Examination of Witnesses (Questions 100
- 119)
WEDNESDAY 6 MARCH 2002
AIR CHIEF
MARSHAL SIR
ROGER PALIN
KCB OBE, MAJOR GENERAL
JAMES GORDON
CBE AND AIR
COMMODORE PHIL
WILKINSON CVO
100. He could get advice.
(Air Chief Marshal Sir Roger Palin) We offer that
to our members. Traditionally it is the command chain that has
the responsibility for education. We would not wish to undermine
that in any way. I am not sure they are aware of the scope of
the task, as James has just outlined it. With all of furore about
pension mis-selling, independent financial adviser, regulatory
authorities the MoD faces an enormous task, an onerous task.
101. There is a marvellous market opportunity
for some IFA somewhere.
(Air Chief Marshal Sir Roger Palin) We put this point
to them and they will obviously engage some outside independent
financial firms to carry this out for them.
Syd Rapson
102. Service people used to join my trade union
six months before they left the Service and then they got all
of the access to that information free. I will not advertise the
Union, that would be wrong.
(Air Chief Marshal Sir Roger Palin) Sure.
Chairman
103. When you were talking about ignorance of
pensions, I am wondering what the straw pole would indicate about
our own profession, although, in fairness, we are looking at Forces
pensions, the comparative would be what is paid to us. People
will ask us what right do we have to comment on other people's
pensions without revealing our own.
(Major General Gordon) If you need advice on your
own pension I am sure I can help you.
Mr Hancock: He would be very helpful!
Mr Howarth: If I may suggest to my constituent
sitting opposite, I think it is a little bit cheeky to put down
Parliamentary pensions retirement as part of the comparator with
the Armed Forces. We are not expected to lay down our lives for
our country, but I think the Chairman would be right in asserting
this is a pretty precarious occupation in which we are all engaged.
Chairman: The percentage of members who have
died on active service as a Member of Parliament the figure is
startling high. We look at people who were assassinated, Mike's
colleague in Cheltenham, so it is probably as risky as being an
electrician or even in the Armed Forces, I might say.
Mr Hancock
104. It really does follow on, it is about the
comparisons you drawn between the Police and Fire Service and
whether you feel that comparison has been drawn and whether or
not you feel that Service personnel, even though they know their
pay is squeezed, because they are already in a sort of inbuilt
contribution to their pension, whether they feel that it would
be better to have an upfront payment that was clarified, similar
to the Police and Fire Service and similar to us, where we have
to pay a percentage, in some instances as high as 11 per cent
towards the pension, and whether or not that would be something
that Service personnel would see as a way of clearing a lot of
the confusion that is now there?
(Air Chief Marshal Sir Roger Palin) I think that would
be very much a question for today's commanders who are more in
touch than we are with today's soldiers and airmen. My own personal
view is that we are not talking about going to a fully-funded,
independent pension fund with independent trustees but still a
public pension, unfunded but with a contribution as opposed to
an abated pay. If it was all explained to them and if it was transparent
and they could measure what they were putting in, what the employer
was putting in, and what they were getting out at the end of it,
I cannot see why, in principle, there would be any problem. One
of the major problems, as the actuarial valuation shows, is that
there are very wide variances in what is an appropriate contribution
by age and by rank, and it might be more difficult for the Ministry
to apply a uniform, all of one company (currently seven per cent)
abatement to cover everything so everybody pays the same irrespective
of length of service, rank and everything else. If people were
paying a contribution which they saw on their pay slip, albeit
that their gross pay levels are higher, they then would have pension
contribution before tax, national insurance and everything else,
I think they are more likely to ask, "What are we getting
for our money?"
(Major General Gordon) I am not sure that Tommy Atkins
would care a lot whether his contribution was de facto
or actual except, as my Chairman has said, he would see it on
his pay slip and it would then begin to impact on his thinking.
105. It would if it was twice as much and it
went from six to eleven per cent?
(Major General Gordon) Depending what impact that
had on his take-home pay because the impact that he does not know
at the moment is that his abated pay, which is his gross pay less
his contribution, has a major impact on his pension because his
pension is based on abated pay, net pay, whereas in a normal contributory
scheme it is based on gross pay before contributions. I doubt
there is a single person in the Armed Forces today or indeed most
of those who are retired who have the faintest idea of that. It
should be a self-balancing equation, a zero sum game. You turn
the de facto contribution into an actual contribution.
That increases the rate of pay and that therefore increases the
rate of contribution to pay for it. So the amount of money over
the table to the Serviceman should stay the same theoretically.
106. Of all the schemes we have looked at and
taken comparisons of, not just how much people paid but the benefits
both for the person themselves but also for their family, who
was the best that you saw that you felt would suit the Armed Forces
if it could be tweaked a bit?
(Major General Gordon) It is difficult to answer that
because you can cherry pick different aspects from different schemes,
but for the other direct comparators such as the fire and the
police and some of the direct private sector comparators—for
instance we did an analysis of an airline as one of models which
has got a read across into aircrew of course—the major and
most attractive items are the accrual rate (the lower the number
the better for the beneficiary), the full career benefits being
set at Inland Revenue limits of 662/3 of
final salary, the spouses' benefits, the widows' benefits being
based on no less than half of 662/3, those
sort of facets. And that is what we have pitched our comments
against. Those are available in most public sector schemes and
almost entirely within the private sector.
107. Do you think then as a long-term solution
if the Forces' pensions and the way they are funded were removed
from MoD it would be beneficial to you getting a better scheme
in the end for your members?
(Major General Gordon) I think your question there
is about the governance structure of the pension scheme.
108. It is about the way it is funded, is it
not? If it is coming out of the Defence Vote there is a reluctance,
is there not, on the part of the Ministry of Defence to be over-generous
because it is paying for the past when you have got big commitments
in the present and future, so there is a reluctance to be generous
with this scheme because it is a historic generosity rather than
the reality of what we are facing. I am moving to the view that
there comes a time when the Armed Forces and the way it funds
its pensions needs to be one step removed from the day-to-day
running of the military.
(Major General Gordon) I would agree with you and
this is one of our recommendations, that there should be some
form of independence in the governance of the scheme. The MoD
is an employer, it is also the administrator of the pension scheme,
and it is also the judge of what is appropriate. Our view is that
that produces a conflict of interest for the MoD and it is bound
to be constrained by affordability questions rather more than
it should be.
Mr Howarth
109. Can you confirm that it does come out of
the Defence Vote?
(Major General Gordon) Partially.
(Air Chief Marshal Sir Roger Palin) Partially.
(Major General Gordon) It is funded by general taxation,
so the liabilities are funded by general taxation and the MoD
makes a contribution to that process on a formula.
Mr Howarth: Can you give us a thumbnail sketch
of the formula?
Chairman
110. Not today because we are going away in
three minutes.
(Major General Gordon) It is in the yellow document.
(Air Chief Marshal Sir Roger Palin) It is about £1
billion per annum from the Defence Departmental Expenditure Limit.
That is the accrued superannuation liability contribution that
we talked about earlier. This is the MoD team talking to us about
£1 billion per annum. That is only a proportion.
Mr Howarth: That £1 billion per
annum comes out of the Defence Vote.
Mr Hancock
111. That is the total cost.
(Air Chief Marshal Sir Roger Palin) That is what they
are saying.
(Major General Gordon) So they pay part of it.
Chairman
112. We have all the information, thank you.
Would you like to finish off, Mr Knight?
(Major General Gordon) May I make one more point.
Chairman. The suggestion we have made, Mr Hancock, is that there
is potentially a role for the AFPRB in this area, in the same
way that the Senior Salaries Review Board recommends appropriate
pension provision for your own pension scheme. That is a genuine
attempt by us to bring some independence into the oversight of
the scheme.
(Air Chief Marshal Sir Roger Palin) It is a fully-funded
scheme and we did suggest that as one of our first suggestions.
The MoD has got some fairly cogent reasons why they would not
wish to move to a fully funded scheme with independent trustees
and no doubt you will test them on that, but we have worked on
the basis of the consultation document.
Mr Howarth
113. But if you say your proposals would add
two per cent to the cost of MoD pensions, how much of that would
actually come out the Defence Budget?
(Air Chief Marshal Sir Roger Palin) Even less.
Mr Howarth: That is extremely helpful,
thank you.
Chairman: Thank you. We have two more
questions.
Jim Knight
114. My only simple follow-on from the question
and the answer is is there not a role for the Society as a representative
of the employees to play a role within the administration of the
scheme?
(Major General Gordon) Yes there might be, but we
are a membership society.
115. So is a trade union. A trade union is a
membership organisation but that may well get involved in the
pension scheme.
(Major General Gordon) But a trade union normally
has the right to be consulted on pay and conditions by the employer.
If this Society were to be put in that place it would become effectively
a trade union. I am not sure that the Armed Forces would welcome
such a trade union and from my own personal background I would
not think this was a good idea either. I would far prefer to see
"independent trustees" who can influence the MoD significantly,
like the AFPRB does over pay.
Chairman: Thank you. Now the last question.
Mike Hancock.
Mr Hancock
116. This is about the extending of the scheme
to unmarried partners, and your view on that. Where do you feel
that that ought to go, and should it include same-sex partners,
because of the recognition that is now given to the fact that
gay relationships are not treated in the same way as previously
and many of them could be long term? The other one is, what view
do you have, if any, on the situation arising out of the Anna
Homsi case?
(Major General Gordon) The unmarried partners question
is very difficult for the MoD, but I would suggest that this is
a matter for Government in the round. I would not be terribly
thrilled if the MoD were to be taking the lead in this area. This
is a societal problem, it is not specific to the Armed Forces.
117. Except that they are dealing with the category
of the population whose lives are potentially on the line on any
day and are more at risk to die in service than most, are they
not?
(Major General Gordon) That is true. If the Government
were to agree that society's mores had changed to such
an extent that the inclusion of unmarried partners in a pension
scheme was appropriate, we would not have an adverse view of that,
but it is normal government policy that improvements to any public
sector pension scheme have to be funded either by savings elsewhere
or by the members. If the Government stuck to that line, for our
scheme or any other public sector scheme, in our scheme I would
say under no circumstances should the benefits elsewhere be reduced
to fund that, because they are already inadequate. If they want
the members to pay, they will have to ask them, and I am not at
all sure what the response might be. You asked a question about
the Homsi case. My own view about that—and this is entirely
a private view—was that the Ministry of Defence was caught
by some surprise. They dealt with Miss Homsi within the rules
and then made an ex gratia top-up payment. That has given
them a potential future headache.
118. A very big one.
(Major General Gordon) There are two constituencies
here, and it is a generational thing. The already-retired are
outraged, and the youngsters think that the MoD got it right.
I would not be able to solve that, personally. I would not know
what the solution is.
(Air Chief Marshal Sir Roger Palin) Widowed youngsters
are outraged.
119. Really?
(Air Chief Marshal Sir Roger Palin) Yes. A lot of
the younger widows whom I deal with are outraged, yes, they are.
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