New clause 2 - Re-employment of armed forces

Armed Forces (Pensions and Compensation) Bill – in a Public Bill Committee on 24th February 2004.

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'(1) Where—

(a) the Secretary of State determines for reasons of general personnel management that a person shall cease to be employed as an active full time member of the armed forces and therefore grants that person Early Retirement Income in accordance with Schedule [Armed Forces Pension Scheme], and

(b) the person concerned is re-employed for service under the Crown, including for service with the armed forces in another capacity,

such re-employment will be permissible without abatement of Early Retirement Income.

(2) In this section ''reasons of general personnel management'' means decisions reached by the Secretary of State in his absolute discretion as to future requirements of numbers in particular roles and ranks.

(3) In certifying reasons of general personnel management as the grounds for granting Early Retirement Income the Secretary of State's decision shall be conclusive and binding grounds for excluding the Early Retirement Income in this case from rules otherwise applying to pensions.'.—[Mr. Gerald Howarth.]

Brought up, and read the First time.

Motion made, [this day], That the clause be read a Second time.

Photo of Mr Win Griffiths Mr Win Griffiths Labour, Bridgend 2:30 pm, 24th February 2004

I remind the Committee that with this we are taking the following: New clause 9—Early departure payments—

'A system of Early Departure Payments (EDPs) for those serving 18 years and having reached age 40 (whichever is later) will be payable until the preserved pension comes into payment at age 65.The Secretary of State shall by order set out details of these payments.'.

New clause 26—Early departure payments (No.2)—

'Any Early Departure Payments (EDPs) established under section 1 of this Act as part of the Armed Forces Pension Scheme shall include the following provisions—

(a) there will be a qualifying period of service for the EDP, common for Officers and Other Ranks.

(b) the EDPs will be payable from age 40, but only on completion of 18 years of service (the 40/18 point);

(c) it will be paid to those leaving from that point and, as now, personnel will be eligible whether they leave for Service or personal reasons;

(d) from the 40/18 point, there will be immediate entitlement to a tax-free lump sum equivalent to three times the individual's accrued annual preserved pension value;

(e) in addition, at the 40/18 point, there will be an entitlement to an annual payment of 50% of the individual's accrued preserved pension entitlement. This payment will remain at the same level for those leaving at that point and, between the ages of 40 and 55, will not attract index-linking for inflation;

(f) for each year by which the individual's retirement is deferred after completing the 18 years of qualifying service, the value of the annual payments will increase by 1.66% up to age 55, at which age the annual payment will be 100% of the preserved pension entitlement. Until age 55, this payment will remain unchanged and will not attract index-linking for inflation;

(g) from age 55, the payments will be adjusted to take account of the changes in the Retail Price Index (RPI) since the point at which the EDP was originally taken and thereafter on an annual basis until the preserved pension comes into payment at age 60.

(h) existing policy on abatement will apply to Early Departure Payments if a recipient is subsequently reemployed in the public services.

(i) a preserved pension will be paid from age 60 onwards, with its value adjusted fully in line with RPI from the last day of service. At this point, a pension lump sum of three times the individual's preserved pension entitlement will also be paid.'.

Photo of Gerald Howarth Gerald Howarth Shadow Minister (Defence)

Welcome back to this scintillating Committee of ours, Mr. Griffiths. We assure you of an interesting and enjoyable afternoon.

Photo of Gerald Howarth Gerald Howarth Shadow Minister (Defence)

You will be pleased to know that I did not hear that sedentary intervention, Mr. Griffiths. I am sure that if I had heard it, I would thoroughly disapprove of it.

I was dealing with a key aspect of the early departure payments scheme, known as the EDPS, and want to seize the opportunity to correct the record. I inadvertently misled the Committee over the index linking of payments between the ages of 40 and 55. I suggested that the current immediate pensions scheme provided for inflation adjustment during the period when the immediate pension is taken, up to the age of 55, but it does not. The new scheme is four-square with the existing scheme. I shall return to the re-employment of those who have left the service.

As I said before lunch, we welcome the announcement that the Minister made when he provided us with the papers setting out the details of this exciting scheme, which he gave to us by way of a letter to the Chairman of the Defence Committee on 2 February. It is particularly welcome, given that as recently as last month, the Government responded to the Select Committee's report and said that no decision had yet been taken on the issue. Clearly, a lot of footwork has been done, and it is fair to say that we welcome that announcement. There will be inflation uprating for those who reach pension age at 55. Perhaps the Minister will clarify that they will be in the EDPS until they receive their preserved pension, currently at the age of 60, and at the age of 65 in the future. The difference is that from the age of 55 to 65, it will be uprated annually to take inflation into account. The Minister nods, so I can welcome that, too. This is a very helpful Committee.

Issues of principle flow from the changes. The immediate pension arrangement is subject to the protections that apply to pensions. The Government changed it to prevent the payment of pensions generally before the age of 55 and had to invent a new scheme—the EDPS. The Minister argued that it is

the secondary legislation behind this measure that will give the new scheme the same protection, and that people are therefore protected because the scheme can be altered only by negative procedure. Will he confirm that the EDPS will be protected from internal Ministry of Defence cost-saving exercises and that it will not be possible to raid the pot without the Secretary of State altering the scheme through secondary legislation?

As I said, we are exchanging a pensions scheme, with all the attendant protections arising from pensions legislation, for a new scheme that enjoys no such protection. As a result of parliamentary questions that I tabled, we have been assured that national insurance contributions will not be applied to that income stream. However, we are entering new territory and cannot anticipate how well protected the new scheme will be from attack by the Inland Revenue or elsewhere. What investigations has the Minister undertaken to verify the robustness of his new scheme? Will he assure the Committee that he is confident that it will be secure from attack from elsewhere?

Those are not academic questions. The Government's response to the Select Committee report said that

''divorcing the EDP scheme from the constraints of pension rules allows a more flexible and targeted approach, responsive to manning needs and in particular reflecting the various manning exit points.''

It is important to recognise that the Government accept that the scheme will not come under the constraints of existing pensions rules.

There is also the issue of commutation, which is perhaps not a matter of principle so much as of practicality. The immediate pension, which currently prevails, and the proposed scheme are both designed to provide a pull-through.

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

Before my hon. Friend moves on, it is perhaps worth underlining the fact that the current pension scheme in its entirety is ring-fenced and protected. Indeed, people will have the option of remaining in it rather than entering the new scheme. However, the Government seem to be suggesting that the early departure scheme, far from being a fixed entitlement that people will accrue during their service, will be subject to changes to meet manning and no doubt budgetary requirements.

Photo of Gerald Howarth Gerald Howarth Shadow Minister (Defence)

My hon. Friend makes a good point. The Minister heard it and I hope that he will respond. Perhaps we will move on to that issue when we discuss transitional arrangements and whether the protection will continue and the terms of the old scheme will be available to be applied to the new scheme. I understand that that will not be the case and that the question will be a straightforward either/or.

The immediate pension and the new scheme are both designed to provide a pull-through—an incentive to soldiers, sailors and airmen to stay on rather than quit at an age at which a second career might be easier to come by. As the Minister accepted in earlier discussions, housing is an important issue in that context, and one which exercises my hon. Friend the

Member for Canterbury (Mr. Brazier). Clearly, the lump-sum payment is designed to be available to assist with house purchase. However, if the serviceman is restricted in the amount that he can commute to increase the lump sum available to him, his ability to access the housing market will be similarly constrained. In addition, if he leaves at the age of 40, his early departure payment income will be about half the rate of a counterpart retiring today at the age of 40. He will therefore have a reduced income stream from which to service any debt that he may assume to enter the housing market.

In respect of the commutation, I understand that the Ministry of Defence claims that the new scheme must comply with the Finance Act 1989, which limits the lump sum that is payable. The MOD also points out that the Green Paper proposes limits to the amount that can be commuted—about 25 per cent. of the available pot. It is important that the Government explain to servicemen and women exactly what the new scheme entails and how much they will be able to commute from their pension entitlement to a lump sum.

I understand also that the resettlement commutation is impossible in the new scheme, except at 65, when the second lump sum and the preserved pension come in to issue. That, of course, is quite late in the day. The Ministry has yet to decide whether to offer such a facility, arguing that it will have to wait for the Finance Act, which brings in to being the Green Paper proposals. It also takes the view that the employer has the responsibility to protect servicemen from commuting too much, blowing it and then having to fall back on the charity sector or the state. People are reasonably responsible these days, particularly if they have served in the armed forces: they have a sense of responsibility that is not perhaps shared by everyone. However, we need clarification on that.

Although this is not, strictly speaking, a pension issue, it is none the less an issue that the Ministry of Defence and the Minister himself recognise. I should be grateful if he could address those points. As I said earlier, and as the Government freely acknowledge, the early departure payment scheme is essentially a manning tool for the Ministry of Defence. We cannot at this stage tell what effect it will have on retention, let alone recruitment. We are told that senior military personnel are content to sign up to proposals that they know will provide substantially reduced benefits for their people. We also know that in the consultation document published by the Government in March 2001, the Ministry had concluded that altering the immediate pensions substantially would place manpower planning at risk.

The Minister owes the Committee an explanation as to why ministerial and military minds have been induced to exercise this apparent major U-turn in replacing the immediate pension with the new scheme. It is a gamble: we are looking 20 years ahead, but as I said, it is important for us to challenge Ministers to project themselves forward to consider what conditions are likely to apply in 20 years' time, and how the scheme is going to work. There is an

immediate test available: the test of how many people decide to transfer from the existing scheme to the new scheme. I do not know what consideration the Minister has made of people deciding to stay in the existing scheme rather than move to the new scheme—it may be a large number. That will give us some indication.

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

That is not the point on which I want to intervene, but I may return to it. I want to address what was said in 2001 and what is now before the Committee. It is important to place on record that a serious consultative process should start with a document on which we consult people at different levels, including the veterans' organisations. It should then come to a conclusion, which is put before us as legislators. That is what we are doing. I do not think that it should be regarded as change, but as part of the natural process of consultation.

Photo of Gerald Howarth Gerald Howarth Shadow Minister (Defence)

I am grateful for that point: there is greater joy in heaven over the one sinner who repenteth. We welcome in the same breath the Government's willingness to consult and listen. This may be a small conversation compared with the big conversation, but the big conversation is going nowhere, while the smaller conversation is clearly going somewhere. We are very appreciative that the small conversation is working. To move from an argument that the immediate pension provision would place manpower planning at risk, to being dissuaded by the veterans' organisations that it would not, is quite interesting.

Photo of Mr Ivor Caplin Mr Ivor Caplin Parliamentary Under-Secretary, Ministry of Defence 2:45 pm, 24th February 2004

I do not want to give the impression that the veterans' organisations changed my mind. I made a general point about the process of consultation and the fact that there was wide consultation on the overall pension compensation scheme. I know that the situation is different when we are dealing with one new clause on the early departure scheme, but I was making a general point about consultation.

Photo of Gerald Howarth Gerald Howarth Shadow Minister (Defence)

I think the Committee will appreciate the Minister's clarification .

I said at the outset that I would like to return to new clause 2—I apologise to the Minister for doing so—which is about the re-employment of recipients of armed forces pensions. Some people leave the service and are later re-engaged in Crown employment, which basically means working for the armed forces again. The policy under the new arrangement is that existing policy on abatement will apply to early departure payments if a recipient is subsequently re-employed in the public services. You were not here this morning, Mr. Griffiths, so, for your benefit, that means that where someone is in receipt of a pension, their combined pension and pay in their post-retirement job cannot exceed the pay that they were earning when they left the job.

In the Department for Work and Pensions Green Paper, ''Simplicity, Security and Choice'', to which I have referred, the Government recognise that people increasingly want to work after retirement, often part-

time or in a position of reduced responsibility. The document says that people

''end up retiring when they would have preferred instead to stay in work in a reduced capacity, supported by a combination of earnings and pension. The Government proposes to remove this constraint. As part of the Government's consultation on the simplification of the pensions tax regimes, we are proposing to allow schemes to offer people the opportunity to continue working for the sponsoring employer while drawing their occupational pension.''

People who choose to work after retirement show how they are able to continue contributing in a meaningful way, and the armed forces are no different. This morning I gave the example of the garrison adjutant at Aldershot, Colonel Jack Matthews, who retired from the Army as an officer and was then re-engaged, but who, like his 2,000 or so colleagues, is limited in the amount that he can earn.

Certain ex-service organisations have also suggested to us that there could be a role for blind and limbless ex-service personnel in other parts of the MOD, such as in stores, doing clerical or administrative work. Such men have made great sacrifices; they have put their lives on the line for their country and it seems unfair that they should be penalised for wanting to continue to serve their previous employer, where they have a role to play and can bring some experience to the party. However, the Green Paper says that certain pension schemes will be exempt from those changes, at what seems to be the discretion of those who operate the scheme.

We take it that that will be the case with the forces pension scheme; that it will operate under the existing rules, rather than under the new rules proposed by the Department for Work and Pensions, which is encouraging people to stay on. That change in the overall pensions legislation is making its way through the House of Commons. I should like the Minister to say why it has not been possible to include service personnel in the new overall pensions arrangements. The people in question can make a real contribution, as the Minister surely recognises, having met the same sort of people as I have. If the Government's overarching pensions policy is designed to meet the requirement for greater flexibility and to enable people to continue work in a reduced capacity, the armed forces should be included. There is already the example of the Full Time Reserve Service.

I have met Tornado pilots who are currently defending us at RAF stations. They include full-time reservists, who have left the service and been re-engaged. They have shed many of their former administrative responsibilities and are doing what they want to do, which is to fly aeroplanes. All their flying expertise is preserved. They have not gone off and joined Virgin Atlantic or some other airline. They have stayed in the service, but on new terms.

The Ministry of Defence should look at this more in the round. There ought to be a more flexible way in which we can use this valuable resource, to use the modern jargon. These are people with a lot of experience and a lot of expertise for which the taxpayer has paid. We should be able to take advantage of their services without penalising them and putting substantial constraints on the conditions

of their pension entitlements and their salaries for their new part-time responsibilities.

In conclusion, the general verdict is that if the Government are to be cost neutral, this is the place where savings should be made. That was the view of the Select Committee. The Government have responded to some of the concerns that have been raised. The fundamental issue, the point about which my hon. Friend the Member for Canterbury feels so strongly, is that this is a completely new regime. The payments will no longer be governed by the laws that apply to pensions, but by completely separate laws. We are entering unknown territory. Can the Minister reassure us that he has carried out the investigations and considered all the potential elephant traps? Secondly, is he confident that the scheme will be robust and will not be subject to attack either from the Treasury or any other arm of Government?

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

I shall be brief. The Committee will be relieved to hear that I do not intend to repeat all the points that my hon. Friend made in his excellent speech. I strongly echo his point that this is not only a huge reduction in payments to most service personnel in the long run, but is uncharted territory. I shall pick two small details from my hon. Friend's speech and support him on both. The first concerns commutation.

I was uncertain when I saw how small the early departure payment would be whether commutation was appropriate. However, on reflection, partly as a result of the Minister's comments, I think that there should be a generous arrangement for commutation. The reason is simple. As the Minister has repeatedly said, most members of the armed forces have reasonably transferable skills. They are not terribly disadvantaged in the labour market, although most members of the Army and Navy are still likely to go in at a lower salary than they would have enjoyed if they had built up a civilian career.

The idea that the early departure payment is a safety net is unrealistic for the vast majority of them. Where they are grossly disadvantaged is in the housing market. This is being written from scratch. It is not a pension payment, subject to the 25 per cent. rule, as a pension payment would be. To allow members of the armed forces flexibility so that they can get a worthwhile second sum out of this relatively small payment to put towards the huge cost of buying housing seems very sensible. There should be no advantage or disadvantage either way to the Treasury. It is a matter that should be left to service personnel to decide for themselves. Allowing them to commute a large chunk would be sensible.

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

I understand what the hon. Gentleman says about commutation, but the other side of the equation is that if EDPS is a safety net, commutation would remove a substantial part of it, especially if there were an annual commutation, which I think is what the hon. Gentleman is suggesting. For example, let us suppose that the veteran put the entire amount into a business, which then failed, what safety and security would that person have?

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

The vast majority of members of the armed forces do not get into the extreme trouble that the Minister mentioned and, at the end of the day, the state would be there, as it is for civilians. Studies show that members of the Army who buy property early in their service are much more likely to leave the service early than those who do not. Unless they buy a house during their last few years of service, almost all members of the Army approaching retirement are at a huge disadvantage in the housing market. The ratio of house prices to incomes is close to an all-time high; there are only two brief periods in history—a matter of a few months—in which it has been as high as it is today, and because of the extreme shortage of house building and continuing pressures it is not likely that that ratio will improve; it may even get worse.

People coming out of the Army in their 40s are hugely disadvantaged as their counterparts in civilian life are on the second, third or even fourth tier of the housing ladder. Service personnel in their 40s do not want a starter home as they probably have children of 11 and 13—I mention those ages because my children are that age and I am 50. They need family homes and a gratuity of between £30,000 and £50,000, depending on their rank, although more than a deposit, will not be nearly enough. The absurdity is that a taxable income will cover only a relatively small proportion of the mortgage, whereas a tax-free lump sum, which would be the effect of commutation, could knock a big chunk off any mortgage that they take out.

I was not at all certain about the matter when the Bill was published. I was horrified at how small the early departure payments were to be—up to the age of 55 they are about half of what they would be now—but on reflection I believe that the housing considerations are more important than those of the safety net, as housing considerations affect the majority of people, whereas those of the safety net apply only to a relatively small minority.

I want to approach my hon. Friend's point about disabled people from a slightly different angle. We rightly take the strong view that there could be no question of the equal rights legislation for disabled people being applied to the armed forces; that would be ridiculous in any capacity. We strongly disagree with those who asked why, if a disabled person can be a cook in civilian life, he cannot be a cook in the Army. The answer is that even the cooks have to fight, and on many historic occasions they have done so, if desperate measures were required. However, that relates to recruitment from civilian life; the other side of the coin is that if someone becomes disabled when they are already in the armed forces, the Ministry of Defence, as a good employer—the Minister has stressed many times that he wants the MOD to be seen as a good employer—should make every effort to make use of their experience and find them, for example, a supporting civilian role.

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

I am glad to hear that, because that seems to be a slightly different point from that made by the hon. Gentleman and his colleagues about the compensation proposals. During the previous sitting, I made the point that one of the big differences between the compensation scheme today and the one that we

propose from April 2005 is that we would actually be able to support someone who is disabled in service. We cannot do that today; it is a big difference. I am glad of the hon. Gentleman's support.

Photo of Julian Brazier Julian Brazier Shadow Minister (Foreign and Commonwealth Affairs) 3:00 pm, 24th February 2004

I do not accept that it is a big difference. As I said, in most cases that support would be in a civilian capacity. It is comparatively rare that somebody with a severe disability can continue to serve in uniform, although I welcome any opportunity for them to do so. I echo my hon. Friend's point that it would be unfair if rules about adding up the total were to work against such a disabled person. Whether they are in a military capacity or, as is more common, in a civilian supporting capacity, the equation will apply in exactly the same way. That is why I support my hon. Friend's reservations.

Photo of Desmond Swayne Desmond Swayne Conservative, New Forest West

My hon. Friend the Member for Aldershot (Mr. Howarth) has done a great service to the Committee by going through the matter so thoroughly and, in particular, by illustrating the effects of the Government's new scheme with figures and examples. It is undoubtedly a much less eligible scheme than the old one. That prompts an enormous question: what on earth has happened? The principal disadvantage of the current armed forces pension scheme is that it cannot provide a full pension at full retirement age. It cannot reach the figure of 66 per cent., because of the expense of the existing immediate departure point. That relatively fast accrual rate is paid for in effect by the relatively slow accrual rate of those who go for the full career. The argument has always been made that given that the immediate departure point—an expensive feature of the system—is a manpower planning requirement of the Army to draw people on to a particular point in their career, it should be paid for by the Ministry of Defence rather than by the beneficiaries of the scheme who will have a less than two thirds pension when they comes to full retirement age.

We now have a new scheme. The Government have taken the axe—or are going to—

Photo of Desmond Swayne Desmond Swayne Conservative, New Forest West

No, the hon. Gentleman is going down the wrong road. We will steer clear of that one.

The figures to which my hon. Friend drew our attention clearly show that a significant saving is now being made on the principal expensive part of the scheme. As a result of making that saving, we ought to be able to deliver the holy grail: the full two thirds pension on retirement. Of course, we are not. The Minister has some explaining to do as to where the savings have gone from the early departure point of his new scheme. It cannot all have gone in to providing additional benefits to unmarried partners or a better death in service benefit. Where has the rest gone?

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

Welcome back to the Chair, Mr. Griffiths. I am grateful for the debate that we have had on new clauses 2, 9 and 26. It might not surprise the Committee to hear that I hope that when we have finished the debate, the hon. Member for

Aldershot will be able to withdraw the clauses. If he does not, I shall ask the Committee to resist them. We started off the debate with the issue of cost neutrality, which is quite an interesting place to start. I was tempted to talk about cost cutting, which certain Opposition Members will have to consider. It is fair to say that while we are cost neutral, what has been proposed by the official Opposition—although not any Committee members—is different and would have drastic implications for the defence budget.

Photo of Gerald Howarth Gerald Howarth Shadow Minister (Defence)

I am grateful to the Minister for giving me the opportunity to put him right. I know that he does not believe what he said. Indeed, he knows that his Ministry is engaged in a severe cost-cutting exercise at the moment.

The shadow Chancellor has made it clear that we will have priority areas. We do not know what the situation will be when we come into government next year, as the economy is fast running away from this Government and Chancellor. However, the Conservative party regards defence as this country's golden asset, and we are determined to ensure that our armed forces are resourced to meet all the agreed tasks and commitments.

A Government review is taking place under Sir Peter Gershon, and we have a review under David James. We anticipate that the accumulated savings from those two reviews could be deployed to priority areas and, to ensure that the Minister can sleep safely in his bed, I can assure him that defence is a priority area for such redistribution.

Photo of Mr Win Griffiths Mr Win Griffiths Labour, Bridgend

That was a rather long intervention. Moreover, we do not need to go further down that line and should concentrate on the armed forces pension.

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

I agree with you, Mr. Griffiths, as that intervention made the Conservative party's position as clear as mud.

Cost neutrality is a sensible and reasonable place to start the debate, and it is where we made the basis for the new schemes. One will always consider affordability as part of new pension arrangements or the early departure plan. However, if we consider the value and balance of the overall package, we will see that it is not only an important part of the manning control systems that were referred to. It is primarily an opportunity to ensure that the skills of people in our armed forces are on the increase and transferable and that they utilise those skills in the first instance in our armed forces. I do not believe that Committee members disagree about that.

The issue of second careers is interesting, and I have made my point about the compensation scheme. I hope that when we finish debating the Bill, we will agree that it is a significant change to the compensation proposals.

The Committee will not be surprised to know that if someone leaves our armed forces and becomes a civilian worker in the Ministry of Defence, they become subject to the rules of the MOD civil service. For my sins, I happen also to be responsible for the personnel matters of the MOD civil service, so such people get me twice in that respect. On the civilian

side, we will consider wider Government issues in relation to pensions and employment, as we would be expected to do as a major employer in Whitehall. As someone who has long supported public services and public service delivery, I anticipate doing that for many years to come.

The hon. Member for Aldershot also asked about whether we had checked out the early departure scheme with other organisations, including the Inland Revenue. Everything in the Bill has been thoroughly discussed with the Inland Revenue, and it has given us a big green tick that means that it is happy with the scheme.

That brings me on to the early departure plan scheme changes—even I will start calling it the EDPS if I am not careful. The hon. Member for Canterbury made an interesting point about what happens under the scheme if there are changes. I think that that was also the nub of the point of the hon. Member for Aldershot—how would we deal with changes within the scheme rules and secondary legislation? I hope that I will be able to reassure them both, and the hon. and gallant Member for New Forest, West (Mr. Swayne) and all concerned, on this particular matter.

When an individual signs up for their early departure plan arrangement, that will persist throughout their service until departure. In effect, whatever the rule is on the day they join, that is the early departure plan that they will get. Any change proposed by our Government or by any Government of a different nature in hundreds of years' time would apply only to new entrants. That is the important difference that I am making. There is no detriment to any individual.

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

The Minister is being extremely helpful and what he has just said is very welcome, but can he tell us whether this pledge will be in the Bill or will it be reversible by a single statutory instrument?

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

It is not going to be in the Bill, or we would not have the hon. Member for Aldershot's new clause. We have dealt with the legislative process in relation to that at some length during our five or six sessions so far. There will not be any detriment to individuals.

I will deal with the issue that the hon. Gentleman the Member for Canterbury has raised a number of times. We are talking about a balance between what is proposed and what others would like, but at the same time a balance within the whole package of pensions and compensation. We have probably got this right. As others have said, it is wait and see to some extent, but we believe that, working with the service chiefs, we have got the early departure plan about right. It delivers what we want and it delivers to members of the armed forces some support that they would otherwise have through the immediate pension proposals that we have today. If they stay in the other scheme, they have a different situation, at which we will have to look.

Housing is an interesting one, which we have talked about a number of times. I intervened on the hon.

Gentleman on the issue of commutation, but I accept what he says: that nine out of 10 veterans are fine when they leave the armed forces—I freely used those figures on Second Reading and elsewhere—but it is the 10 per cent. who offer us many of the issues and challenges. Some veterans find themselves in the House of Commons after they leave the armed forces. Some even get mobilised again, to keep them on their toes. I am not saying that the hon. and gallant Member for New Forest, West is in the 10 per cent.

However, hon. Members also asked me about savings. A major saving in the overall package is achieved by those who leave immediately on reaching the early departure payment points. What they will receive is three times pension entitlement as a lump sum and annual payments set at 50 per cent. of what they would have received as a pension under the current scheme. This will remain, as discussed, at the same level until age 55 when the retail price index factor cuts in. We feel it right to pay the larger sums later rather than earlier, from age 55, when second careers may be more at risk. It comes back to the whole question of balance. What do people do at 40 or 45, what do they do at 55 onwards? The whole package achieves a saving of around 30 per cent. That saving has gone into other parts of the pension and compensation arrangements to achieve cost neutrality, which is the point at which I started this speech.

Photo of Gerald Howarth Gerald Howarth Shadow Minister (Defence) 3:15 pm, 24th February 2004

I was making the point to the Minister this morning that, according to the figures that we have been given from an impeccable source, the Forces Pension Society, the savings are round about 20 per cent., and that includes those retiring at age 40. The later the retirement, the more the new scheme tends to approximate to the existing scheme, but for people retiring earlier there is a pretty substantial cut. Even so, the overall package, assuming someone continues to live to the age of 75, is about 20 per cent., so I am not clear on where the Government get their figure of savings of one third. That figure has been a key component of the Government's scheme, because it is the savings to be made from the ending of the immediate pension scheme and the introduction of this new one that will fund all the other benefits and improvements the Government are so anxious to institute.

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

I am grateful for the hon. Gentleman's intervention. Of course my protection—which was always my protection throughout my private sector career as well—is to blame the actuaries if there is anything wrong. On this occasion, however, the actuarial advice that I have seen is reasonably accurate.

I have looked at some of the issues raised by the Forces Pension Society, including the 20 per cent. figure. As far as I can see, its figures do not use any discounting factor. In other words, for the Committee's benefit, they take no account of when the savings are made, and that will create a more expensive scheme than our proposed scheme, which produces the 30 per cent. figure. That is the difference.

I want briefly to deal with the three new clauses themselves, having dealt with most of the issues in the debate.

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

We went off commutation rather fast there. Is the Minister really saying that, because there is a danger that some of the 10 per cent. who are unfortunately coming out may ultimately become a burden on the state in another way—if they were given the power to commute which they might use irresponsibly—that then means the other 90 per cent., the majority of whom do not own houses, are denied the opportunity to commute a bit and ensure they can afford a reasonably sized home for their families?

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

I was not in any way suggesting that about the other 90 per cent., nor was I passing comment. I am prepared to be open-minded and carry on looking at commutation, but I do not find the argument for it pressing or persuasive. That is where I stand today. I hope that I can now deal with the three new clauses before us, Mr. Griffiths. I am sure you will be relieved at that.

The aim of new clause 2 is to establish a more favourable abatement regime for EDP recipients under the new arrangements. I cannot see any reason why payments under the new early departure payment scheme should be treated differently from current arrangements for redundancy payments.

Photo of Gerald Howarth Gerald Howarth Shadow Minister (Defence)

The whole point of what I was saying is that the Government, engaged in a big conversation on pensions, are saying that they want greater flexibility in employment. One arm of the Government is saying that greater flexibility is needed—the Government want people to be re-engaged by what they call the sponsoring employer—yet the Minister of Defence is introducing a completely new scheme to replace the immediate pension scheme and saying, ''Oh, no; in that respect, the new scheme completely replicates the existing scheme in that respect, but not in others.'' It seems that that there is a huge inconsistency in Government policy here—and, much more important, a seriously missed opportunity.

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

I disagree; there is absolute consistency. What we do today with abatement of the immediate pension of someone who is re-employed is exactly the same as we propose with the early departure plan. The existing policy on abatement will continue to apply to individuals in receipt of the early departure plan income.

The abatement rule will ensure that a service person on re-employment by the MOD, or anyone else, cannot earn more through a combination of pension or redundancy income and salary than what they received in salary on their last day in service. It is a fair system that people would recognise as fair and equitable.

I made sure that the Committee had the necessary paperwork to consider new clauses 9 and 26, and I am grateful for the debate on the early departure plan. I hope that the examples that I was able to send to Committee members have been helpful in drawing together those points. The two notes that I provided

effectively provide the rules of the basic early departure plan scheme. You will be pleased, Mr. Griffiths, to know that they form the basis of the statutory instruments that we shall lay before the House in due course, along with separate instruments for the new pension and compensation schemes. No doubt, we shall all be back in Room 11 to debate them.

In new clause 26, the hon. Member for Aldershot raises a familiar theme on scheme rules in primary legislation. I am not sure whether I need to rehearse all the arguments that we heard in the debate on clause 1. Repetition is usually frowned upon by members of the Chairmen's Panel, but suffice it to say that I believe we have the right level of parliamentary scrutiny and the right system of enabling legislation, and that we are right to take secondary powers through statutory instruments. On that basis, I hope that the hon. Gentleman will withdraw the new clause. If he does not, I shall ask the Committee to resist it.

Photo of Gerald Howarth Gerald Howarth Shadow Minister (Defence)

We are encouraged to hear that the Department has received a green tick from the Inland Revenue. I hope that the Minister's words of assurance do not come back to haunt him.

Photo of Gerald Howarth Gerald Howarth Shadow Minister (Defence)

I think we should put that on record—for his own protection.

We clearly have to take the Minister's word for it. He knows that his neck is on the line, but I hope that the clearest message goes out from Committee that Parliament does not approve of the Government's putting a scheme in place and the Minister's giving assurances based on the best available intelligence for them to be undermined by other Departments acting in a rather autocratic and unaccountable manner. Given the importance of the scheme, I hope that it will be pretty fire proof.

The Minister is right about new clauses 9 and 26; the only way that I could proceed was to table the Minister's own proposals—ones that he did not want to table—but it was done to give us something to get our teeth into. I accept that new clause 26 is pretty detailed and that enacting it would lead to a substantial amount of detail in the Bill requiring primary legislation to be amended. When it comes down to details such as an accrual rate of 1.66 per cent., one should not need further primary legislation to adjust it to 1.75 per cent.. I hope that I am reasonable enough to accept that that is not a starter. It was a probing new clause.

New clause 2 is not in the same category. It involves one of the core principles that I would have thought the Government could accept in the Bill. It does not matter what we do here, but the Minister may find that there is concern about the issue in another place. The Lords will consider these debates and see that there is a middle way between encumbering the Government with impossibly detailed legislation in the Bill, and putting some of the core principles in the Bill. I suspect that there is little point in detaining the Committee by pressing the new clauses to a vote, but I want to deal with two other points.

I am sorry that the Minister is not persuaded by our argument on commutation, because again there should be flexibility. We do not know what will happen to the housing market in future. I shall not repeat in great detail the examples that I gave earlier, but let us consider a colonel who retires at the age of 40. At the moment, he gets a lump sum of £55,000 and under the new scheme he gets about £50,000. A staff sergeant who joined at 18 and retires aged 40 today will get £30,000 and pretty much the same under the new arrangements. That is not a huge amount of money, and I am sorry that the Minister will not consider more favourably the ability to commute some of the pension to provide for a property.

Photo of Shona McIsaac Shona McIsaac Labour, Cleethorpes

I am listening with care to what the hon. Gentleman is saying about housing and I am curious to know on what he bases his figures. I hope that he agrees that, in many parts of the country, property prices are quite low and that that amount of gratuity lump sum would be very adequate to get a generously sized family home.

Photo of Gerald Howarth Gerald Howarth Shadow Minister (Defence)

The hon. Lady is privileged to represent a beautiful part of the kingdom, which is populated by a plethora of airfields. As an aviator, I love to see airfields wherever I go, so I certainly believe that she is privileged to represent such a constituency. House prices are lower in her part of the world, but she knows full well that in the south-east the average price of a property is about £175,000. Indeed, in my part of the world, that is probably the starting price, but certainly in the south-east as a whole and in other parts of the country—the north-east is catching up—the amount of money that we are discussing is not much for a deposit.

I am not saying to the Minister that there should be a set sum, but there should be more flexibility. Will the Department think about that and ascertain whether a way can be found to provide more flexibility without having people commute their entire income stream in future to fund property acquisition? He should pay a little more heed to that and listen a little more sympathetically to our arguments.

I am sorry that the Minister is not prepared to accept new clause 2 and the abatement issue, for the reason that I gave in my intervention. I can understand the argument that if someone has left the service and is now re-employed in a similar role they should not be entitled to ratchet up a socking great new salary on the back of no longer being employed in the armed forces. However, there may be people with particular skills whose value to a service community increases over a period of time, and in such cases locking them into a capped income is not fair. The Minister should have been more sympathetic to that.

The new clause is essentially probing and we may revisit these matters on Report, in another place or on Third Reading. I beg to ask leave to withdraw the motion.

Motion and clause, by leave, withdrawn.