New clause 19 - Full career pension

Part of Armed Forces (Pensions and Compensation) Bill – in a Public Bill Committee at 10:30 am on 26th February 2004.

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Photo of Eric Joyce Eric Joyce Labour, Falkirk West 10:30 am, 26th February 2004

I want to make a brief point about the nature of accrual rates. It is a complex business and I want at least to simplify the matter for myself, let alone for the rest of the Committee.

The accrual rate in the Army is quite fast in the early years and slower in later years—a convex shape followed by a concave. As people come to the end of their service, they are discouraged not only by the problem explained by the hon. Gentleman, but also from making additional voluntary contributions because they receive a relatively low rate of return in later years. I have not done the calculations, but I suspect that it makes as much sense in the very late years to put money into other investments as it does to buy additional voluntary contributions. That is a pity because people will not only leave, albeit early, with a somewhat smaller proportion of their final earnings, but they will be inhibited from buying the last few years, as they can under the current system of AVCs.

Unlike the Opposition, I do not propose to ladle lots of extra costs on to the Government, and I wholly recognise the requirement for the changes to be cost-neutral. However, it would be worth while the Government considering how to make the scheme more attractive, whether under the current system or some other system, for people to contribute in the late years given that the accrual rates are much lower.

I would be reluctant to make a significant change to the shape of accrual, although that would seem the logical thing to do. The shape may need to be more complex, but I would want to maintain the benefit that accrues to people who leave early. The logical thing to do is to shift the shape of the accrual curve so that it would become more like the curve that applies to the police scheme. They have a higher accrual rate in later years, which encourages people to stay on. In effect, the accrual rate in the Army is intended to encourage people to leave—it is rather like a manning control point. I do not want to impose extra costs on the Government. I simply want them to reflect on how to encourage people to make AVCs towards the end of their careers.