the length of the consultation period, and the hard choices some of them have to
      make (particularly given the holiday period). As an independent observer I would
      note that 2 months is not out-of-line, but the choice over salary linkage is not
      easy, and there would be little to be lost (that I am aware of) for the Company by
      allowing extra time.

3.6   I also understand that it appears that a number of employees have not understood
      the impact the changes will have on the various ancillary benefits in the pension
      schemes – in particular death in service and ill-health benefits. It is clear that the
      Company is able to get better terms for such insurance-type benefits than the
      individual would, but the issue for the Company is whether employees appreciate
      those benefits – would providing the benefit give value for money to the
      Company? The Company may want to make sure that employees do clearly
      understand what is being lost to minimise the risk of employees claiming that they
      did not understand this in the future.

3.7   The Company’s main justification for the need to change has been the high and
      volatile costs, and a desire to harmonise benefits. There are other measures that
      could be considered to control costs, and I do not know if the Company has
      considered those before resorting to this course. I have seen little evidence that the
      Company cannot afford the costs of the DB schemes. However, the Company
      must remain competitive, and other companies are making similar changes.

3.8   Finally I set out in Appendix 5 (reproduced at the end of this summary) some
      comments on the issues that were raised in the Consultation process up to 20
      September. A number of the issues raised relate to fairness between different
      categories of employee, and I would comment that it is not really for me to say
      what is appropriate in that area. That depends upon a whole range of other details
      – and the structure of the whole remuneration package in general. Equalising
      pension benefits for the majority of employees would seem more appropriate if
      other benefits were also on equal terms.

3.9   In terms of the level of benefits that should be provided in the Stakeholder Plan,
      my starting point would be that 1 for 1 matching seems low – compared to (for
      example) the average contribution rates to DC schemes shown a recent
      Association of Consulting Actuaries (“ACA”) survey. Often (but by no means
      always) companies do pay more than employees, and the average differential in
      the ACA survey is the company paying 1.5 times the employee rate – as it
      happens the same rate as in the Money Purchase Plan currently.
4        Stakeholder Plan compared to DB Schemes

4.1      A key feature for members of the DB Schemes will be the impact of the changes
         on their expected pension at retirement. The section of the report reproduced here
         looks at that in some more detail, and also tries to indicate the uncertain nature of
         benefits from a DC scheme.

4.2      There are many factors that will affect how the benefit from the Stakeholder Plan
         going forwards compares with the benefits members would have had if they
         stayed in their DB scheme.

4.3      A list of the main factors is set out in Appendix 3 to the report (which is
         reproduced at the end of this summary). This also summarises what I have
         assumed in the figures below, and also what the impact would be of changing the
         assumption made.

4.4      For completeness, a summary of the main benefits of each scheme is included as
         Appendix 4.

4.5      I set out below a table showing the investment return that would be required (after
         fees are deducted) from the Stakeholder Plan in order to achieve similar benefit in
         the Stakeholder Plan as if the DB Schemes continued. The actual figure will
         depend upon the benefits of each scheme – some are slightly more valuable than
         others. I have shown an average of all 3 to give an idea of the scale of the issue.
         Note that I have based this on the standard benefits rather than any special terms
         that might apply to particular individuals. For members of the Sema Scheme who
         choose not to retain their salary linkage there will also be an additional shortfall
         for that which is not included in these figures.

4.6      The figures below are based on the assumptions I have made which are
         summarised in Appendix 3. They show the investment return needed depending
         upon the contribution rate the member chooses and current age, to broadly
         replicate the retirement benefits given up. Based on testing, these two factors (age
         and contribution rate) are the most important in determining the investment return

      Investment return needed to broadly equal DB benefit (pa)                         Table 1
                                 Age Now
            Contribution rate                   30                    40           50
            2%                              17.7%                 25.5%        48.6%
            4%                              12.7%                 17.9%        32.2%
            6%                               9.9%                 13.7%        23.6%
            8%                               8.0%                 10.7%        17.8%
4.7   It is clear from the above tables that the investment returns needed to give similar
      levels of benefits as those in the DB Schemes are generally higher than might be
      reasonably expected to be achieved (except possibly for younger members
      choosing the higher rates) – suggesting that it is likely that most members will be
      worse off under these proposals. That is not a surprise, the Company has been
      clear that this exercise is about cutting costs, which will lead to a reduction in
      benefits. How significant the reduction is will depend upon whether members are
      prepared to put more in themselves, and the investment returns actually achieved.

Fellow of the Institute of Actuaries
Partner, on behalf of Barnett Waddingham LLP
18 October 2007
Appendix 3 – Assumptions made in return needed calculations

Factor                                  Assumption                                          What would increase the return needed?
The scheme which the employee is An average of the benefits of the 3 DB Schemes.            A higher DB benefit (for example the
currently a member of.                  (There may be a number of non-standard benefits,    Executive Section of the Sema Scheme).
                                        for example, the Executive Section of the Sema
The cost of purchasing pension when the I have projected pension costs into the future    Any increase to annuity prices other than that
member comes to retire.                 allowing for current estimates of improving life  factored in – further unexpected longevity
                                        expectancy and current annuity prices.            improvements; falling long-term interest rates;
                                                                                          and/or other changes to insurers’ pricing.
The contribution rate chosen by the I have shown a range of contribution rates. For a The member chooses a lower contribution rate.
member.                             like-with-like comparison, the relevant contribution
                                    rate would be the member’s existing rate.
The member’s age                    I have shown a range of ages.
The member’s age at joining the DB This illustrates the impact of the lack of salary
scheme.                             linkage. I have assumed no past service.
Contracting-out of the State Second I have assumed that change in contracted-out status In practice, the reduction in NI contributions is
Pension.                            has no impact – on the basis that the reduction in NI less valuable, so anyone moving from
                                    contributions is equal in value to the reduction in contracted in to contracted out would need
                                    S2P.                                                  extra benefit to compensate. I don’t think
                                                                                          anyone is in this position.
The member’s salary level.          Checks have shown this has little impact on the
Future price inflation              I have assumed 3%.                                    Higher price inflation.
The member’s sex                    Male                                                  Very slight increase in cost for female.
The member’s marital status         I have assumed a dependant’s pension is needed.       Not assuming a dependant’s pension would
                                                                                          reduce the return needed.
Appendix 5 – comments on issues raised in the consultation process

Transitional payments should be bigger and   These issues all relate to negotiating over
not phased over three years                  the level of benefit to be provided. As an
Death-in-service and spouse benefits         impartial observer, it is hard for me to
should be maintained                         comment on this, other than to note that
                                             company contributions generally are
Management fees for the scheme should be
                                             higher than employee contributions (but by
paid by the company
                                             no means always).
There should be salary increases to offset
pensions losses for staff
The benefits from moving to Salary
Sacrifice arrangements should be shared
more equally between the company and the
The company should match contributions
at a rate higher than 1:1
There should be a choice of pension       It would be unusual to have more than one
providers available                       provider “fronting” the stakeholder
                                          pension. There is significant choice of
                                          funds available, including funds from other
                                          providers. I’m not sure what benefit this
                                          would add – how would members know
                                          who to choose? I have suggested that some
                                          ongoing, transparent monitoring of the
                                          Stakeholder Plan would be useful, and this
                                          might go someway to alleviate these
The Money Purchase Fund (already a There is less need to close this scheme, but
defined contribution scheme) should not I can see the attractiveness of
close                                     harmonisation of benefits.
Pension scheme trustees should retain the Agreed.
right to make discretionary increases for
pre-April ’97 benefits
There should be a calculator facility to let A calculator facility would be very hard to
staff see the impact on them                 do – because of the sheer complexity and
Face-to-face communication should be uncertainty going forward. In fact it is
used, not just email and letters             probably important for employees to get
                                             used to the idea that DC pensions are
                                             uncertain, and so cannot be calculated in
                                             advance. I do agree that the choice given
                                             about salary linkage in particular is a very
                                             difficult one for members to understand,
                                             and I do not think that can be properly
                                             understood by the membership without
                                             some extra help, which obviously does
                                             come with a cost.
The company should pay for the This may be the only way to ensure
independent financial advice which is employees do understand all of the issues. I
required by all affected staff               have seen this done in a number of
                                             circumstances, but it is equally not unusual
                                             not to offer independent advice.
Conducting the consultation for all pension I am unable to comment on this.
schemes at once and using the I&CC as the
consulting body does not give a heartfelt,
true and specific representation of the
views of affected staff