New clause 8 - Transition arrangements

Part of Armed Forces (Pensions and Compensation) Bill – in a Public Bill Committee at 4:00 pm on 24 February 2004.

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Photo of Gerald Howarth Gerald Howarth Shadow Minister (Defence) 4:00, 24 February 2004

Indeed, the Minister sent details of the early departure scheme and other issues to me. If that is the misunderstanding, I am grateful to the Minister for putting it right. Most of us represent areas where there is military activity, although hon. Members like me obviously have a disproportionate number of servicemen and women in our constituencies. We are, of course, extremely proud of that; we are not complaining. The issue affects most constituencies up and down the country and it would be sensible if the Minister could let us have sight of what is being circulated.

In my discussions with people on the issue, it is clear that they are not aware of the detail of what is proposed. They are aware that something is happening, but they are certainly not clear about the likely choices that will face them. The Government have said that they are offering people a choice and a decision has to be taken. It would help if we could see the information available.

New clause 12 refers to assumptions about the longevity on which a scheme is based. I may say something about that later if there is time; otherwise, I will have to leave it until consideration on Report.

New clause 13 states:

''The Secretary of State shall provide individual comparative benefit statements for each serviceman and woman eligible to elect whether to remain within the scheme in force on the proposed transfer date or transfer to a new scheme promulgated by the Secretary of State.''

Again, I quote the speech made by the hon. Member for Dunfermline, West (Rachel Squire) on Second Reading, speaking on behalf of the Defence Committee:

''We hope that the Government will produce individual benefit statements to enable service personnel to make that choice, but at the moment they do not seem to have the computer systems that can produce such statements, nor do they know when they will have such systems.''—[Official Report, 22 January 2004; Vol. 416, c. 1511.]

That is another issue to which I wish to return. It is all very well sending leaflets to people, but they must have a clear understanding of what it is they are being offered when they are presented with the important

choice that they must make. New clause 22 would enact the call of the hon. Member for Dunfermline, West to have statements made available to individuals so that they can clearly see what they are being offered.

Overall, the new clauses are designed to require the Government to set out their proposals. There is huge uncertainty about what exactly is proposed for the transition arrangements. Neither the Select Committee nor members of this Committee have been given any details by the Minister on precisely how he proposes to implement the arrangements and what conditions will apply to those faced with the choice of transferring.

For those who start on the new scheme and join the services from 6 April next year, the situation is clear. It is a new scheme. For those who seek compensation, whether they are serving now or joined on or after 6 April, the new compensation arrangements will apply. What will happen to the 200,000 people currently on the payroll of Her Majesty's armed forces, a large proportion of whom will stay on after April next year? How will the Government handle that?

It is understood that the transfer from the old scheme to the new scheme will not involve the transfer of the value of accrued rights. A service person who elects to transfer will have his pension benefits calculated as if he had been in the new scheme since joining. That has yet to be explicitly stated. Is there to be a project manager? Is someone in the MOD charged with drawing up the plans that set out the details of each of the schemes and circulating them? How many people will be employed in that project management team? It will clearly take quite a lot of doing to address the concerns of up to 200,000 people.

The Department has yet to make it clear when the service of transferees will be calculated from. Will it be from the date of joining, or at 18 or 21 as in the old scheme? It is not clear whether members of the old scheme who bought additional voluntary contributions will lose that money should they transfer. What will be the value of their AVCs? I understand that under the civil service scheme, which the Minister has described as analogous to the proposal and a kind of template in a number of other respects, different values are allocated to different schemes. If a new scheme each year had a value of 1, the old scheme had a value of 0.9. What will be the method of calculation for someone serving today who has built up an entitlement and wishes to opt into the new scheme? Obviously the existing arrangements will apply for someone staying in the existing scheme.

We also need answers to the question of windfall gains. We understand that the MOD is concerned that certain members of the old scheme will not be allowed to transfer because they might be entitled to windfall gains. I am told that the Department has said that it will seek to prevent transferees who are close to the end of their service from making what it calls unreasonable windfall gains—in other words being able to gain all the benefits of the scheme without risking losing the benefits attributable to the

immediate pension scheme. That seems, on the face of it, unreasonable.

The new scheme will be introduced on a future date. Those who have already retired will not be allowed to opt in and those serving should not be restrained artificially. The Government do not hesitate to make windfall gains when it suits them. An example with which the Minister will be familiar is the pension trough, which was caused by the pay restraint policy. In the 1970s there was a period of high inflation and the Government imposed pay restraint. Some of those who retired in the early 1970s were substantially worse off than those who retired a couple of years later and those who had retired a couple of years earlier. They would be caught in that bind. We need to know what the Government propose to do on that issue.

It is not yet clear whether the new pension will accrue from the date of joining or the date of joining the trained strength. Is the date of entry the same as the date of enlistment? These are fundamental questions that must be answered. In the current scheme, pensions start to accrue from the age of 18 for other ranks and from the age of 21 for officers, but in the new scheme it appears that pensions will start to accrue for all ranks from the date of entry. That is a good idea, for which some, including the Forces Pensions Society, have campaigned for a long time. However, it is not clear how those who transfer into the new scheme will be treated vis-à-vis their previous years' service, especially those years before 18 or 21.

There is an extreme example of a 16-year-old recruit who gains a commission after a period of service in the other ranks. His pension service currently accrues from age 21. Can the Government confirm that under the new rules such an individual will be able to count all his service—an additional five years—for pension purposes, and if not, why not? Logic dictates that he should be able to do so.

It is not clear whether there will be a vesting period. At present, those who leave the services within two years of joining will not get an pension entitlement, but a gratuity, a lump-sum payment or a pay-off, whatever one likes to call it, but they do not become part of the pension scheme. They have no preserved pension rights if they leave within the first two years. Will there be a similar vesting period in the new scheme? It is not clear whether commutation will be allowed in the early departure payments scheme at the age of 65, because that is when another lump-sum payment becomes due.

The introduction of the scheme for new joiners on 6 April 2005 will lead to anomalies because those serving will not be given the choice of transfer until an unspecified later date. The families of two servicemen killed in the same incident could receive widely different benefits, and the Minister knows what the tabloid press would make of that. Not only will it lead to disaffection, it could lead to more wretched recourse to law and the courts, which we want to avoid if possible.

What do the Government have in mind? They must draw up new rules for considering these matters in respect of individual servicemen. Do they have an IT system that will be able to draw up comparative pension entitlements under the existing scheme and the new scheme for individuals who are currently serving? What happens to those who do not respond? What will their default position be? It is a realistic issue, because the Government want the new scheme to start operating from next April and it will not be in their interests to delay implementation of the switch-over for those who wish to do so because of the likely anomalies that will be created.

The Minister said that he has seen leaflets in the units that he has visited in the west country but he knows that a large proportion of the armed forces are not at their home base, but throughout the world. There are people in the mountains of Afghanistan, and 10,000 in Iraq, of whom 7,500 are regulars and 2,500 are reservists, like my hon. Friend the Member for New Forest, West. There are people on ships and submarines who are not in the swim of what is going on. The serious issue of education has to be considered, but there is no sign that the Government have addressed it in detail.

I know that the Minister, who speaks on behalf of the entire chain of command, regards his duty as an employer as important. He has a duty to those people, but how will they work out which scheme is best for them? I assume that they will have their individual comparative benefits tables, and will be able to see that table A gives them the current benefits if they stay in the armed forces for a certain number of years. It will have to include different points of departure, so it will be a complicated calculation. One calculation will have to be made under table A, on what happens if one stays in the existing scheme, and another complex calculation will have to be undertaken under table B for those who join the new scheme.

I hope that the Minister will say what work is hurriedly being put in hand to arrange the requisite IT in order to produce the information that will be required. However, what will happen once the tables are available? The squaddie will say to the corporal, ''I've got all this stuff, but I don't understand a word of it. What do I do now?'' The corporal will not know either, and suggest that the squaddie has a word with the sergeant—but the sergeant says, ''I don't know; have a word with the major.'' The serious question will be where to go for advice.

Risk aversity is creeping into our armed forces at a rate of knots, and fear of the increasing role of litigation has inhibited their decision-making capability. Those are all measures that I regret; that is a political criticism, as they are the result of the Government subjecting our armed forces to the European Court of Human Rights. The court is interfering in the proper administration of our armed forces. That should be a matter for the Minister and his colleagues, not a matter for judges from Albania or Lithuania and other sundry countries that have made such a contribution to the security of these islands. [Interruption.] I wanted to give Labour Members

something to enjoy, and to ensure that they are all awake.

The Minister is not hearing anything from me that he has not heard from senior officers, who give him advice all the time. The process of risk aversity is inhibiting decision making. Those who take men out on exercise or on a run must first do a health-and-safety check to ensure that they have complied with the health- and-safety rules. That sounds wonderful, but those fighting in Iraq were unlikely to check on health and safety, unlike those running factories in Preston, or in Hove.