Select Committee on Defence Minutes of Evidence

Examination of Witnesses (Questions 100 - 119)



  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.


  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?


  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.


  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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