Clause 3 - Accrued rights

Armed Forces(Pensions and Compensation) Bill – in a Public Bill Committee at 4:30 pm on 10th February 2004.

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Photo of Gerald Howarth Gerald Howarth Shadow Minister (Defence) 4:30 pm, 10th February 2004

I beg to move amendment No. 9, in

clause 3, page 2, line 26, at end insert 'under affirmative resolution procedure'.

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

With this it will be convenient to discuss the following: Amendment No. 7, in

clause 3, page 2, line 26, at end insert—

'(1A) Where a person receives a benefit under the existing scheme which would not be provided under a proposed scheme, that person (''the transferor'') may transfer to the proposed schemes while also continuing to receive personally the additional benefits derived from the present scheme.

(1B) The documentation of the transfer procedure shall prominently include particulars of how the transferor may protect such additional personal benefit.'.

Amendment No. 8, in

clause 3, page 2, line 30, at end insert

'of which a draft has been laid before, and approved by a resolution of, each House of Parliament.'.

Photo of Gerald Howarth Gerald Howarth Shadow Minister (Defence)

Thank God I tabled amendments to clause 3, Mr. O'Brien, or you would have rattled through this clause as well. Cor blimey, I am not sure what clause 2 said, but we are past that anyway.

The clause is interesting. The explanatory notes, which do not form part of the Bill, have nothing to say about it, so I am looking for help. Hands up any of my hon. Friends who can give me a steer because I am genuinely stuck. I have tabled an amendment on something I know nothing about and about which nobody else seems to know anything. Has my hon. Friend the Member for Blaby any thoughts? No? I am just checking. It is all right, though; I know what I am doing.

Photo of Andrew Robathan Andrew Robathan Conservative, Blaby

It may help my hon. Friend to recall that the Minister said that he would have much to say about accrual rates later. This may be his opportunity. The Minister shakes his head, but, as the clause is about accrued rights, I thought we might hear him tell us a little about accrual.

Photo of Gerald Howarth Gerald Howarth Shadow Minister (Defence)

The alternative was an opportunity to watch paint dry, and that is what I elected to do.

Amendment No. 7 is essentially a mix-and-match amendment. For example, the existing scheme provides a death-in-service benefit of one and half

times a person's salary, and the new scheme provides a death-in-service benefit of four times a person's salary. However, the immediate pension scheme is more favourable than the early departure scheme. The purpose of the amendment is to give people a choice. The Minister talked about choice. The amendment would enable people to pick the best bits—I freely admit that—of each scheme as it applies to their personal circumstances. He told us a long time ago that he was interested in choice and that it is a driving force behind the provisions. If he is genuine about choice, the amendment provides him with an opportunity to nail his choice colours to the mast.

Photo of Desmond Swayne Desmond Swayne Conservative, New Forest West 4:45 pm, 10th February 2004

Choice, be it a mix-and-match choice as the amendment suggests or the current reality of an absolute choice when it comes to opting into the new scheme, must be informed. Who will be qualified to advise members of the armed forces on that? We return to essentially the same question: who will provide that advice? The Army side certainly cannot. Will soldiers be expected to pay for independent advice?

Photo of Gerald Howarth Gerald Howarth Shadow Minister (Defence)

Indeed, that is a problem. My hon. Friend knows that we intend to address that issue more specifically in new clause 22 and to invite Committee members to give us the benefit of their thoughts, which they will have refined over the week of the recess.

People will say, ''Well, I want to stay in the present scheme because it gives me better benefits than the new scheme in some respects.'' However, spouses will strongly suggest that the death-in-service benefit of four times a person's salary should not be discarded lightly by anyone with family responsibilities. There will be much discussion in military households up and down the country about which scheme will suit each family best. For those who have family responsibilities, there will be enormous pressure to move to the new scheme, even though, for some people, it will mean giving up the immediate pension point and other benefits under the existing scheme. There will be much argument up and down the land and a lot of pressure applied to servicemen and women who are deciding which scheme to go for. The proposal that we have tabled, which gives people the opportunity to mix and match, will be advantageous.

Just in case you use your prerogative to canter through the clause stand part debate, Mr. O'Brien, I will make my observations on the clause now. I suggest that hon. Members have copies of the Bill in front of them because I want to take the Committee through it. Clause 3 states:

''The power of the Secretary of State to modify''

a scheme

''may not on any occasion be exercised . . . unless

(a) the consent requirements are satisfied . . . or

(b) the scheme is modified in the prescribed manner.''

Subsection (2) states:

''The consent requirements are those prescribed for the purpose of obtaining the consent of members of the scheme to its modification.''

Subsection (3) refers to

'' 'prescribed' means prescribed by an order under section 1''.

So, to understand the clause we have to go back to clause 1, which states:

''The Secretary of State may by order establish schemes''.

That is an absolute power. The whole thing is completely circular.

The Secretary of State is conferring on himself an enormous blank cheque. We have no explanatory notes on the clause so I am still open to guidance from the Minister, but I put it to him that there is clearly a difficulty in understanding the purpose of the clause. What is it about? Why is there no guidance in the explanatory notes? We are all interested to know the answer, even though it may not leave us any better informed or wiser.

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

For a moment, I expected an influx of comments from Opposition Members. It might help if I explain the purpose of the clause before dealing with the amendment. That may sound a strange way of doing things, but I hope that it will help the Committee.

This is a standard clause, designed to protect the interests of current members of the pension scheme from any changes to its rules that may have an adverse impact on their accrued rights. I assure the Committee that I do not foresee any circumstances in which the Ministry of Defence would want to change the conditions of the scheme retrospectively to take away current members' accrued rights, thus leaving them worse off. The clause should reassure hon. Members that if we ever wanted to do that, we would have to obtain the consent of scheme members.

It is worth explaining that in the context of other legislation. Section 67 of the Pensions Act 1995—I do not suggest that the hon. Gentleman has it at his fingertips—protects members of private sector occupational pension schemes from modifications to the scheme rules that would adversely affect their accrued rights. There is similar provision for public service schemes in the legislation governing those schemes, but the armed forces do not have that express statutory protection. The clause is intended to confer that protection on the armed forces pension scheme and is based on the model in section 67 of the 1995 Act. I hope that that is clear.

Photo of Gerald Howarth Gerald Howarth Shadow Minister (Defence)

At least that is an explanation. The Minister says that the clause is designed to protect scheme members from the diminution of their entitlements. The existing scheme will be subject to reduced benefits by virtue of it being succeeded by the new scheme, in which the benefits will be comparatively less favourable. As for choice, I suppose the Minister will say that members need not be consulted about that modification because they will ultimately be able to choose. However, if the new scheme is subsequently amended in a way that would adversely affect scheme members, there would be a requirement to modify. I put it to the Minister that, under my understanding of the procedure that I tried

to explain, the legislation simply leads us back to clause 1, which states:

''The Secretary of State may by order establish schemes''.

We are back to square one. If individuals refuse consent in accordance with clause 3(1)(a), the Secretary of State can modify the scheme ''in the prescribed manner'', which means exercising the absolute power that he would have under clause 1. In that way, he can circumvent any opposition that there might be to changes, if consent is withheld, by applying the consultation requirements in clause 3(1)(a).

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

Not according to the statutory basis that I outlined in relation to clause 3. I cannot imagine a Government, and certainly not a Labour Government, deciding at a later stage to go from death-in-service benefits of, say, four times a member's salary to three times. The hon. Gentleman used that example earlier. The statutory protection will ensure that scheme members have a right of say in the reduced benefits.

Amendment No. 7 is the key amendment. It cherry-picks the best of both worlds—a bit from that scheme, a bit from this. That is how the hon. Gentleman described it. If we were to make that system available, we would increase the costs of the scheme considerably. I am prepared to consider the costs of doing that. It might be an interesting study in terms of public spending analysis. Conservative Members might not want me to do that, but perhaps we should have a look at how much they propose to spend. I do not include the hon. Member for Hereford in that because I already know about the problems with his public spending proposals and everything else. I do not want to take that line because there are other hon. Members who rightly wish to debate that on the Floor of the House.

I cannot understand how we can pick and mix by choosing bits of different schemes and allowing people to transfer between them. That would be wholly unreasonable and not fair or proper because new entrants would not benefit from that choice. Indeed, that is not a real choice. People who come into our armed forces in April 2005 will be members of the new scheme. Existing members have the choice, on an individual basis, to transfer into the new scheme.

In conclusion—we are all getting our retaliation in quickly, Mr. O'Brien—the hon. Gentleman mentioned two years. I accept that we are looking at a two-year window. We have not finalised the precise timing because it partly depends on the ability of the Armed Forces Personnel Administration Agency's IT system to produce the pension benefit statements needed to allow service personnel to make that informed decision. We will return to transition issues, but I thought it useful to mention that now.

We anticipate that the statements will show respectable benefits under both schemes for existing members. The transfer arrangements are rightly being developed with the Government's actuarial department. We intend to lay the details of those scheme rules in a statutory instrument, as I said. On that basis, I hope that the hon. Gentleman withdraws

his amendment because it is not necessary. I also hope he will accept that I have undertaken to bring the armed forces pension scheme into line with other pension schemes, both public and private, in relation to the protection that armed forces personnel should have under the Pensions Act 1995.

Photo of Gerald Howarth Gerald Howarth Shadow Minister (Defence) 5:00 pm, 10th February 2004

The Committee would entirely welcome the Minister's costing the mix and match proposals, if that is what he is offering to do. It would be an interesting exercise. I do not know how one could do it—there are looks of horror on certain faces in the Room because the result could depend on how it was done—but perhaps the Minister and his actuarial advisers could have a stab at seeing how much it might cost to have mix and match proposals.

The amendments are probing. We accept the framework within which the Government are operating. It is cost-neutral, as I said, and I shall revisit that point when we discuss some technical issues. I am prepared to withdraw the amendment, but I want to study what the Minister said about the clause, for which there is no explanatory note, and seek professional advice. Does the hon. Member for Cleethorpes have advice from the Library? I am willing to be assisted if the hon. Lady wants to do so.

Photo of Shona McIsaac Shona McIsaac Labour, Cleethorpes

The Library note gives a brief explanation of the clause. I am sure that the hon. Gentleman has that note in the same way as I had my copy of the Bill when he referred to it earlier.

Photo of Gerald Howarth Gerald Howarth Shadow Minister (Defence)

I am grateful for that constructive contribution. I relish enormously the prospect of spending the half-term recess studying the Library's brief on the clause.

I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 3 ordered to stand part of the Bill.