Clause 1 - Pension and compensation schemes: armed and reserve forces

Armed Forces (Pensions and Compensation) Bill – in a Public Bill Committee at 2:45 pm on 3rd February 2004.

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Photo of Gerald Howarth Gerald Howarth Shadow Minister (Defence) 2:45 pm, 3rd February 2004

I beg to move amendment No. 1, in

clause 1, page 1, line 3, after 'establish', insert 'and modify'.

Photo of Mr Bill O'Brien Mr Bill O'Brien Labour, Normanton

With this it will be convenient to discuss the following:

Amendment No. 2, in

clause 1, page 1, line 3, after 'schemes', insert

'in accordance with the provisions of Schedule [Armed Forces Pension Scheme].'.

Amendment No. 3, in

clause 1, page 1, line 5, after 'for', insert 'defined'.

New schedule 3—'Armed Forces Pension Scheme—

Membership

1 The new AFPS is a defined benefit scheme which is non-contributory. It has common terms for both officers and other ranks with a normal retirement age of 55.

2 All members of the regular Armed Forces will automatically be members of the AFPS from their first day of service regardless of age. Exceptions to this are:

(1) Personnel who are eligible, but elect not to join the AFPS;

(2) Reservists who are members of the reserve Forces Pension Scheme;

(3) Where a member has completed less than two years reckonable service and leaves, he or she may either be bought back into the State Second Pension (S2P), or allowed to transfer notional pension rights to another pension arrangement, thereby relinquishing membership of the AFPS.

3 Membership will not be compulsory. A Service man or woman may opt to join the S2P, a personal pension scheme or Stakeholder pension during his or her period of service. Any period of service completed whilst an individual has opted-out of the AFPS will not count towards benefits available under the AFPS. However, there will be no employer contributions paid by the Ministry of Defence for such alternative arrangements (other than those required under National Insurance terms for contracting in and out of the State Second Pension) and no personal contribution to the AFPS that can be refunded.

4 An individual who opts out will continue to be eligible for Attributable benefits under the new Armed Forces Compensation Scheme.

5 Members will not be required to make a direct contribution from pay in respect of benefits payable under the AFPS. However, the independent Armed Forces Pay Review Body (AFPRB) currently makes an adjustment to comparator pay (an abatement of 7 per cent. since 2001) to reflect the extent to which AFPS benefits are better or worse than those offered in a range of comparator occupations.

Pay and Service

6 The highest pensionable earnings will in most cases be in the final 12 months of service before retirement. However, the last three tax years will also be considered, with pensionable earnings in years one and two increased by inflation and, if giving a higher figure than that in the last 12 months, used as the basis for the pension calculation.

7 For the new AFPS reckonable service will be all service, as defined below, from the date of joining the AFP Scheme:

(1) Full pay service in the Armed Forces of the United Kingdom.

(2) Periods of full pay for the purposes of training.

(3) All paid leave.

(4) All paid maternity leave.

(5) Any period in which a woman member is in receipt of statutory Maternity Pay, even when the Maternity Pay continues beyond the end of a pensionable commitment.

(6) Paid paternity leave.

(7) Paid adoption leave.

(8) Notional years of service credited as a result of a transfer value payment from another pension scheme.

(9) Notional years of service credited as a result of the purchase of an Added Years Additional Voluntary Contribution (AVC).

(10) All subject to a member's reckonable service not exceeding 40 years.

8 Reckonable service will not include:

(1) Service forfeited by desertion unless such service is subsequently restored.

(2) Any period for which pay is forfeited for reasons related to service discipline.

(3) Military imprisonment or detention if greater than seven days.

(4) Service in respect of which a pension is already in payment.

9 The current scheme has a qualifying period of two years service of entitlement to a preserved pension, to avoid burdensome administration of very low value pensions. No final decision has been reached on whether the vesting period in the new scheme will be changed; this will be dependent on the final decisions on the Government's proposals for pension simplification and will take account of a range of other factors. Current arrangements allow

for a cash equivalent premium to buy back into the State Second Pension or a transfer value to another occupational scheme to be made in respect of those who do not serve the two-year qualifying period and are compatible with the Government's current proposals.

Member Benefits

10 A member leaving service at or after the normal pension age of 55 will be awarded a pension with immediate effect, with both a pension and a tax-free lump sum of three times pension. The pension paid will be based on accrued reckonable service at the point of retirement. There is an upper limit of 40 years of accrual at a rate of 1/70th of pensionable pay for each year of full service to allow longer-serving members to continue accruing benefits. Measures will be provided to allow those with less than 37 1/2 years service at age 55 to achieve a full career pension of two-thirds of salary.

11 A member leaving service at or after the Early Departure Point (EDP), after 18 years' service or age 40 whichever is later, will be awarded a preserved pension and lump sum, which will come into payment at age 65.In addition, to compensate for loss of earnings, a lump sum award will be paid at the time of leaving the Armed Forces and income payments will be paid (the exact pattern yet to be agreed with the three Services) until the preserved pension comes into payment at age 65.These arrangements will be broadly similar in structure to the current Immediate Pension arrangements, though with some reduction in overall cost to help fund improvements elsewhere (notably to dependants' benefits) and the cost of pensioners living longer. This pension will be uprated for inflation at 65 by the RPI between the member leaving the Armed Forces and his 65th birthday.

12 A member leaving service after two years but before the EDP will be awarded a preserved pension consisting of an annual pension calculated as reckonable service x accrual rate (1/70th) x final pensionable earnings, and a tax-free lump sum of three-times annual pension. This will not be paid until age 65.This pension will be uprated for inflation at 65 by the RPI between the member leaving the Armed Forces and his 65th birthday.

13 A member can choose to forego all or part of their lump sum in order to enhance his or her pension. The amount forfeited will be actuarially converted to additional pension, payable over the lifetime of the pensioner. The individual can opt just to improve their own pension income or to also improve that of their spouse or partner and the calculation will therefore be done on an individual basis.

14 Where a member with a preserved pension, who is not in any pensionable employment, becomes incapacitated through ill-health and is permanently incapable of undertaking any further full-time employment, application can be made for the preserved pension to come into payment early.

15 Any award will be subject to the MoD's Medical Adviser being satisfied with the medical prognosis and an independent assessment may be required. The award will be calculated on actual reckonable service with no enhancements, but will be uprated for inflation from the point of payment.

Ill-Health Benefits

Non-attributable ill-health benefits

16 A Member serving within the Armed Forces with reckonable service of less than 2 years will have no entitlement to an award in the case of non-attributable invaliding.

17 A member serving within the Armed Forces who is invalided with reckonable service of at least two years may be awarded an ill-health pension or gratuity. The benefits will be calculated according to the level of ill-health.

18 Invaliding pensions will be index-linked as soon as they come into payment.

19 The ill-health pension benefits will be calculated according to the level of ill-health.

20 Members invalided out of the Service because they are unable to do their Service job, but whose earnings capacity in civilian life is not affected, will be awarded a gratuity. The gratuity will be related to the member's salary and the number of years served. The gratuity will vary with the length of service, calculated as 1 1/2 months' pensionable pay for each year's service with a

minimum payment of six months' pensionable pay and a maximum payment of two years' pensionable pay. The purpose of the gratuity is to help the member adjust to his/her new circumstances. However, if the member has passed the EDP, he/she would receive an Early Departure lump sum and income payments (see section 3) up until age 65 when the preserved pension comes into payment.

21 Members who are invalided out with an impairment that significantly affects their earnings capacity in civilian life will be awarded a pension lump sum and an ill-health pension enhanced by one-third of their remaining service (based upon the normal retirement age of 55).

22 Members who are invalided out of the Service with a serious disability which renders them permanently incapable of any further employment will be awarded a pension lump sum and an ill-health pension enhanced by half of their remaining service (based upon the normal retirement age of 55) with a minimum pension guarantee of 20 years' accrued pension.

23 Attributable ill-health benefits will not be provided under the new AFPS.A separate Compensation Scheme has been set up which awards lump sums for pain and suffering and a Guaranteed Income Stream (GIS) for loss of earnings capacity. See separate framework document on the new Compensation Scheme for details.

24 It should be noted that when the GIS is calculated the level of ill-health pension is taken into consideration and the GIS abated to avoid double compensation.

Death Benefits (Lump Sums)

25 The scheme administrators will award a death in service benefit. A member may nominate a person to receive such a benefit and there will be provision for such nominations to be anonymous where there are personal sensitivities. If there is no currently valid nomination, scheme administrators may pay a Death-In-Service benefit to a spouse or registered partner (in the latter case subject to confirmation that a substantial relationship was extant at the time of death) or, where there is no spouse or registered partner, to dependent children. Where none of the above applies, a death-in-service benefit may be paid to the Member's estate.

6 Where the death of a member occurs whilst he or she is in service, a lump sum gratuity of 4 times pensionable pay will be payable to his or her nominee.

27 Where a Service person has left the Armed Forces with a preserved pension, and subsequently dies before the pension comes into payment, this will be treated as a death in deferment. A gratuity equal to the preserved lump sum, uprated by pensions increases, will be payable to the nominee or otherwise.

28 Subject to final decisions on the new taxation regime, where a death occurs within five years of the pension coming into payment, a lump sum payment equivalent to the balance of five years' worth of pension at its current rate less the lump sum received on retirement may be payable to the widow(er) or registered partner. For example, if a member died six months after a pension first came into payment, the widow(er) or registered partner might receive a lump sum equivalent to 1 1/2 years pension.

Dependant's Pension Benefits

29 A widow/widower is the person to whom a member is legally married when he/she dies. A former wife or husband is not eligible to receive a widow/widower's pension. Registered unmarried partners are also eligible to receive a widow/widower's pension subject to the relationship being substantial at the time of death. These pensions are payable for life. This measure shall also apply to all existing non-attributable widows.

30 Death-in-service

Where a member dies in service, any eligible widow(er) or unmarried partner will receive a pension of up to 33.33 per cent. of the member's pensionable pay (equivalent to two-thirds of pension).This pension accrues over a period of up to 37/3 years (at an accrual rate of 1/112ths of pensionable pay for each year of service).Pensionable service is calculated as if the member had been invalided out of service at Tier 3 (pension enhanced by half of member's remaining service, based up on the normal pension

age of 55) or, if greater, uses the member's actual pensionable service up to 37/3 years. There is a minimum pension guarantee of 20 years' accrued pension.

31 Death-in-Retirement (or deferment)

Where a member dies in retirement or before a preserved pension becomes payable, any eligible widow(er) or unmarried partner will receive the pension of up to 33.33 per cent. of the members' pensionable pay (equivalent to two-thirds of pension).This pension also accrues of 37/3 years (using an accrual rate of 1/112ths of pensionable pay for each year of service).However, pensionable service is based on the member's actual service plus service brought in through AVCs.

32 In the event of the member's death children's pensions may be payable in respect of natural or adopted children and other children where the member was the legal guardian and the child was financially dependent on the member. This would include children who are born or become eligible after retirement.

33 Where a pension is payable to a spouse or unmarried partner, an only child will normally receive 25 per cent. of the member's pension entitlement; two or more eligible children will normally share equally 37.5 per cent. of the member's pension entitlement. Where no pension is payable to a spouse or unmarried partner, normally an amount equal to the member's pension entitlement will be divided equally among his or her eligible children, with no child receiving more than one third of the member's entitlement.

34 A child's pension may cease when the child reaches age 17.However, it may continue, or be restored, whilst the child is in full-time education. It may also continue if it is determined that the child is incapable of earning his or her own living due to a mental or bodily infirmity and where the condition was diagnosed before the child reached the age of 17.Decisions are at the discretion of the scheme administrator. Where a child is eligible for several AFPS children's pensions (for example from several parents) only the two pensions of highest value may be awarded.

Transfers in and out

35 This section will apply to members who leave service with a preserved pension, or have not accrued two years qualifying service (but see para 2.4), and to members who join or re-join the new AFPS after having accrued pension benefits in another pension arrangement. Pension credits arising from a pension share may not be transferred in or out.

36 A member who joins or re-joins the new AFPS with pension benefits in another pension arrangement may apply to have those benefits transferred to the new AFPS, provided that the member applies within 12 months of joining the scheme. Transfers-in will not be accepted where an individual is under notice of invaliding or of discharge in some other way.

37 An individual who elects to transfer pension rights from another pension arrangement into the new AFPS will be credited with reckonable service in the new AFPS in respect of those transferred pension rights, calculated using tables prepared by the Government Actuary's Department.

38 The transfer value tables will be applied to the transfer value to give periods of reckonable service for personal pension, lump sum and widow(er)'s/partners' benefits. The length of reckonable service credited may, however, be restricted where the limits imposed from time to time by the Inland Revenue for approved occupational pension schemes or under AFPS rules for maximum reckonable service would otherwise be exceeded.

39 Where a member has pension rights under the new AFPS that have been credited to another pension arrangement by means of a transfer value payment and those pension rights are subsequently transferred back into the new AFPS, that service will buy the benefits determined by the scheme actuary as equivalent to the transfer payment made to the AFPS. Precise arrangements for transfers-in will be the subject of detailed further work.

40 Where service credited within the AFPS is less than service served in the exporting scheme, the calendar length of the previous service will count for the purpose of the two-year qualifying period for pension benefits. However, neither actual service in previous

employment nor reckonable service credited in the AFPS will count towards the minimum period of service necessary for the award of Early Departure Payments or full pension.

41 A member who ceases pensionable service or opts out of the new AFPS may elect to have his or her preserved pension rights transferred from the new AFPS to have another pension arrangement

(1) provided that the pension arrangement is approved for this purpose by the Inland Revenue;

(2) provided that it is prepared to accept the Transfer Value payment.

42 Application must be made before the member's 64th birthday, or within six months of the termination of a pensionable commitment, whichever is the later. Pensions in payment may not be transferred. Transfer Values for those leaving the new AFPS will normally be calculated using tables prepared by the Government Actuary's Department, the age at the time of the transfer value calculation and the value of the preserved pension credits as at that date.

AVCs

43 AVCs can be used to top up AFPS benefits where the person's overall pension benefits are unlikely to exceed Inland Revenue limits.

44 The legislation on additional voluntary pension contributions, governing the requirements to provide and the scope to purchase, should be considered revised during the next year. In the light of those emerging proposals it will be decided what arrangements would be most appropriate for the new AFPS.

Pensions Increases

45 All pensions and lump sums awarded under the pension Scheme will be eligible to be increased by analogy with the terms set out in the 1971 Pensions (Increase) Act and appropriate Pensions Increase Orders.

General Provisions

46 Pensions will become payable on retirement from the Armed Forces at or after the normal pension age of 55, at any age on ill-health retirement under Tiers 2 and 3 (see section 4) or at age 65 for preserved pensions.

47 Pension benefits payable under the new AFPS may not be assigned to a third party, except where a court is making an order for financial provision in divorce proceedings. There are also general prohibitions on assignment for occupational pensions in section 91 of the Pensions Act 1995 and, in respect of Guaranteed Minimum Payment rights (which will continue), in section 159 of the Pension Schemes Act 1993.

48 If a member is unable to manage his or her affairs by reason of mental disorder, the Secretary of State may divert part, or all, of his or her pension to another person or institution for his or her care and maintenance and for the benefit of his or her dependants.

49 At the discretion of the Defence Council, a member may forfeit their Service pension in the following circumstances:

(1) Conviction of one or more offences which are:

(a) Offences of treason;

(b) Offences under the Official Secrets Act 1911 to 1989 for which they have been sentenced to a term of imprisonment of at least 10 years or to two or more consecutive terms amounting in the aggregate to at least 10 years.

(2) Conviction of an offence committed in connection with their service as a member of the Armed Forces, including any which the Secretary of State for Defence considers to have been gravely injurious to the defence, security or other interests of the State.

50 In exceptional circumstances, a payment not exceeding the amount of the Service Pension forfeited or suspended may be made by the Defence Council to, or for the benefit of, the spouse or other dependants of the member.

51 At the discretion of the Defence Council, pension benefits may be withheld from a widow(er) or unmarried partner, or if already in payment may be forfeited, if the member's widow(er) or unmarried partner is convicted of the murder, manslaughter or unlawful killing of that member.

52 Complaints against decisions made by the administrators of the new AFPS may be made under the scheme's Internal Dispute Resolution Procedures (IDRP).

53 Those eligible to complain under these procedures are:

(1) Serving members of the new AFPS;

(2) Members of the scheme who have left the Service;

(3) Dependants of deceased members of the scheme;

(4) Potential members of the scheme;

(5) A former spouse with pension credit rights from a pension share;

(6) Anyone claiming to be in any of the foregoing categories.

54 There will be two stages to the IDRP. Under the first stage, members of the scheme have the right to complain about a decision made by the scheme administrators. Complaints under this stage will be considered by the appropriate office within the Armed Forces Pay and Administration Agency.

55 Under the second stage, members of the scheme have the right to appeal to the scheme managers against the decision made on their complaint under the first stage. Complaints under this stage will be considered by the managers of the AFPS.

56 The details of the IDRP will be contained in Defence Council Instructions and pension scheme booklets.'.

Photo of Gerald Howarth Gerald Howarth Shadow Minister (Defence)

May I say that the way in which the amendments are laid out on the selection list indicates the problems that all hon. Members, as parliamentarians, have had with the Bill, which is an enabling measure with little for us to discuss? That criticism has been raised across the House. This is not a partisan issue, and I fully expect concern from all parties in this Committee. I do not expect the debate to be dominated by Opposition Members. I suspect that the hon. Member for Falkirk, West (Mr. Joyce), who was a beneficiary of the scheme and will no doubt be experienced in these matters, will want to express his view. The hon. Member for Glasgow, Anniesland spoke movingly in the House on Second Reading.

I believe that on both sides of the Committee there will be concerns that the Government have drafted a Bill with very little in it. We have therefore tabled various amendments designed to write the Government's two framework documents on pensions and compensation into the Bill in the form of new schedules 3 and 4. If it is not out of order, Mr. O'Brien, may I thank the Public Bill Office team for its assistance in enabling us to do so?

Without the amendments, there would be very little for us to debate. Everyone has expressed concern that this is an extremely important issue that affects us all. We all have constituents who are beneficiaries of the scheme and others who are putting their lives on the line for our country. These are not dry and dull matters, but are of very immediate concern to every Member of Parliament. There was a difficulty, however, in that we could not debate anything without tabling the amendments, and without the new schedules in particular.

Photo of Mr Ivor Caplin Mr Ivor Caplin Parliamentary Under-Secretary, Ministry of Defence

I hear what the hon. Gentleman says. If I may say so, this is part of a rerun of what we had in the House on 22 January when we debated in detail the issue of enabling legislation as against the other issues. Will he address the point that my right hon. Friend the Secretary of State and I made to him and his colleagues about changes that it will be necessary to make to pension schemes? Two or three changes a year are

made to the current pension scheme through secondary legislation to enable the scheme to be up to date. Does he propose that we make no changes at all to the pension scheme unless we can find primary legislation slots?

Photo of Gerald Howarth Gerald Howarth Shadow Minister (Defence)

The Minister makes an entirely fair point, which I freely confess I did not make in my winding-up speech in the House on Second Reading. Of course the Opposition are not suggesting that every nuance should be subject to primary legislation, because clearly that would be unworkable. However, the Government have offered no alternative but have simply suggested that we give them the power to make whatever changes they want. The Bill contains no constraint on the Government once we have agreed it, so we seek to introduce the Government's own document to reflect outside concerns. It is not a document of our creation, although we have made some relatively modest changes to it. If we had not done so, the Government would have had carte blanche. I believe and I hope that my hon. Friends and the hon. Member for South-East Cornwall will also agree that it is incumbent on the Government to explain why they need these sweeping powers.

The Government would be entirely right to say that the Naval and Marine Pay and Pensions Act was passed in one day in the House on 1 June 1865 without any debate whatever. However, I have never seen the Minister in a Palmerstonian light.

Photo of Gerald Howarth Gerald Howarth Shadow Minister (Defence)

There are fewer gunships under this lot than under Palmerston, so the Minister will not be keen to take that as a precedent for wider publication outside the Room. It may suit him to have limited debate and unfettered powers, but I do not believe that he will pray in aid the precedent of the Naval and Marine Pay and Pensions Act 1865. The Committee might be interested to know that on the day on which that Bill went through the House without debate, so did the Trespass (Scotland) Act 1865. I have not yet done the research to find out what that Act was about; it was probably about keeping the English out. No doubt the hon. Member for Glasgow, Anniesland will be keen to brief us on that.

Photo of John Robertson John Robertson Labour, Glasgow Anniesland

I have to bite there. Could the Act possibly have been to keep us in, and not to keep others out?

Photo of Mr Bill O'Brien Mr Bill O'Brien Labour, Normanton

Order. We will not discuss the Trespass (Scotland) Act 1865; we will stick to the amendments on the amendment paper.

Photo of Gerald Howarth Gerald Howarth Shadow Minister (Defence)

I note your strictures, Mr. O'Brien, and I would not dream of going down the route that the hon. Gentleman offered. I shall simply say that I am an Anglo-Scot, and therefore straddle the border.

Before I go on to the detail of our amendments, which are extremely wide-ranging, I should say that my hon. Friend the Member for Canterbury has raised an important point. He said that not only was the early departure scheme not available before Second

Reading, but it was not available to the Defence Committee, which was extremely sensitive about criticism on that point. It felt entitled to that information. After all, I remind the Committee that the scheme is to be the source of substantial savings, and that the money saved is to be redirected to provide the other benefits that the Government claim will so greatly enhance the qualities of the new armed forces pension scheme. The EDS is a critical part of the Government's proposals—I do not say of the legislation, because it is not part of that at all.

Photo of Mr Ivor Caplin Mr Ivor Caplin Parliamentary Under-Secretary, Ministry of Defence

The hon. Gentleman makes an interesting point about the early departure scheme. I want to put on record what we said in response to the Select Committee. In paragraph 10 on page 5 of the response, the Government say:

''We agree that further detail on the EDP scheme should be available to inform Parliament during its scrutiny of primary legislation''— that is what we are doing today. We go on to say:

''We regret that this information has not been available earlier but further discussions are needed to agree an acceptable alternative to the early IP, compatible with the Inland Revenue's proposals''.

I hope that the hon. Gentleman accepts that the Government took seriously the points made by the Select Committee. We published that response so that it could inform the Second Reading debate, in about four weeks, in parliamentary time, as opposed to the eight weeks that we could legitimately have waited before publishing it. The response is there to be helpful.

Photo of Gerald Howarth Gerald Howarth Shadow Minister (Defence)

I am grateful to the Minister. Of course, we realise that he is relatively new to his post and has moved pretty fast in producing the proposals.

Photo of Gerald Howarth Gerald Howarth Shadow Minister (Defence)

The Minister obviously has my hon. Friend's approval.

The Minister would have been in considerable difficulty had he not been able to produce the scheme in advance of today's Committee sitting, but in fairness, he has produced it. I hope that we can deal with the scheme later under new schedule 2, which you have arranged to be considered towards the end of our proceedings, Mr. O'Brien. I thank you for that, because it means that the Committee will have at least a couple of weeks in which to examine the details of the early departure scheme promulgated by the Government. I do not want to spend too much time on it now, because frankly I have not really had a chance to go through it. However, as my hon. Friend the Member for Canterbury said, it is at the heart of the Bill, because it will deliver the savings that the Government are looking for under the Bill.

I congratulate the Minister on getting the scheme to us last night, but I think that he will agree that overall, given that this review began in 1998, it has taken the Ministry of Defence a hell of a long time to produce

this detailed arrangement. It has done so at the 59th minute of the eleventh hour. However, greater joy is there in heaven over the one sinner that repenteth.

A report appeared in the Sunday Express last weekend that follows on from a parliamentary question that I tabled last month and which the Minister responded to on 21 January. I asked him

''what arrangements he intends to make in relation to the Armed Forces Pension Scheme and compensation to ensure that (a) a beneficiary is guaranteed five years' worth of payments notwithstanding earlier death and (b) lump sum payments to give effect to such a guarantee are not taxed at a 35 per cent. rate.''

I acknowledge that this is fairly dry territory. I will use the terms ''widow'' and ''husband'' throughout, although I hope that the Committee agrees that they are interchangeable with ''widower'' and ''wife.'' I understand that if a serviceman dies within five years of being in receipt of their pension, their widow is entitled to a lump sum that is aggregated over those five years less any pension she has already received.

The Minister replied:

''The decision of the new Armed Forces Pension Scheme includes a provision to allow a lump sum payment to a spouse or partner of up to five years' pension payments, less the lump sum received on retirement and pension payments up to the date of death, if a member dies after retirement but within five years of the pension coming into payment. The Government propose in ''Simplifying the taxation of pensions: the Government's proposals'', published on 10 December 2003, that such payments should be taxed at 35 per cent. The Ministry of Defence will be considering the benefit proposal further in the light of the taxation arrangements.''—[Official Report, 21 January 2004; Vol. 416, c. 1244W.]

I understand from my hon. Friend the Member for Havant (Mr. Willetts) and a report in last weekend's Sunday Express that, unfortunately for the Minister, it is untrue that these payments are to be subject to a 35 per cent. tax. A spokesman for the Ministry of Defence is quoted as saying:

''The Government has been alerted to the fact it has laid an inaccurate answer to a parliamentary question . . . mistakenly suggesting the Government proposes to tax lump sum payments to bereaved spouses of members of certain pension schemes . . . It was never the case that such lump sums would be taxed and the Government will correct the record at the earliest possible opportunity.''

Photo of Gerald Howarth Gerald Howarth Shadow Minister (Defence)

From a sedentary position, my hon. Friend says that the Government should do so now. This is a serious issue, but I will not say that the Minister has deliberately misled Parliament and that that is outrageous. I understand that these are complex matters and that the Government have wider proposals for pension change that go well beyond the details of the armed forces pension scheme. However, I would like the Minister to avail himself of this first opportunity to accept my generous offer to say whether the answer that he gave me on 21 January is incorrect. I take what I read in newspapers with a pinch of salt, so I would like him to confirm that the MOD spokesman quoted in the Sunday Express has got it right and these payments will not be taxed at 35 per cent. Can he help the Committee?

Photo of Mr Ivor Caplin Mr Ivor Caplin Parliamentary Under-Secretary, Ministry of Defence

The hon. Gentleman is very gracious in allowing me to say a few words on this issue, although perhaps he understands that, having looked at that answer, I need more time before I can come back to him. I have every intention of informing the House about the issue that he and the Sunday Express have raised. Before I do that I will, of course, write to him about the matter.

Photo of Gerald Howarth Gerald Howarth Shadow Minister (Defence)

I expected that the Minister would observe all the courtesies and inform me first. As I am here and he is here, I thought I would offer him the opportunity to do that now.

Photo of Mr Ivor Caplin Mr Ivor Caplin Parliamentary Under-Secretary, Ministry of Defence

I accept that the hon. Gentleman and I are both present and that this is an opportunity. As he said earlier, he accepts that my portfolio contains myriad other matters. What with having to prepare for the Committee, I have not had the time to finalise the issues that were raised on Sunday afternoon.

Photo of Gerald Howarth Gerald Howarth Shadow Minister (Defence)

I understand that these are complex matters and that the Government have to consider some wider proposals that are on the table. If that observation was made by one of his Department's spokesmen, they should not give the media unauthorised briefings—in the circumstances that is probably the wrong expression. They should not give the media an assertion that is not true, due to their natural desire to allay fears. Clearly the Minister knows that this issue will arouse fears around the country. The sooner he can allay those fears the better. I look forward to him telling me that he has resolved the matter.

There is another issue that I want to raise. I see from today's Order Paper that a written ministerial statement is to be made on the armed forces pension scheme. I do not know what that is about, whether the Minister is introducing to the House the early departure scheme details that he put on the Board for us last night, whether we have misread those details or whether we have missed something.

Photo of Mr Ivor Caplin Mr Ivor Caplin Parliamentary Under-Secretary, Ministry of Defence

I can assist the hon. Gentleman. Should we be able to finalise issues in relation to the story in the Sunday Express and his original question, I have made provision to tell the House in a suitable way. This is a provision that I may have to use over the week, depending on how matters progress.

Photo of Gerald Howarth Gerald Howarth Shadow Minister (Defence)

I thank the Minister for that.

I return to the amendments standing in my name and that of my hon. Friend the Member for Faversham and Mid-Kent. I regret to say that I think I excluded him from my list of talented and experienced Opposition Members who have also served Her Majesty in uniform. I am grateful for his attendance and support in Committee.

Most of our amendments relate to clause 1. I hope that we can deal first with the Government's proposal on pension arrangements, then with the compensation arrangements relating to new schedule 4 and then with new clause 4, which relates to representative trustees, whom we believe should be introduced to provide an element of independence. I will deal with that anon. I

point out the fact that we have tabled as a proposal the Government's framework document, which sets out their proposals for the armed forces' new style pension scheme.

It is important to put it on record that our armed forces are the pride of the nation; few institutions enjoy the same respect among the public as is conferred on them. This place does not command the same respect. Sadly, neither do the police, nor the judiciary—that is not a reference to last week. Universally, the armed forces command the respect of the country.

There is a feeling among the public that the armed forces deserve to be treated differently from everyone except members of the emergency services, who are called on to put themselves in harm's way in the course of their everyday business. We can cast our minds back to plenty of tragedies, such as Hillsborough and King's Cross, in which members of the emergency services were at risk and people lost their lives. Nevertheless, people join the armed forces knowing that there is a real prospect that they will be injured or that their lives will be on the line.

At the outset of consideration in Committee, I suggest that we must bear in mind the overriding principle that the armed forces deserve to be treated differently from the rest of the country, due to the unique nature of the contract that their members sign. Therefore, it is not right to make changes, such as those proposed, that reflect how things operate elsewhere. I hope that the Minister will not say, ''Because we do this for the police, we will do it for the armed forces.'' The armed forces are different and, in the eyes of the public, they should be treated more favourably.

Photo of Mr Ivor Caplin Mr Ivor Caplin Parliamentary Under-Secretary, Ministry of Defence

We had at least part of this exchange on Second Reading. The hon. Gentleman mentions the police scheme, the detail of which is dealt with in secondary legislation in the same way that the Government propose in this Bill. What does he feel is the difference between those two areas of responsibility?

Photo of Gerald Howarth Gerald Howarth Shadow Minister (Defence)

I will certainly come to that in due course, but I return to the basic point that the Bill contains no detail and therefore we are trying to insert some. We do not believe it right to give the Government unfettered powers, not only to table this scheme, change the existing scheme and institute a new scheme, but to produce whatever variation of the scheme they want. Notwithstanding the precedent of the 1865 Act, hon. Members—certainly those on the Defence Committee—felt that there ought to be parliamentary oversight and that basic principles should be enshrined in legislation. The minutiae of the detail can, of course, be amended by statutory instrument, but the overall principles should be established in the Bill.

Photo of Julian Brazier Julian Brazier Shadow Minister (Foreign and Commonwealth Affairs)

I am sorry to interrupt my hon. Friend's flow, but I wish to reply to the Minister's question, which I am sure my hon. Friend is coming to.

Surely there are two obvious differences between the police and fire brigade on the one hand, and the armed forces on the other. First, the police and fire brigade

have powerful staff associations—the Police Federation is one of the most articulate in the country—whereas the armed forces do not. Secondly, the vast majority of people who join the police and fire brigade can expect to receive a pension at the end of their service, whereas the vast majority of those who join the armed forces will not receive a pension per se until they are 65. Instead, they will enter the so-called early departure scheme, which is vulnerable because it is not covered by the broad range of pension legislation.

Photo of Gerald Howarth Gerald Howarth Shadow Minister (Defence) 3:15 pm, 3rd February 2004

My hon. Friend makes a good point in response to the Minister who, I am sure, will have taken it on board. We will discuss that matter further in relation to new clause 4, which would provide for representative trustees for the armed forces, so that there would be some independent element of oversight.

Photo of Mr Ivor Caplin Mr Ivor Caplin Parliamentary Under-Secretary, Ministry of Defence

I am intrigued that the hon. Gentleman thinks that the hon. Member for Canterbury has answered my question. He has not—I was talking about the specifics of legislation.

The allegation that the hon. Member for Aldershot made was that the powers in the Bill are ''unfettered''. I fundamentally disagree with him about that and I reassure hon. Members that it is not the case, because provision will be included for secondary legislation, which will be subject to parliamentary scrutiny. That is identical to how the police scheme has been dealt with and, if I may say so to the hon. Member for Canterbury, it allows such debates to take place in the right forum—a Committee of the House.

Photo of Gerald Howarth Gerald Howarth Shadow Minister (Defence)

We will see what happens as we proceed, but I still think that certain aspects should be defined in the Bill. We have had to table the entire framework documentation as amendments in an attempt to include certain provisions. I can therefore understand the Minister saying that the Government do not want to include everything because that would make the Bill cumbersome and unworkable and because amendments could be made only through primary legislation.

However, people's major concern is the nature of the scheme, which, at present, is a defined benefit scheme. As I understand it, there is nothing in the Government's legislation—the Minister will correct me if I am wrong—to change it into some other pension scheme. It is therefore incumbent on him to explain that and to tell the members of the armed forces why they should be reassured that there is no prospect of the Government seeking to change the arrangement. There are certain fundamental principles of that sort that should be in the Bill, so that, if a future Government wished to make any such change, they would have to do so through primary legislation. That is not too much to ask of the Government.

The Minister should also examine several other issues that have been raised by the Forces Pension Society. I do not know whether he has had the time to go through the framework document and to note some changes that we propose. Those changes were suggested by the Forces Pension Society, to which I and others paid tribute on Second Reading for its diligent effort on behalf of those it represents.

If the Minister looks at page 187 of the amendment paper, he will note that in paragraph 10 the following words are proposed:

''Measures will be provided to allow those with less than 37 years service at age 55 to achieve a full career pension of two-thirds of salary.''

That brings me on to a fundamental point. There is virtually no opportunity for anybody to earn a full career pension up to the Inland Revenue limit of 66 2/3 per cent, unlike pretty much every other profession. In the armed forces, 90 per cent. of those who serve do not serve a full career, and very few of those who do can draw a full 66 2/3 per cent. pension. Most of those who retire at 55, which is the normal retirement age for service personnel, will be unable to accrue any more than 62.5 per cent. Not to put too fine a point on it, that leaves them short.

The irony is that although the Government have introduced a number of changes designed to try to eliminate discrimination between officers and other ranks, in this case the people who are principally the beneficiaries of the arrangement are those senior officers—three-star generals and so on—who are asked to stay on beyond 55 and can therefore earn a full pension while everybody else is denied that chance.

Photo of Desmond Swayne Desmond Swayne Conservative, New Forest West

My understanding is that the relatively niggardly accrual rate and the fact that one cannot achieve a full two-thirds pension result from the cost of the early retirement option. As we are now making significant savings as a consequence of changing that, ought we not to redirect those savings to achieve the precise objective of any comparable scheme in respect of a two-thirds pension?

Photo of Gerald Howarth Gerald Howarth Shadow Minister (Defence)

My hon. Friend is right. I suggest to the Minister, in a spirit of good will, that he ought to reconsider the matter.

References to a full pension in the case of the armed forces are simply misleading, because there is so little opportunity to earn a full pension. I remind the Committee why members of the armed forces are unable to earn a full pension—it is not because they do not want to carry on working. Plenty of my constituents in Aldershot and people from other parts of the country write to me and say that they want to stay on, although they find that they have reached a point where they know that they are up for the chop for whatever reason, such as providing headroom for up and coming, thrusting young officers or perhaps because they are not deemed fit enough.

At a school in my constituency the other day, I met a chap who was a senior warrant officer and desperately wanted to stay on beyond 40. However, he knew he was facing the chop and he had a number of options. One was to go for a commission, which he thought

might enhance his chances. Alternatively, he could try to transfer to the Royal Air Force, where there is a different manning requirement. People often spend longer in the Royal Air Force because of the nature of that service; it is rather different from the Army.

People would like to earn a full career pension in the armed forces but are denied the chance to do so. Why are they denied that chance? They are denied it because their employer does not want them. I am not saying that their employer is heartless, but it is a fact of life that all the schemes that the Government are introducing reflect the same arrangement that applies to the current armed forces pension scheme. It is a benefit designed principally for the employer. In the technical phrase, it is a manning control tool.

The early departure scheme, which we shall discuss later, uses another expression—pulling people through to 40. The Government are to produce a lump sum designed to prevent people from leaving early. This is not an occupation in which people can elect to carry on doing the job until whatever age they want. They are constrained, and they accept it, by the nature and requirements of the service, which mean that they depart when the employer has no further use for them.

Photo of Andrew Robathan Andrew Robathan Conservative, Blaby

I should state at the outset, Mr. O'Brien, that I have a personal interest in that I have been in receipt of an armed forces pension since 1989. The sum involved is not enormous, but the fact is germane to our proceedings.

Young people joining the armed forces today do not immediately think of their pensions. However, does my hon. Friend agree that it is yet another way of undermining the conditions of service that will greet them? As an officer, one can qualify for a pension after 16 years, or at the age of 37. That is now being undermined. Many officers will probably no longer be required by the armed forces, but will stay on simply to reach the 40-year point. That will that undermine their conditions of service. Furthermore, it is not to the benefit of the service.

Photo of Gerald Howarth Gerald Howarth Shadow Minister (Defence)

I think that is right, and it emphasises my point that what we are discussing involves the benefit of the employer. Employers invest more than they did in providing skills to young servicemen and women, and they are keen not to lose those skills. The overwhelming case is that something ought to be done to change the scheme to enable those who retire at 55 to earn a full pension, up to Inland Revenue limits. I would be interested to hear the Government's response. I am not being uncharitable, but I do not expect much movement. Nevertheless, they could change the normal retirement age. I see nothing magic about the age of 55. At some point, we will doubtless talk about the early departure scheme—the cliff edge for those who are heaved out at 54. Is the Minister going to tell me that he will come forward with a change? I wait with bated breath.

Photo of Mr Ivor Caplin Mr Ivor Caplin Parliamentary Under-Secretary, Ministry of Defence

I want to ask the hon. Gentleman a question about the relationship between the scheme that we are discussing—I shall repeat at the end of the debate that the scheme is, of course, for new entrants to the armed forces—and the civil service pension

scheme. I am sure he is aware that the civil service scheme pays a full pension at 40 years; the new scheme proposes paying at 35 years.

Photo of Gerald Howarth Gerald Howarth Shadow Minister (Defence)

To come back to the Minister, that is the Government's choice; it is a recognition of the different nature of the armed forces. With so many civil servants here today, I would not cast any aspersions on them. It is not worth my while, as in 18 months I plan to be on the other side of the Committee, with the Minister sitting on these Benches. I have no wish to upset civil servants, but our armed forces put their lives on the line, day in, day out, at the drop of a hat. The Government have chosen to change the scheme, but we are as entitled as they are to propose changes.

Photo of Mr Ivor Caplin Mr Ivor Caplin Parliamentary Under-Secretary, Ministry of Defence

I am not, by any stretch of the imagination, denying the hon. Gentleman's right to propose amendments. Indeed, on Second Reading the Government invited the Opposition to put forward ideas. However, I know he accepts that we also ask a considerable amount of our civil service—for instance, those in Iraq, who often work alongside our military.

Photo of Gerald Howarth Gerald Howarth Shadow Minister (Defence) 3:30 pm, 3rd February 2004

I do not want to go too far down that road. The Minister has been to Iraq, as I have, and the guys on the front line are not civil servants. The guys on the front line, facing the enemy, are overwhelmingly in uniform. To suggest anything else does them a disservice. I do not in any sense want to do the civil servants a disservice either, but they are not in uniform and are not the principal people on the front line. They, of course, are in Iraq today, but they were in Sierra Leone a couple of years ago and in the Balkans a couple of years before that. Who knows where they will be next year?

The basis of the Opposition's approach, as I said at the outset, is that it is important that the Committee sends a clear message that the House values our armed forces. The deal that we strike with them must reflect our belief that the commitment they give our nation is worthy of consideration separate from that given to other organisations and public services in the United Kingdom. We do not ask for massive changes or a disproportionate benefit for the armed forces, but some improvement is required.

At the very least, we should allow members of the armed forces to earn a full pension up to Inland Revenue limits. It is not tolerable that so many cannot do so. It is pot luck as to how many of those who leave early and how many of those who go on to 55 can do something else with their lives. I have discovered an extraordinary number of senior officers who have managed to be employed by Thales UK, for example, so there is an employment agency out there doing some good. However, just because some people can take the skills that they learned in the armed forces and trade them elsewhere until they are 60 or so does not mean that others can.

The Minister knows—I mentioned this on Second Reading—that a report showed that about 20 per cent. of London's homeless are ex-military. The Minister

says all the time that members of the armed forces develop skills that they can trade elsewhere, but that has not necessarily been proven. It certainly is not universally the case.

There are ways to deal with the issue of members of the armed forces who want to earn a full pension. The Government could increase the normal retirement age for them—after all, they want to do so for the rest of the nation. People in my constituency and elsewhere write to me, saying that they would like to serve longer in the armed forces. People are fitter today than they used to be.

Photo of Gerald Howarth Gerald Howarth Shadow Minister (Defence)

For the benefit of my hon. Friend, I should point out that I was referring to people in Her Majesty's armed forces. They are not couch potatoes so much as other members of our society are; they are undoubtedly fitter. Also, the Ministry of Defence has done a huge amount of work on physical rehabilitation for people who have suffered injuries. I have seen at first hand at Pirbright and Catterick that a huge amount of work goes into mending the broken bodies of people who would otherwise be discarded and leave the service. Nowawadays, such people can continue in the service. I should have thought that the Government could look favourably on the idea of increasing the normal retirement age. That is one suggestion that I can offer the Minister.

Secondly, the Minister might like to improve the accrual rate to see whether there is any way in which that mechanism could be used to provide the ability to earn a full pension. After all, as everybody outside this place is only too keen to remind us, we change the accrual rate in this House without too much heart-searching or agonising.

Photo of Desmond Swayne Desmond Swayne Conservative, New Forest West

That is a very interesting point, because the improved accrual rate for which hon. Members voted is funded by greater contributions. The over-arching architecture of the pension settlement that the Government have drawn up for the armed forces is one of cost neutrality. It would be interesting to know whether the Government explored the question of inviting members of the armed forces to consider whether they would wish to make significantly increased contributions, perhaps in the form of a larger abatement of their pay, to secure improved benefits. Was that ever considered?

Photo of Gerald Howarth Gerald Howarth Shadow Minister (Defence)

My hon. Friend makes an extremely useful point, and anticipates my third proposal. The Minister might consider providing for additional voluntary contributions where the Department makes some contribution. It would not then all be left to the individual serviceman or woman. As my hon. Friend says, that would be another means of doing it.

Fourthly, the Minister might like to consider the opportunity of increasing the lump sum component. There is a number of different ways in which the possibility of achieving the full benefit of a career pension could be provided if the Government were

minded to do so. I remind the Committee that the early departure scheme, which will replace the immediate pension arrangements, will release some £100 million a year by the Government's own calculations. It will cut the cost of the scheme by about one third. The Government must not ignore something that really does rankle with the armed forces—this inability to earn a full pension—when there is a mechanism by which the Government could do it, and when they have funds with which they can do it.

I hope that the Minister will give serious consideration to the issue, as I fear that there are those out there who are looking to the Government to enable them to get the most of the benefits to which they are entitled. It is not the squaddie aged 19 or 20 or the young tar in the constituency of the hon. Member for Portsmouth, North (Syd Rapson); it is much more likely to be somebody approaching retirement. It is also worth pointing out that, although every one thinks that this is a non-contributory pension scheme, it is not. Unlike right hon. and hon. Members of the House, members of the armed forces see no actual deduction on the payslip, but their pay is already abated.

Photo of Desmond Swayne Desmond Swayne Conservative, New Forest West

Would it not be better if there were a deduction on the payslip? The reality is that the abatement is of gross pay, but the benefits are based entirely on net pay.

Photo of Gerald Howarth Gerald Howarth Shadow Minister (Defence)

My hon. Friend is entirely right and, of course, if that were to happen, they would have a little more dough. They have to pay the pension on the gross amount but on the other hand, the public and members of the scheme would see exactly how much money they are contributing. Currently, 7 per cent. of pay is abated by the Armed Forces Pay Review Body. Every time armed forces pay is considered, that organisation decides what is a fair abatement to reflect the value of the pension and reduces its recommended increase in pay by that amount. The idea that the pension is non-contributory is wrong.

Armed forces personnel should be entitled to earn the full 66.6 per cent. of their salary at the end of a lifetime of service to their country. The fact that they may go on to work elsewhere thereafter should not be used as a reason to reduce the benefit that they may obtain, because the manning process principally benefits the Government rather than the armed forces. Of course, if they did not get any benefit, they would not join up. Neither the Minister nor I would want to see someone joining Her Majesty's armed forces who had gone into a recruitment office and said, ''I'm keen to join the Army, but I want to know what my pension will be first.'' We would prefer to show them the door, as that is not the attitude that we want to see.

I have given the Government four opportunities to deal with the issue of the full pension. I hope that the Minister will not just give us the standard answers that the scheme is generous and that our changes cannot be made. The scheme is new, and the Government should consider the fact that there is cross-party concern

about the matter, as exemplified by the universally commended Defence Committee report. I hope that the Minister will address that.

Another change that we propose to the framework document produced by the Government is in paragraph 11 of proposed new schedule 3, which concerns

''Benefits where the member leaves service at or after the early departure point but before age 55''.

We propose:

''This pension will be uprated for inflation at 65 by the RPI between the member leaving the Armed Forces and his 65th birthday.''

That also relates to the early departure scheme. The Government might have addressed the point, and their scheme might now include an uplift based on the retail prices index. The Minister is nodding, so we appear to agree on that point, but I would be grateful if he confirmed the exact position in his response.

Paragraph 12 deals with benefits where the member leaves service before the early departure scheme except on grounds of ill health. In such circumstances, we propose:

''This pension will be uprated for inflation at 65 by the RPI between the member leaving the Armed Forces and his 65th birthday.''

I think that I am right in saying that that has not been done. Will the Minister address that issue, too?

I want now to turn to widows and the complicated issue of attributable and non-attributable pensions. I should say at the outset that I had a meeting with a splendid lady named Jenny Green, whom I think the Minister knows. She is on the council of the Forces Pension Society and she is the widow of a Royal Air Force pilot. She made a strong representation to me the other day to preserve the expression ''war widows''. I understand that there is a distinction between war widows and other widows. Mrs. Green's husband was not on active service, but he was preparing for active service. It is a moot point whether a great distinction should be made between death while training for military operations and death while actually on military operations. Again, I do not know what the Minister's stance is, but it would be helpful if he could take on board the war widows' concern that they should enjoy—if that is the right expression, forgive me it—that title. I hope that there will be no change there.

The position, I understand, is that the Government are to extend the death-in-service benefit to widows and unmarried partners up to 33 per cent. The Minister can nod if I am correct, because we are all in slightly complex territory.

Photo of Mr Ivor Caplin Mr Ivor Caplin Parliamentary Under-Secretary, Ministry of Defence 3:45 pm, 3rd February 2004

I am not quite sure what the hon. Gentleman is saying. Perhaps he is referring to the 25 per cent. increase in dependants' benefits as opposed to the death-in-service benefit, which, in the current scheme, is one and a half times.

Photo of Gerald Howarth Gerald Howarth Shadow Minister (Defence)

I think that I understand that, and I am grateful for the Minister's advice.

My understanding is that the extension of benefits is to attributable widows, but not to unattributable widows. Attributable widows are those whose husband's death is attributable to service, whereas the husbands of those who are unattributable have died of natural causes. There is a lot of concern that there is discrimination against current non-attributable widows and those who may be created between now and when the new scheme comes into operation in 2005, or whenever that is scheduled for. Again, the Minister should be able to tell the Committee exactly what proposals the Government have in mind to deal with the perceived injustice whereby under the new scheme those whose husbands or partners die from unattributable illnesses that are nothing to do with their service will be beneficiaries, but those who are currently in that category will not benefit. I would have thought it helpful for an element of retrospection to apply to them.

I have dealt with some of the changes that we seek to the existing scheme, which the Government have promulgated. Such matters are long and complex, so, rather than detain hon. Members with a monologue, I should like to give other members of the Committee an opportunity to contribute. When the Minister has made his winding-up comments, perhaps it would be possible, if appropriate, for me to respond by pursuing such matters, as well as raising other matters that I have not been able to discuss under the Government's long framework document.

Photo of Julian Brazier Julian Brazier Shadow Minister (Foreign and Commonwealth Affairs)

I congratulate my hon. Friend on his statesmanlike opening shots. I have to say that this is an extraordinary Committee, in that we appear to have almost all the crucial material in two groups of amendments at the very beginning. I can see us spending a lot of time on these two groups. The only reason why we can have a debate on them at all is the process that he described—which I will not repeat in detail—of our tabling, with some help from House authorities, the Government's proposals in their framework document, which they did not put into the Bill.

A starting point in looking at this very controversial area is what the Select Committee actually said on the early departure scheme. The Committee's conclusions and recommendations started, as they always do, with some raking shots and overall points. There are then three, brief, positive points that the Committee welcomes. The very first subject of concern that it flags up is the early departure scheme. Indeed, there is a whole page about it, with eight separate points of concern.

The Defence Committee made several points on cost-neutrality. I shall paraphrase them, as I am sure that I would be restrained if I were to read them out in detail. It is very easy to use the expression ''cost-neutrality'', which sounds fair and reasonable, but of course here it is a cost-neutrality that effectively says each individual scheme member has to fund in his expected total benefits the fact that he is expected to live longer, so he gets less, but the Treasury reaps all

the benefits of the declining numbers. True cost-neutrality would take account of both factors, which would enable us to provide better for these people who have given their lives in service for us.

The Government should be more explicit about their intention not to protect early departure payments from inflation. They have now made it clear that there will be some protection from inflation from age 55. Of course, the weight at 55 will only be three quarters of the immediate pension rate on the example we have been given, not the full amount. The Defence Committee makes the point that that would result in people being paid more in real terms at the age of 41 than at 64. That has been partially compensated for by the way the Government have tackled it, but the fact remains that people will still be getting far less at age 64 than they would be as early as 55 under the present scheme. The other, wider point, which comes out very strongly in the text of the report, is just how unfair that is to those people who have given the bulk of their lives to the armed forces, but do not reach 55.

The role of the armed forces is unique. Most members of the armed forces do not get to retirement age in service, and that means the scheme is profoundly different from those for the police, the fire service and anyone else. The vast majority of members of the armed forces will not go through to 55. In looking at the arrangements for those who leave before 55, we are looking at the arrangements for most members of the armed forces.

Indeed, it is impossible for an other rank—somebody who joins in the ranks—to reach the age of 55 in uniform unless he manages to obtain a commission. Even among officers, it is only a small proportion who go right through to 55.

A separate point is the fact that these people have no strong voice to speak for them. The Minister kept saying, ''Ah, but parliamentary scrutiny is the principle—it's going to be the same as it is for the police, the fire service and so on.'' Can anyone imagine any scrutiny in the House, even if there was no statutory instrument? Can anyone imagine someone making an adverse change to the police's pension fund without the Police Federation, the Association of Chief Police Officers and the Police Superintendents Association all furiously lobbying us in a highly articulate and unconstrained way? Members of the armed forces cannot do that. Although I have the greatest respect for the Forces Pension Society, which is funded by forces pensioners, it has only a fraction of the lobbying power that the extremely powerful lobbies that speak for serving police officers or firefighters have.

Photo of Mr Ivor Caplin Mr Ivor Caplin Parliamentary Under-Secretary, Ministry of Defence

I do not mind people taking my comments out of context, which they often do, but in Committee we should accept the context in which comments are made. I made the comparison with the police scheme and the parliamentary scheme—I never referred to the fire service. We have enabling legislation and statutory instruments to deal with the parliamentary system. It is exactly the same proposal

as I suggest that we have for the armed forces pension scheme. That is the point that I was making. I was not comparing any other factors between the two schemes.

Photo of Julian Brazier Julian Brazier Shadow Minister (Foreign and Commonwealth Affairs)

I accept that the Minister makes his point in good faith. Of course, we must try fully to understand each other in Committee, and of course it should be a much less adversarial system than on the Floor of the House, but the Minister has missed my point. We will return, at a later stage, to the detailed debate on the arrangements for independent trustees and the other things that we want to put in place, such as affirmative resolutions. My point is that the reason why the armed forces scheme needs extra protection, which is not necessary in other public sector schemes, and why the House needs to take a much closer interest in it, is that there is no powerful outside lobby group speaking for the armed forces in the way that trade unions do for most other sectors, and the Police Federation does for the police.

Photo of John Cryer John Cryer Labour, Hornchurch

Is the hon. Gentleman arguing that members of the armed forces should be allowed to join a trade union? That is a fairly unusual position for a Conservative Member to take.

Photo of Julian Brazier Julian Brazier Shadow Minister (Foreign and Commonwealth Affairs)

No, of course not. I have never argued that. In a way, the two points made to me by Government Members more or less balance each other out. Members of the armed forces accept that they cannot be members of trade unions, and that no voice speaks for them other than the chain of command, whose advice is necessarily secret and is not provided to Parliament. When one accepts that those drawbacks are an inevitable feature of service life, as many of my relatives have done in the three armed forces, one expects in return a greater degree of parliamentary scrutiny of one's terms and conditions of service than would apply to those public sector bodies that do have powerful groups, such as the Police Federation, the various civil service unions and all the other bodies that represent public sector workers, to represent them—which is almost the whole of the rest of the public sector.

Photo of Eric Joyce Eric Joyce Labour, Falkirk West

I hope that the Minister does not regard this as being too mischievous, but the hon. Gentleman might be wrong in saying that members of the armed forces are not allowed to join trade unions. I think that they are, but that the Ministry of Defence does not recognise a trade union's right to negotiate on behalf of its members in uniform. Technically, the MoD could choose to recognise the right of the Transport and General Workers Union to represent soldiers. That would be a policy decision, not a matter for legislation.

Photo of Julian Brazier Julian Brazier Shadow Minister (Foreign and Commonwealth Affairs)

The hon. Gentleman may well be right, but the practical point underlying his intervention remains, which is that there is no body to which Parliament can look to express the views of serving members of the armed forces. The Secretary of State made it clear that for advice on this issue the Government look to senior officers, particularly the personnel staff. Their advice to Ministers must necessarily be private, as that is how government

works under all parties. That is why Conservative Members believe that additional parliamentary scrutiny is required.

Photo of Mr Ivor Caplin Mr Ivor Caplin Parliamentary Under-Secretary, Ministry of Defence 4:00 pm, 3rd February 2004

As always, my hon. Friend the Member for Falkirk, West is not mischievous but right. I draw the hon. Gentleman's attention to paragraph 38 of the Government's Command Paper, published on 15 January in response to the Select Committee. It deals both with the role of the principal personnel officers and with our view that we welcome the House's continuing scrutiny of armed forces pension and compensation arrangements.

Photo of Julian Brazier Julian Brazier Shadow Minister (Foreign and Commonwealth Affairs)

We are in danger of flogging this to death. There is no additional scrutiny, other than what applies to the other groups that the Minister mentioned, such as the police. My point is simply that the armed forces do not have the same kind of voice that they have.

Photo of Shona McIsaac Shona McIsaac Labour, Cleethorpes

I want the hon. Gentleman to acknowledge that the British Legion does an enormous amount of wonderful work on behalf of the armed forces. It has lobbied me on many issues relating to the armed forces' pay and conditions.

Photo of Julian Brazier Julian Brazier Shadow Minister (Foreign and Commonwealth Affairs)

I am delighted to acknowledge the work done by the British Legion. The next stage of the Bill deals with compensation, and the role and comments of the British Legion will be extremely germane. I hope that the hon. Lady in her speeches—and voting, if it comes to that—will take careful cognisance of what the British Legion says. However, its members by definition have to be former members of the armed forces, and the point under discussion relates to the conditions of service of existing, serving members.

You would rightly upbraid me, Mr. O'Brien, if I did not now move on. There will be a later stage, and I know that my hon. Friend the Member for Aldershot wants to return to that point when we advance our specific proposals on independent trustees and affirmative resolutions.

I shall now focus on the group with which I am principally concerned. Broadly speaking, people who go through the armed forces can be split into three numerically uneven categories. The first, and by far the largest—more than two thirds—are those who serve for a few years, in most cases very much enjoying their service. They are short-service commission officers, or people on three, six or nine-year engagements who, in their late 20s or early 30s, go back out into civilian life. At the other end of the scale, there is a very small group of people who go right through to the age of 55 or, in the case of one or two very senior generals and admirals, even a year or two beyond.

I am not principally concerned now with either of those two groups, and intend to focus on the 20 or 30 per cent. who fall into the middle category. They are the company commanders and sergeant-majors, the backbone of the armed forces, who make the Army what it is, who give the best part of their lives to the

Army or the Navy or the Air Force, but who do not go right through to 55. Other ranks, as I said earlier, have no opportunity to do so unless they can get a commission. They are the group who, the Select Committee points out, are most disadvantaged by this legislation.

I have declared in many previous debates that I served in the Territorial Army for 13 years. What is probably less well known is that I spent eight months between school and university with the regular Army on a short-service limited commission. By chance, I had dinner a few months ago with someone who went through that scheme with me. We both very much enjoyed it. It would not be fair to disclose his name, but he is now one of the country's most senior accountants. From time to time, because of his position, he gets letters from people who serve in the armed forces who hope to move across to one of the operations in which he is involved—his interests span a wide range of operations. What he told me was interesting: he said that the all people who went through SSLC with us and stayed on for just for a short time had done well, but the people who came out in their 40s had, in many cases, been grievously disadvantaged.

People coming out of the armed forces in their 40s or early 50s often have not had the same opportunities in the housing market as their civilian counterparts. Considering the incredible price of housing in most parts of the country, for people who move from the mobile lifestyle of those in the Army and the Air Force and some parts of the Navy—an officer in the submarine service, for example, is alternately posted between London and Scotland—their opportunities to buy and own a home are far behind those of their civilian counterparts. The lump sum payments in the table will go only a very small way towards buying a home. By the time they are 40 or 50, their civilian counterparts will be well up the housing ladder in their second or third property.

The second disadvantage faced by those leaving the armed forces is the drawback in respect of their wife's career. The wife of a member of the armed forces is grossly disadvantaged in the job market, in a range of different ways. If her husband moves from place to place, she is much less employable, and she cannot even get unemployment benefit if she is out of work for a bit, because she is deemed to have made herself intentionally unemployed, even though she moves because her husband is posted somewhere. The same applies to the husbands of women serving in the armed forces. The ability to build and plan a career, which is a crucial part of the living of most households, is gravely disadvantaged.

The third drawback that the leaver suffers is in the job market. The Minister was right to say that 90 per cent. of people who leave the armed forces between the ages of 40 and 55 move reasonably quickly into well-paid employment, but there are two points to be made in that respect. First, it is very tough for the 10 per cent. who do not get well-paid jobs, and secondly, that 10 per cent. are disproportionately in the upper half of the 40 to 55 age range. Someone who comes out of the

armed forces at the age of 40 is still relatively young, and can give more than half their working life to a new employer. It is unfortunate that the only figures we have been given for these purposes are for people coming out at the age of 40, who are arguably the least disadvantaged of the age range we are considering. I am much more interested in what happens to someone who comes out at 48, 52 or 53, who has none of the advantages of the small proportion who go right through to 55 but who has given most of his working life—the best years—to the armed forces and is much more difficult to employ than someone 10 years younger.

In subsequent sittings of the Committee, figures will be available for those people, but as the Ministry of Defence provided the template only late last night, no one could have got them ready for this sitting. I may seek your indulgence later, Mr. O'Brien, by asking whether we can return to the matter when we have some more solid material, but even without it, we can see the scale of the disadvantage that a 40-year-old faces. Even aged 64, 24 years later, his pension will still be only three quarters of the amount that he would have got then.

Photo of Gerald Howarth Gerald Howarth Shadow Minister (Defence)

A further issue is that the Government propose that, for a large part of that time, the pension will not be uprated for inflation, with the result that its value will reduce in real terms. Assuming an inflation rate of 3 per cent.—which is optimistic—at the end of the period, its monetary value will be half what it was when the person left the service. That is a serious loss of value.

Photo of Julian Brazier Julian Brazier Shadow Minister (Foreign and Commonwealth Affairs)

My hon. Friend makes a powerful point touching on indexing and the retail prices index, which was picked up by the Select Committee.

Photo of Mr Ivor Caplin Mr Ivor Caplin Parliamentary Under-Secretary, Ministry of Defence

I did not know that we were going to come back to the issue, so I was intending to address it later. I am happy to confirm to the Committee that we are proposing that the RPI for the early departure plan should be applicable from age 55, then the pension will be uprated by RPI when it comes into payment at age 65. I hope that that has clarified the matter in relation to indexing and RPI.

Photo of Julian Brazier Julian Brazier Shadow Minister (Foreign and Commonwealth Affairs)

I am grateful to the Minister. He will understand why it is necessary to extend the debate into the next sitting—only then will we have the figures on which to base it. With the best will in the world, the kind people providing the figures could not crunch them by this afternoon, having started at six o'clock last night.

Photo of Mr Ivor Caplin Mr Ivor Caplin Parliamentary Under-Secretary, Ministry of Defence

The hon. Gentleman will recognise that I have been doing my best to help him.

Photo of Julian Brazier Julian Brazier Shadow Minister (Foreign and Commonwealth Affairs)

I acknowledge that.

Just before I come to my final area of concern, might I pull the points together and paint a picture? I shall take the male example. As my hon. Friend the Member for Aldershot says, the same could apply in reverse for a woman. Imagine a 46 to 48-year-old former

lieutenant-colonel who is looking for a house for the first time, as the majority of people leaving the Army do. In order to put himself on a par with his counterparts in civilian life, he will face a bill for £250,000 or £200,000 if he is in southern England—and prices are rising in other parts of the country. The lump sum that he would get towards the cost of that house under the scheme is virtually unchanged. It is now just under £48,000, instead of just over, because £500 has been deducted—I do not know the reason for that small meanness.

By that stage, his civilian counterpart is probably on his third step of the housing ladder and possibly owns three quarters of his house, with a mortgage for the difference, whereas he is faced with funding the whole £200,000. Under the present arrangements, the colonel would commute up to half of his pension arrangement up to 55, producing a second lump sum, as would somebody, perhaps a former RSM, four or five years younger, aged about 42. That would enable him to get nearer to the possibility of a decent house. His wife would be able to make a much smaller contribution than would be the case in a civilian family. The hon. Member for Cleethorpes (Shona McIsaac) may look sceptical, but the wife would be able to contribute far less, because her earning power would have been diminished.

Under the present arrangements, the sum that the leaver comes out with is equivalent merely to what would have been left after commuting half, so he has the same lump sum, but is unable to commute any worthwhile amount unless he takes an even smaller income, although he is going into the job market with a significant disadvantage and his wife's potential is hugely diminished. That is the outlook, and it is bleak. We could do better by our armed forces.

Photo of Mr Ivor Caplin Mr Ivor Caplin Parliamentary Under-Secretary, Ministry of Defence

I sense that we are going to get into discussions about examples. I take the hon. Gentleman's point. I signed those letters before the House sat yesterday. I am not defending my position: I am ultimately responsible. I was trying to make sure that hon. Members had them before the House commenced proceedings yesterday.

With your agreement Mr. Chairman, I propose that by the end of the week I make available to Committee members all the other number crunching that we have done. They will then have the opportunity to consider that information before we reconvene next Tuesday, though it is more likely that we will take new schedule 2 later, probably on 24 or 26 February. I hope that that will assist the Committee. We will also make that information available to veterans' organisations, the Royal British Legion, the War Widows Association and the Forces Pension Society.

Photo of Julian Brazier Julian Brazier Shadow Minister (Foreign and Commonwealth Affairs) 4:15 pm, 3rd February 2004

I am indebted to the Minister for an extremely constructive and helpful suggestion.

As my hon. Friend said earlier, we are conscious that the Minister has had a very short period to get all that information together. I am grateful for his intervention. The Minister has genuinely made a

significant effort to help the Committee, although that may not detract from the points of substance that we will make later.

My final point should significantly worry personnel staff who—as the Minister or his hon. Friend has told us—provide the burden of advice on those matters. There has been a long-standing gentleman's agreement in the armed forces that people who get promoted beyond a certain point—for example, full colonel, brigadier or above, or equivalent—tend to make room for younger people once it has become clear that they have reached their ceiling.

Many generals and brigadiers retire at 52 or 53 rather than hang on for one extra posting. By doing that, they have made room for people to come up through the system. That has always been important, but it has become critical important in the past 10 years. This Government and the Conservative Government have said that the number of senior posts should be pruned because the armed forces were top-heavy. I supported that view; that was a defence cut with which I did not have a problem. However, it is critical that the brightest and best captains and majors remain convinced that, one day, they will have the opportunity to have a crack at top posts.

Photo of Julian Brazier Julian Brazier Shadow Minister (Foreign and Commonwealth Affairs)

My hon. Friend knows how much affection I have for him, but I am afraid that a major of 49 does not have much chance.

Photo of Julian Brazier Julian Brazier Shadow Minister (Foreign and Commonwealth Affairs)

I have traduced him.

In any organisation, it is critical that there should not be a blockage at the top. However decent, honourable and selfless senior members of the armed forces may be, the huge financial disadvantage that a 52 or 53-year-old general or brigadier faces by making the selfless move of retiring one posting before the end will mean that, in future, very few of them will do so. That will worsen the blockage at the top, and will reduce the willingness of brighter people in middle ranks to continue to serve as they see the portals above them blocked. That is a point that Ministers should take away and think hard about.I have spoken in most of the defence debates over the past 17 years, but as far as I can recall I have never raised a point where I expressed any sympathy for senior officers. My concern has always been for people at the working level. This measure is a perverse move that, if not amended, will encourage a damaging blockage to senior careers.

Photo of Eric Joyce Eric Joyce Labour, Falkirk West

When officers are promoted to full colonel—it used to be brigadier—they in effect sign up to a new addendum to their contract, which says that they are not guaranteed employment to the age of 55 but are guaranteed one appointment in that rank. If they cannot be found another appointment after that point, they have to leave. It is not necessarily a question of selflessness, but simply that they have signed up to a new contract.

Photo of Julian Brazier Julian Brazier Shadow Minister (Foreign and Commonwealth Affairs)

That still exists, but the hon. and gallant Member—he has been a regular officer—should be aware also that that regulation is probably not sustainable in a court action. There are some ugly rumours about that. It is unmistakably age discrimination, but it has not yet been tested in the courts, and I fear that it will be before long. I will not embarrass any of the individuals concerned, but I know of people who have served well and have been a crucial part of the service. They have been offered another posting but have said, quite bluntly, ''No, I feel I have done my bit for the Army. I could of course accept one more posting that would take me to 55, but I am sure I can get a reasonable job outside, and I will go.'' Such individuals will suffer a very large drop in pension—a little over a quarter of it, to be precise—for the subsequent 12 or 13 years. That will create a serious problem.

The main burden of my concern falls not on major generals, brigadiers, or admirals, but on the commander, the major, the RSM and the people in their forties who have given the best of their service life to the armed forces and who will be at a substantial disadvantage. The measure needs to be examined very carefully.

Photo of Colin Breed Colin Breed Shadow Minister, Defence

May I put on record my thanks to the hon. Member for Aldershot and his colleagues for providing us with some meat to debate? I wholeheartedly agree with his amendments. Other Members have also given some cogent and clear examples of the effects of the Government's proposals for the pensions and, indeed, the lives, of serving personnel when they leave the forces.

These are extremely important measures for many individuals. I want to provide some context for the commencement of our considerations, partly because I am in no way qualified to speak with experience and expertise on the military and their pension schemes or, indeed, on pensions in general. Pensions are a hugely complex area for us all, not least for those in the armed forces. There are some principles that ought to underlie, and do underlie, most contractual arrangements between employers and employees, not least of which are pension schemes. It has often been said that the relationship between the MoD and its employees is unique, and those who work for the MoD, particularly the armed forces, have a special place not only in Parliament, but in the whole country.

Fairness and equity should underpin any discussions on the matter. I am not arguing that one side should have all the benefits; rather that there should be a basic fairness and balance between the various benefits that can be afforded and what the work force are realistically expected to do. The first thing to mention is cost-neutrality, to which the Defence Committee's report referred several times. We recognise that the proposals were based on cost-neutrality, but the Defence Committee suggested that it should not be the guiding principle. It should be taken into account, but the guiding feature should be the best practice that has been adopted in pension schemes throughout the country and has now been

developed over a period of time. Of course, cost-neutrality can be defined over different areas: within pension schemes; of a pension scheme; within the total remuneration budget of a particular work force; and within the total cost of the MoD.

In this case, cost-neutrality is defined down to the pension scheme itself, rather than it being within the totality of a remuneration budget. That may or may not be right; it may or may not be fair. It would seem to be unfair if it produced a significant number of examples of unfairness, particularly if it were perhaps possible to expand the cost-neutrality definition to enable those examples to be dealt with.

We must look at the principle of cost-neutrality rather than best practice; at the way in which cost-neutrality has been adopted; and at whether it is, in broad terms, fair to the armed forces. We have explored the question of the inability to reach the two thirds of full pension and we understand the problems; they affect relatively small number of people. Is it fair that that level cannot be reached because of the terms of the scheme? What seems to be unfair is that there is no option; there is no way in which employees who might be eligible could actually obtain that. The Minister might say that an employee could go out onto the general market and pay part of his salary towards a scheme that would cover that particular aspect.

A good employer—someone who was treating their people fairly—might at least offer the opportunity of looking at reasonable ways that that particular discrepancy might be attacked. The hon. Member for Aldershot mentioned additional voluntary contributions, or even sharing of the cost of AVCs. Is that fair? It might or might not be, but it seems unfair that there is a built-in inability to address the matter properly, except by going out and covering it oneself.

The next point is the issue of there being no one to negotiate on behalf of the members of the armed forces. I recognise that there are a considerable number of people who are well experienced in some aspects of pensions policy but, quite frankly, it is a complex area and it seems somewhat unfair that there is not an independent review body. I raised this on Second Reading, and there was a contribution at that stage from the hon. Member for Bournemouth, West (Sir John Butterfill), an expert here, who said that I was making a valuable point and that that is what happens elsewhere, including in this place, when a review of Members' pay includes a review of their pensions.

Is it really fair that the armed forces are expected to rely on the Defence Committee, Members of Parliament or others—who are not necessarily the best experts—to make their case? The Forces Pension Society is doing some valuable work but, again, as employers, we are in such a powerful position in terms of the way in which we prescribe these particular aspects of pay policy. There ought to be at least someone or something that enables collective negotiation on their behalf.

In a previous life, I remember recommending to clients that they get professional advice, because it became clear that we had significant professional advice on our side. It was often in our best interests for clients to be properly advised, so that when projects were agreed, both sides had the proper access to all the information and were able to negotiate.

Perhaps there will always be unfairness, known collectively as legacy issues, because the matters involved are complex. I return to the Defence Committee's report in which it fairly says:

''The MoD should look carefully and with a fresh eye at the suggestions put forward by the Forces' Pensions Society as possible solutions to a number of 'legacy issues', and should establish whether any of them can be implemented, and at what cost.''

That is not to say that we can fully address all possible solutions because there will be a cost, but not to consider them fairly would be a missed opportunity.

Whenever a fundamental review is undertaken there are opportunities to consider legacy issues. It is unfair that they are being shunted to the side and not considered at all, partly because of the cost, but, as a context to our discussions, most people will want to feel that, whatever agreements are made, the fundamental review will have explored every opportunity to ensure that we provide a fair and equitable scheme.

Photo of Desmond Swayne Desmond Swayne Conservative, New Forest West 4:30 pm, 3rd February 2004

It is always a pleasure to follow the hon. Member for South-East Cornwall. I ply no criticism because I have tabled no amendments, but we tend to feed off one another so it would be useful to know whether he will table amendments during the remainder of consideration in Committee. That way we will know where we stand.

Is the Bill absolutely necessary? We have discussed the extent to which it is enabling, but is it possible under existing arrangements to implement a scheme as set out in new schedule 3, albeit for three separate services under the three powers pertaining to those services? Would that measure enable the Minister to create one armed forces pension scheme? Would it be possible to implement the scheme set out in new schedule 3 without new legislation?

I have a number of questions about the scheme set out in new schedule 3. We are in the extraordinary situation of asking the Minister about our proposal even though the reality is that new schedule sets out his scheme with the minor changes that my hon. Friend the Member for Aldershot outlined.

The first sentence of new schedule 3 states:

''The new AFPS is a defined benefit scheme which is non-contributory.''

When the Minister replies, will he outline the reasons for the scheme remaining non-contributory? If the case is overwhelming and he explains why it was not possible to consider—or why it was ruled out of court—a funded scheme not dissimilar from our own, we will not table proposals to explore the matter further. If he cannot give us a satisfactory explanation

as to why a contributory scheme was not possible, we would wish to table further proposals to get to the bottom of the matter.

Although the scheme is non-contributory, paragraph 5 of the new schedule, at the bottom of page 185 of the amendment paper, sets it out that in reality the scheme is not non-contributory because pay is abated. I ask the Minister to deal with the point that I raised in an intervention on my hon. Friend the Member for Aldershot—namely, how we can sustain the injustice of the Armed Forces Pay Review Body considering the abatement of gross pay when the benefits are payable only on net pay after the abatement? How can that be sustained in equity? I would like the Minister to rehearse that argument. Now that we have the time and the opportunity, and even the will, to undertake a review, we should do so with justice.

I ask the Minister about the opting out arrangements under paragraph 3, which would allow servicemen or women to opt out and take on another of the pensions available in the market—a stakeholder pension or whatever else is available. It states that no employer contributions will be paid by the Ministry of Defence for such alternative arrangements.

Before being elected to the House, I was a beneficiary of a Royal Bank of Scotland pension scheme. It was possible to opt out of the bank's non-contributory pension scheme, but the message was firmly broadcast that the bank would make no contribution to someone's private arrangements—people would therefore lose out. However, my pay at the bank was not being abated by a review body to take account of the benefits of the scheme. Although it was proper of the bank to say that we could make our own arrangements, we should not expect it to contribute; the money was the bank's to use as it saw fit.

One's pay may be abated to take account of a contribution—a measure of the benefit of the scheme—but is that in equity the same as deciding to take advantage of the statutory right given under earlier social security legislation to make one's own arrangements, but not receiving any money from the Government? I would like to hear the Minister trying to justify that.

I move on to paragraph 6, which deals with pay for pensions purposes. I welcome what it says:

''The highest pensionable earnings will in most cases be in the final 12 months of service before retirement. However, the last three tax years will also be considered''.

Hallelujah! Here we have a means by which to get over some of the worst effects of a system that has affected the many retired people who have suffered the effects of pay restraint—the so-called trough. Here we have a mechanism that is much more equitable; it takes the last three years of service pay, which allows one to consider other, better years than the final 12 months. If I understand the provision correctly, it is a considerable step forward. However, I would like the Minister to explain in what circumstances any one of those final three years may be chosen, and what the rules will be.

On a wider issue, what will constitute the earnings in that final 12 months or three years? Will it be just the basic pay, or will specialist pay—certainly all those elements now covered by Pay 2000—be considered? More of those elements are significant in a serviceman's pay, but they were not eligible for consideration in the past because a representative pay for the rank concerned determined the final salary. To what extent will specialist pay arrangements to cover the appointment that the serviceman holds down determine the final pay?

Paragraph 8 states:

''Reckonable service will not include . . . Any period for which pay is forfeited for reasons related to service discipline.''

Again, I ask the Minister about the fairness of that. If a serviceman is fined several days' pay or whatever, is it right that he should suffer double jeopardy and have his pension and pension rights affected accordingly? What impact would such a measure have on reckonable service? Would it be negligible—something that we could discount? It would be interesting to know the numbers. I recall the Home Office bringing a similar measure before the House to affect policemen's pensionable pay as part of the disciplinary procedures. What impact will this measure have with regard to human rights legislation and double jeopardy?

I shall move on to what has become the heart of the debate, as it has unfolded this afternoon, in relation to paragraphs 10 and 11. Indeed, my hon. Friend the Member for Canterbury said that this is the heart of the Bill. The opportunity to review the armed forces pension scheme raises the central issue, the holy grail, the objective that for so long people have striven for. As my hon. Friend the Member for Aldershot said, we have always considered the armed forces special and that we should make special arrangements for them, but the reality is that their scheme is much less special, because no serviceman can achieve a two-thirds, full final pension.

The problem has always been the special feature of the armed forces pension scheme: the immediate retirement point. The cost of providing the immediate retirement point for early leavers and their relatively much faster accrual rate has had to be paid for, in effect, by those people who have a full career but, as a consequence of the lower accrual rate and the cost of the scheme, never make what they would in civilian life—that is, a full, two-thirds pension. The argument has always been, ''Well, I'm afraid that's the cost of running a scheme with an immediate pension point.'' I ask the Minister to deal with that argument, in equity, during his winding-up speech.

As my hon. Friends the Members for Canterbury and for Aldershot have clearly pointed out, the immediate pension point is a means of providing for the manning requirements of the Army. Given that it is a manning tool designed to keep people on until they are 40, surely it should be funded by the Ministry of Defence, which requires the manning, rather than by the beneficiaries of the pension—the men themselves.

The Minister has introduced a new scheme, which we shall no doubt consider in much greater detail. The early departure point is to be much less expensive. Should not the saving consequent on the early departure scheme be in large measure channelled to provide redress for the outstanding grievance over the inability to provide a two-thirds pension? It is said that the problem for the armed forces pension scheme was always that it could not provide a two-thirds pension because of the immediate pension point. As we have apparently remedied that with the arrangements that Ministers have set out, can we not remedy the problem in respect of a two-thirds pension?

May I also ask the Minister about the pension trough? I apologise for not mentioning it when I dealt with paragraph 6. In January 2002, I asked a parliamentary question that was answered by the Minister's predecessor, the right hon. Member for East Kilbride (Mr. Ingram), who is now Minister of State. I asked whether he would estimate the cost to the armed forces pension scheme of increases to future pension payments to bring them to the level that would have applied but for the pay restraint policy in the mid-1970s—in other words, the cost of providing some redress for the pensions trough.

I will not quote the whole of the right hon. Gentleman's answer, but he said that

''for the information of veterans organisations, we are looking to see whether it would be practicable to give a broad estimate of the costs that might be involved for the major periods at issue. However, it has been the policy of successive Governments that retrospective action to redress such issues would not be appropriate and we do not plan to change this policy.''—[Official Report, 29 January 2002; Vol. 379, c. 216W.]

May I ask this Minister to dredge up the result of that study? I do not expect an answer today or when he eventually comes to winding up, but he could write to members of the Committee. We were looking to see whether it would be practicable to find out the costs; what was the result? Did numbers come out of that procedure? That answer would be interesting as we revisit the issue of the pension trough under paragraph 6.

Moving swiftly on, will the Minister deal with the point about the wider issue of AVCs that I raised in an intervention on my hon. Friend the Member for Aldershot? The proposal set out, largely in this new schedule, is constrained by the Government's overarching decision that it should be cost neutral. I have mentioned many things even in my short contribution that it would be nice to have but which will cost. To what extent did Ministers think about inviting members of the armed forces to consider whether some of those things would be worth paying through an additional contribution or a larger abatement?

I once occupied the position now held by my hon. Friend the Member for Aldershot. Having spent five months in Iraq—[Hon. Members: ''Hear, hear.'']—

seeking to find, fix and destroy former regime loyalists, I returned to the United Kingdom to find that I am myself a former regime loyalist and now stand behind my hon. Friend on the Back Benches. However, when I carried out the role that he now does, I would go to training areas at weekends and speak to soldiers as they conducted their training. I always asked them about the pension scheme. It was on my mind at the time; I was writing a paper about our response to the Government's proposals. I got nothing but blank looks; people did not consider it at all. Certainly, younger soldiers—those out in the training areas crawling through the mud—had never given it a second thought.

In my view, that was largely part of the problem. People did not know what arrangements were being made for them and had given them no consideration. A huge educational task needs to be undertaken to make people aware of the issues. Such an undertaking—asking members of the armed forces what they want out of their pension schemes and whether they would be prepared to pay for it in AVCs or larger abatements—would have been worth conducting, whatever the answer. Perhaps some soundings were taken; it would be interesting to know what the Minister has to say.

Does the Minister share my disappointment at the absence of the hon. Member for Hereford (Mr. Keetch)? As the Minister will know, because of the nature of the Bill many of the essential issues are dealt with in clause 1, and our proceedings are at a disadvantage for not having the opinions of the hon. Member for Hereford.

Photo of Mr Ivor Caplin Mr Ivor Caplin Parliamentary Under-Secretary, Ministry of Defence 4:45 pm, 3rd February 2004

We have had an interesting and lengthy debate on amendments to clause 1. On the hon. Gentleman's rather mischievous last point, it is not for me to defend the Liberal Democrats, but I should say that the hon. Member for Hereford indicated that he would not be here this afternoon. However, he will be joining us on Tuesday 10 February, and I fear that we shall still be considering clause 1.

During our two hours of debate on this part of the clause, I was struck by the fact that I do not think any Opposition Member used the word ''choice''. We are bringing in a new scheme for people who enter our armed forces on 6 April 2005 or after, and we are offering current members of our armed forces the choice of joining it. I say that because of some of the accusations—I use that word in the best spirit—that this proposal devalues in some way the Government's view of our armed forces. Nothing could be further from the truth.

We are absolutely committed to our armed forces, and we have shown that consistently by the issues that we have taken on board, particularly the pension arrangements and the people issues that we have put forward. The White Paper, which we launched in December, deals for the first time, in separate parts of the attached essays, with people and reserves. I must emphasise to the Committee that this is a new scheme for new entrants. Serving members of our armed forces will have the opportunity of joining or not when the

scheme is operational in 2005. I am talking here about pensions, and we shall get on to compensation later, though not today.

Photo of Julian Brazier Julian Brazier Shadow Minister (Foreign and Commonwealth Affairs)

The Minister will confirm that not only in the area of compensation but on the system of accrual for future years' service, existing service personnel who opt to stay in the old scheme will be significantly disadvantaged.

Photo of Mr Ivor Caplin Mr Ivor Caplin Parliamentary Under-Secretary, Ministry of Defence

The hon. Gentleman is starting to prejudge the issues that are down to individual choice. I shall come on to accrual rates and other matters, but I have promised Labour Members a lengthy speech on superannuation and accrual rates. As hon. Members will see, they are all looking forward to that.

Photo of Mr Ivor Caplin Mr Ivor Caplin Parliamentary Under-Secretary, Ministry of Defence

In fact, the hon. Gentleman heard most of that speech when he was at the Select Committee in November. I shall make one more introductory point, and then I want to answer some of the questions and outline the Government's views on the amendments.

I should like to put before the Committee the issue of transferable skills. I do not think that there is any disagreement that members of our armed forces have greater transferable skills today when they leave our armed forces than, say, 20 years ago. That is because we have a much better training regime, and we educate people and ensure that they are ready for the transition to civilian life. I am not saying that everything is acceptable—far from it—but I have been consistent during the last six and a half months in making clear my concerns about a smallish group of people whose transition still bothers us. That is why we are doing a lot of work on the issue, which was raised by the hon. Member for Canterbury.

I said on Second Reading that, according to the latest research, 90 per cent. find good employment within six months. My hon. Friend the Member for Glasgow, Anniesland responded by saying that he was surprised that it was not higher. Our challenge is to make that figure higher than 90 per cent. The point is exactly the same as that raised by the hon. Member for Aldershot in relation to housing. He made it on Second Reading, and I have addressed it previously. I said that we have to do better, and that we will change the way in which we operate in the last 12 months of people's service, so that we can deal with housing situations by knowing our people better, not just in that important last 12 months but throughout their careers in our armed forces.

Photo of Julian Brazier Julian Brazier Shadow Minister (Foreign and Commonwealth Affairs)

The Minister cannot suggest that the Government can address the housing issue in the last 12 months unless they are willing to commit some serious funds and get Treasury agreement for a completely new scheme. All the studies show that the majority of people in the Army who buy a house early in their service leave prematurely. There is no way of addressing the problem unless the Government are willing to fund an American-style scheme.

Photo of Mr Ivor Caplin Mr Ivor Caplin Parliamentary Under-Secretary, Ministry of Defence

I am happy to tell the Committee that one of the areas that we are considering in relation to Army recruitment is how we deal with family housing. It is an issue, because we attract people to the service then, after two years, ask them to go away somewhere and take their family along. I have discussed with the hon. Member for Aldershot the question of how we deal with the situation if the partner or spouse has a job or a career as well. As the Ministry responsible for the British Army—this is an Army issue, not one for the Navy or Air Force—I think that we have to ensure that we have policies and strategies to deal better with the matter. I am actively engaged in consideration of that, as I am pretty sure I told the House on Second Reading.

Photo of John Robertson John Robertson Labour, Glasgow Anniesland

One of the points that I was trying to make was that people suddenly find themselves leaving the Army and having to enter the housing market. The hon. Member for Canterbury is right to say that they should have thought about the matter years before, but they did not. The last thing that we want is soldiers who join up and want to talk about their benefits before they have done anything. Is the Minister going to address the problem of ensuring that such soldiers are not, in effect, given lesser houses than other soldiers?

Photo of Mr Ivor Caplin Mr Ivor Caplin Parliamentary Under-Secretary, Ministry of Defence

That is one of the issues that we have to consider. We need to have a discussion with the Local Government Association, the Scottish Local Government Association and other organisations that are responsible for housing. There is an ongoing discussion about Army recruitment and our commitment to address the issues.

I should like to answer some of the questions that have been asked by hon. Members. They will forgive me if I do not personalise them. The first that I noted was about benefits that are payable when somebody dies, irrespective of service. Under the new scheme, we will pay the new benefits; that is the point. The new scheme has new dependants' benefits, which are paid regardless of whether somebody dies on active service or of natural causes. That would apply equally to accrued pension benefits. The widow's pension, as a number of hon. Members mentioned, is paid at 33 per cent. Following on from that, there is the issue of death due to service, both now and under the new scheme. Since 2000, widows have been able to retain their benefits on remarriage. We are not proposing to change that, so in that respect the new scheme will be consistent with the current rules of the armed forces pension scheme.

Photo of Gerald Howarth Gerald Howarth Shadow Minister (Defence)

I am not sure that I got the point right when I referred to the matter earlier. As I understand it, the Minister is right: from December 2000 the Government have provided a concession to all attributable widows, including existing widows, to enable them to retain their pension on remarriage. I understand that the new scheme will not provide the same benefit to existing non-attributable widows. Is that the case? As I understand it, the concession is

being extended to all widows under the new scheme, but it will not apply to existing widows or to those who will be widowed between now and the date at which the new scheme comes into operation.

Photo of Mr Ivor Caplin Mr Ivor Caplin Parliamentary Under-Secretary, Ministry of Defence

I am not sure that I have understood the hon. Gentleman's point. We are about to adjourn, so perhaps he and I can have a conversation between now

and the next sitting to try to understand our positions. We can then respond fully to the Committee on this point.

Debate adjourned.—[Mr. Coaker.]

Adjourned accordingly at Five o'clock till Tuesday 10 February at five minutes to Nine o'clock.