Memorandum from the Ministry of Defence
(1 March 2002)
What further progress has been made with the review
processes, on both pensions and compensation, since the Minister
for the Armed Forces wrote to the Chairman of the Committee on
5 November 2001? Is it still anticipated that final proposals
will be submitted to the Cabinet at the end of May and that the
new schemes will be implemented in 2004-05?
The public consultation on the Department's
proposals for new Armed Forces Pension and Compensation Schemes
concluded on 31 July 2001, though late comments were accepted
for several months after this. The Department has since been analysing
the responses and considering those areas where substantial further
work is required. In parallel with this, the Department has been
in regular and intensive dialogue with the Forces Pension Society,
a group whose aim is to represent the pension interests of ex-Service
Personnel. The Department has begun further work on a number of
specific issues including, for example, unmarried partners benefits
and bonus alternatives to the early Immediate Pension. The Department
has, however, made less progress than it had hoped. One factor
has been public campaigns on "legacy" issues (that is,
relating to benefits already paid under the existing schemes),
such as the effects of wage restraint and pre-1975 pension entitlement
rules. The recent renewed interest in taxation errors affecting
attributable Army Invaliding Pensions has also affected progress.
The effect of these campaigns and the complexity of some of the
issues raised in the consultation phase mean that the Department
will not meet the May target it set itself for circulating revised
recommendations to Cabinet. This is not now expected to take place
until the autumn. However, the Department's current assessment
is that this should not affect the timescale for implementation.
The timescale for implementation is, however, expected to be determined
by factors such as the introduction of a new Joint Personnel Administration
System which would provide the IT framework for the pension scheme
and for the closely associated systems for personnel data. This
system is scheduled for introduction from late 2004 onwards.
Are you considering amending any of the key proposals
made in the review documents in the light of responses received?
If so, please provide details.
A number of points made in response to public
consultation have given the Department reason to look again at
the recommendations. In some cases, significant change seems unlikely
but in others the Department expects to make substantial changes
to the original proposals. However, it is too early to say where
and how far-reaching these will be. Major areas that the Department
is re-examining are:
PENSION SCHEME
— the precise point for the Immediate
Pension (IP) in order to meet the Department's recruitment and
retention needs;
— the scope for avoiding recurrence
of legacy issues, such as pensions troughs;
— the pensionability of specialist
pay;
— benefits for unmarried partners;
— the nature of a bonus scheme that
might be offered to some in return for a later pension;
— the possibility of introducing a
"contributory" element to the scheme;
— the scope for improving benefits
to those serving a full career;
— the independence of the scheme's
appeals process.
COMPENSATION SCHEME
— time limits for making claims;
— the basis and level of pain and suffering
awards;
— the arrangements for handling deterioration;
— the balance between lump sum and
income stream payments;
— the independence of the scheme and,
in particular, of its appeals process.
The Minister's letter raises the issue of unmarried
partners. No change was proposed in this respect in either the
pensions or the compensation review document. Is consideration
now being given to extending pension and compensation benefits
to unmarried partners?
The Department is looking again at the issue
of pension and compensation benefits for unmarried partners, both
because it was raised in consultation and because the Department
has concluded that it would be timely to review more generally
its policy on benefits for unmarried partners. The pension and
compensation review team are setting up focus groups across the
Services to obtain views on unmarried partners' pension and compensation
benefits. The Government's policy is that such pensions change
would need to be cost-neutral and therefore covered either by
a contribution from employees or by a compensating change elsewhere
in the scheme. It is too early to say what the result of this
work will be.
PENSIONS
The Minister's letter to the Chairman of 5 November
refers to the need for consistency "with wider public sector
pensions policy". We would be grateful for a note setting
out what the government's policy on public sector pensions is.
The Government's policy on public service pensions
is designed to provide a broad policy framework in which individual
schemes operate. This framework in many respects simply provides
the broad context of the review, but in other cases, design of
the Department's proposals would need to have specific regard
to the overall policy principles. A particular case, would be
the policy conditions set for introduction of unmarried partner
benefits.
At a fundamental level, it is the Government's
policy to encourage the provision of second tier occupational
pensions on top of the first tier provision provided by the State
Retirement Pension. The pension should be aimed at providing support
for individuals after working age and for their dependants. Where
Government is the employer, it aims to provide a remuneration
package that includes access to an occupational pension and employer
financing towards the accruing costs of those pensions. This has
generally involved providing defined benefit occupational schemes
but defined contribution (money purchase) arrangements may be
provided alongside or instead where this is considered to represent
value for money.
The pension arrangements would normally be designed
taking account of likely full working lifetimes of the membership.
For example, when determining the level of provision for retirement
it is necessary to take account of opportunities for pension provision
before and after the particular employment as well as during it.
It should provide an income, after the normal retirement age for
the scheme, that relates to the length of service given by the
individual and provides incapacity benefits and protection for
dependants.
The pension arrangements should also be designed
to provide benefits valued by employees and the incentives should
be geared towards the recruitment, retention and motivation needs
of the particular employment. Scheme design should aim at providing
the most cost-effective mechanisms for supporting the public services
career structures. Pensions should therefore encourage desirable
behaviours, such as retaining people while they are particularly
needed by that employment. Likewise, the Government wishes to
remove unnecessary and undesirable incentives for individuals
to leave public service employment early, including inappropriate
use of ill health retirement. Pensions also need to be linked
to levels of pensionable remuneration to maintain the link between
the pensions element of the remuneration package and pay for responsibility
and performance.
In order to obtain the best possible value for
money, pension options should be compared with other incentives,
such as pay, when considering changes in the remuneration package
and assessing the relative recruitment, retention and motivation
benefits. Like the rest of the remuneration package, pensions
also have to be affordable by the taxpayer. In determining what
is cost effective and affordable for recruitment, retention and
motivation purposes, it is necessary to look across the public
services in general as well as at what private sector employers
provide. The cost of the pension liabilities needs to be properly
taken into account in terms of the accruing as well as immediate
cash costs to the employer. The actuarially assessed cost to the
employer over the employees' lifetimes should be taken into account
when determining the appropriate level of the overall remuneration
package and the contribution made by the employer and employee.
The full accruing cost of providing for pensions should be made
explicit in the accounts of those controlling the pension arrangements
and in employer's budgets.
Where benefits are guaranteed by statute and
funded by the taxpayer, and there is an adequate budgetary regime
that makes clear the full accruing cost, it is unnecessary to
set up an alienated pension fund to provide an adequate financing
regime for pension benefits.
Public service schemes' rules should conform
to UK and European law, including legislation on pensions and
equal treatment. Changes to pension provisions should similarly
accord with Inland Revenue tax rules. Pension provisions should
also be consistent with a range of other policies, for example
on labour market participation and mobility.
In some contexts, such as the provision of benefits
to unmarried partners, the Government has made it clear that it
is prepared to consider changes in pension scheme rules to provide
for benefit improvements if the members want such changes and
are prepared to meet the full cost of the improvement.
Public service occupational pension entitlements
are essentially determined by the terms of the remuneration package
during the individual's employment. Reopening those arrangements
after the person leaves employment is generally very complex,
does not offer benefits in terms of recruitment, retention and
motivation of employees and can be prohibitively expensive. The
presumption is therefore against making retrospective improvements,
particularly to preserved pensions or pensions in payment.
We would be grateful for worked examples showing
the effects at different pay levels and different lengths of service,
and for the full range of benefits, of implementation of the new
scheme compared with the current arrangements.
Details provided at Annex A.
Why was cost-neutrality taken as a fundamental
basis for review? What is meant by cost-neutrality in the context?
Is the starting point the current gross cost of benefits being
paid now, or the actuarial cost of benefits currently accruing
to service personnel?
Initially, cost-effectiveness and affordability
were specified rather than cost neutrality. The aim was that the
new scheme should be well balanced to meet the evolving recruitment
and retention needs of the Armed Forces and that, both in terms
of individual measures and as a whole, the scheme should represent
value for money. The review team considered whether improved pension
benefits would assist recruitment and retention. It was recognised
that the quality of the current scheme was a factor in recruitment,
but the scope for improvement was not seen as a driver for recruitment
for the Services as a whole. In specific areas where recruitment
and retention has been an issue, pension changes have sometimes
been a component of a wider solution but non-pension approaches
have in most cases been seen as more appropriate to the problem.
Pension design was seen as more relevant to retention but the
evidence from continuous attitude surveys was that there were
not major issues here affecting the Services as a whole. The conclusion
that the review should work within broadly cost-neutral terms
was therefore reached at a relatively early stage, reflecting
a judgement that a scheme that met the manning needs of the Forces
could be delivered within that parameter, and at the same time
recognising the high cost and value of the current scheme.
The costs for both current and proposed schemes
have been assessed using actuarial assumptions for factors such
as the costs to the employer of funding public sector arrangements,
longevity and career patterns. The assessments look at the cost/value
for "typical" employees over their lifetimes. The same
actuarial assumptions have been used to calculate the costs of
the existing and proposed schemes, except that under the proposed
arrangements allowance was made for the expected changes to exit
rates close to the Immediate Pension point. When assessing the
proposed scheme, the long-term cost of current members who might
transfer to the new scheme was taken into account as well as the
cost of new entrants. Cost neutrality is therefore understood
in value per capita terms, rather than related to any specific
force levels and their changes over time.
We would be grateful for a detailed breakdown
of the Government Actuary's costings between the different benefits,
both for the current scheme and for the proposed new scheme.
The details are shown at Annex B.
What are the demographic assumptions used by the
Government Actuary in assessing costs, eg numbers and longevity
of pensioners and dependants, numbers of new entrants to the scheme
and their ages?
The assumptions for assessing the costs of the
existing and proposed schemes have been set independently by the
Government Actuary's Department. These assumptions involve both
financial and demographic assumptions. The demographic assumptions
have been set as the expected long-term stable personnel career
structure. Details of the assumptions are shown at Annex C.
What impact is the reduction in Service numbers,
from around 330,000 in 1975 to about 200,000 now, expected to
have on the pattern of expenditure on Service pensions in the
longer term, say beyond 2025?
The review has been primarily concerned with
looking at the arrangements for current active personnel and so
previous reductions in personnel numbers have no material effect
. However, the reduction in service personnel numbers over the
last 20 to 30 years will have an impact on the emerging gross
benefit costs of the existing Armed Forces Pension Scheme. In
broad terms, the Department expects an increase in costs in the
short to medium term (for example, as deferred benefits come into
payment) and a reduction in benefits costs in 30 to 40 years time
reflecting a smaller workforce.
What use was made of comparisons with other public
sector and private sector pension schemes in devising the new
pension scheme to ensure that the Armed Forces scheme incorporated
current best practice?
It is a fundamental principle of the Armed Forces
remuneration package that the Armed Forces Pay Review Body sets
rates on a comparable basis. This includes a comparison with pensions
available to the relevant comparators. The AFPRB currently apply
an abatement of 7 per cent to comparator earnings to account for
the greater value of the scheme and in particular the early and
fast accrual of benefits under the Armed Forces Pension Scheme
compared with those available in the civilian sector.
The pensions review, however, specifically examined
the benefits offered under other public service pension schemes,
in terms of the value and nature of benefits that would be paid
in certain typical circumstances. It also looked at the National
Association of Pensions Funds survey of private sector schemes.
These comparisons were used to highlight areas where the benefits
are better than those provided elsewhere, where they were less
generous, and where there were areas in which there might be scope
to rebalance benefits. However, such comparators were designed
against different career patterns and different recruitment and
retention priorities, for example, in terms of the length of service
sought and the retention pressures at particular stages of the
career, and it was recognised that it was neither sensible nor
affordable to "cherry pick" the most generous features
of other pension schemes.
As part of a remuneration package designed to
recruit and retain, the proposals had specifically to be compared
with the evolving position among "competitor" employers.
Many are changing either to defined contributions schemes, with
fixed limits to employer contributions and benefits dependent
on performance of the employee's fund, or average salary rather
than final salary arrangements. The Department concluded that
these approaches were not appropriate for Service personnel given
the particular demands attached to a career in the Armed Forces.
The Department believes that the current package of proposals
broadly represents a sensible balance of benefits given the pattern
of Service careers. However, the Department recognises that it
would be desirable to respond to some of the points made in consultation
about "best practice", providing that further changes
can be shown to represent value for money.
The review document acknowledges that Immediate
Pensions are an expensive part of the Scheme. What proportion
of the cost of the AFPS do Immediate Pensions represent?
The Government Actuary's Department have carried
out calculations on the basis that benefits after the Immediate
Pension point would instead be based on preserved pension benefits
payable from age 60 without affecting withdrawal or exit rates.
These calculations indicate that the cost of the scheme would
be reduced by about one third. However, the Department considers
that, in practice, this would result in major increases in premature
exit rates requiring costly alternative manning measures that
would offset any saving.
The document suggests that "more flexible
tools" than IP might be worth pursuing as a retention incentive
(para 3.4) and that the review team considered a number of alternatives
(para 4.7). Could full details be provided of the various options,
which were explored, with costings, and an assessment given in
each case of their likely impact on retention across the three
Services?
This response covers both this question and
question 14 below. The Department recognises that payment of an
Immediate Pension (IP) at around the age of 40 meets a major requirement
in the Services to pull personnel through to this age, against
pressures with regard to stability of family and children's education
when people are in their thirties and are looking for a more geographically
settled career. An IP at around 40 also allows the Department
to provide a reasonable level of security to those to whom the
Department does not offer extended careers due to continued fitness
and other requirements; the Immediate Pension recognises the fact
that in a number of cases these personnel are likely to have limited
career prospects. Nonetheless, the Department recognises that
the IP can also mean that the Department loses some skilled or
experienced personnel who it wishes to retain for a longer career.
The Department is, therefore, considering alternatives to the
early IP for those it wishes to retain for longer.
Alternatives currently being considered would
involve retaining the early IP but offering bonuses before the
age 40 IP point to individuals in return for their acceptance
of a later pension. This might be a single payment or series of
payments to draw people through to 45, 50 or 55.
The Department's work on such bonus options
is still being developed and there are no detailed descriptions
of options, costings or estimates of the different impacts on
retention. The Department recognises that there are substantial
challenges in developing a workable and affordable scheme which
would be focused on retaining additional personnel rather than
spending more on those who already stay through to a full career.
The choices in designing such an alternative and deciding what
is necessary and affordable will revolve around when the bonuses
might be offered, how much they might be and when the pension
might be paid. Without necessarily providing exactly the equivalent
value, decisions on the amounts payable will take account of the
fact that, whereas the "lump sum" gratuity paid at the
IP point is tax-free, a bonus would not be. This bonus coupled
with the security and opportunities of an extended career, will
need to be sufficiently attractive against the value of IP and
associated gratuity to represent a credible alternative.
As regards the more detailed aspects of a bonus
scheme, any individual who opted for such a bonus would, on current
thinking, accept a later pension payment date. If he were then
to choose to retire prematurely, he would not be able to revert
to the earlier IP but would preserve all accrued pension benefits,
probably to the age of 60. However, because the pension would
not be in payment, he would retain the right to transfer his accrued
cash equivalent transfer value into another occupational pension
scheme, without abatement.
Of the total number of personnel leaving the Services
each year, how many (a) leave before reaching their Immediate
Pension point and (b) leave at their Immediate Pension point?
The figures requested are at Annex D. The Government
Actuary's Department has adopted the following long term assumptions,
based on historical data and future projections:
— 52 per cent of initial entrant Officers
will stay in to the 16 year point or beyond.
— 13 per cent of initial entrant Other
Ranks will stay in service to the 22 year point or beyond.
— Of those who reach the Officers 16
year and Other Ranks 22 year points, 12 per cent and 50 per cent
of the remaining personnel are assumed to retire immediately.
It would be helpful if further details could be
given of the system of bonuses as an alternative to the IP proposed
in para 4.9. Would the individual who opts for a bonus retain
full preserved pension rights, without abatement, which could
be transferred to another occupational scheme? What is the size
of bonuses envisaged? What estimate has been made of the likely
take-up rate?
These points are addressed in response in answer
to the question above.
COMPENSATION
The new scheme reduces access to compensation
in comparison with the current arrangements by fixing shorter
time periods in which claims can be made and shifting the burden
of proof on to the claimant. What is the justification for this?
At present, AFPS attributable benefits for injury,
disease or death due to service are paid at date of death-in-service
or at medical discharge, although benefits can also be paid for
death-in-retirement where it is due to an injury or disease for
which the person was attributably invalided. A claim for a War
Pension, however, can be made at any time from service release.
For War Pension claims made seven or more years after service
termination, the burden of proof changes from the Department to
the claimant.
Neither approach is entirely satisfactory. If
claims can be made only in service or at service release, then
those disorders which take time to emerge, for example asbestos-related
conditions, or which are not documented at discharge will be excluded.
On the other hand, an open-ended system which permits claims to
be made late in life for conditions which may have little to do
with service, for example age or life-style related diseases,
creates administrative complexity and is not cost-effective.
The Department proposes that claims would be
excluded where disablement developed only beyond a qualifying
period, when, given the current state of medical knowledge, the
interval since service would make service-causation unlikely.
The Department would allow exceptions for a list of conditions
which, in line with contemporary medical understanding, could
be attributable even if they appeared after the qualifying period,
for example certain cancers, psychiatric and asbestos-related
disorders.
The Department proposes three years as the normal
qualifying period as it would generally be reasonable to expect
disablement resulting from an attributable injury or disease to
emerge within that period, which is in line with that used for
civil claims for personal injury. The Department would keep under
review medical thinking on those disorders that cannot be expected
to emerge within this timescale and revise the list of exceptions
accordingly.
The Department also proposes a time limit to
claim after the disorder has been confirmed. This approach is
common in insurance Schemes and social security benefits, and
would support efficient evidence gathering and assessment. Claims
outside that period would be considered only where a person was
genuinely unable to claim because of mental or physical impairment
or where the Department judged that a breach of natural justice
would otherwise result.
In developing proposals for the new scheme it
was thought appropriate to use the rules applicable to civil claims
for personal injury as a model. Under civil claims, the general
rule is that (negligence) claims for personal injury must be made
within three years of act or event giving rise to the injury or
the date-of-knowledge (if later) of the injured person and the
burden of proof is on the claimant. The principles for such claims
are set out in the Limitation Act 1980 (Section 11). Although
this approach has been used as a model, as explained above the
Department's proposals do not exactly mirror the provisions relating
to personal injury claims as the scheme is not compensating for
negligence, but rather injury or ill-health as a result of service.
While this approach does not offer the open
ended opportunity to claim afforded by the War Pension scheme,
it does allow claims to be made after leaving service unlike the
current Armed Forces Pension scheme. The burden of proof chosen
(the balance of probabilities) is already a feature of the AFPS
attributable benefits and reflects modern practices in the civil
courts. The burden of proof which operates for the War Pension
scheme was devised at a time when there was no developed social
welfare system on which soldiers returning from the First World
War could depend on for medical or financial support. In addition,
the medical understanding of the causes and course of illness
or injuries was much more limited than now. Hence the burden of
"disproof" was placed on the Government rather than
the individual. In introducing a new scheme it seems right to
adopt modern practice and require a burden of proof based on "a
balance of probabilities".
The Guaranteed Income Stream is intended to compensate
individuals for loss of earnings. Paragraph 6.7 of the review
document states that a formula has been designed to calculate
lifetime earnings. Please provide details of this formula.
An explanation of how this formula works is
attached at Annex E.
Please provide worked examples, covering a range
of individual cases, demonstrating amounts which would be payable
in the form of GIS under the new scheme, compared with what is
currently available.
The information requested is at Annex F.
What is the taxation basis of the proposed GIS?
The Department has already established with
the Inland Revenue and HM Treasury that the tax position for the
new compensation scheme for the Armed Forces will remain unchanged
from that prevailing in the existing Armed Forces Pension Scheme
for attributable benefits. This means that the lump sum award
for pain and suffering and Guaranteed Income Stream will not be
subject to tax.
As with the current AFPS scheme, the tax free
status would not apply to dependents benefits, which remain taxable.
The levels of benefits proposed have taken this into account.
How will abatement work under the new arrangements?
Please provide examples.
As a matter of principle, the Department believes
that individuals should not be compensated twice for the same
injury or illness and it intends to maintain arrangements to ensure,
where appropriate, that either any civil claim settlement takes
account of any awards from the proposed new scheme, or that there
is provision to abate the scheme award to take account of any
award made by the Courts.
With respect to the calculation of the Guaranteed
Income Stream there will also be a requirement to take account
of any pension or other income replacement benefits that have
been paid in respect of the disability, to avoid the individual
being compensated twice for the same loss of earnings. The Guaranteed
Income Stream is designed to compensate for loss of earnings and,
if a pension is in payment, then some of these lost earnings will
already be covered. The example shown in the GIS formula provided
for Question 16 above demonstrates how the calculation works.
How was the figure of £20,000 for the flat-rate
payment to attributable widow(er)s decided upon? On what basis
will it be uprated?
The additional lump sum payment to a widow or
widower whose spouse died in circumstances attributable to service
in the Armed Forces reflects a number of factors in the new scheme
including greater emphasis on up front lump sum support and replacement
of War Pensions and attributable benefits under the Armed Forces
Pension Scheme by the new Armed Forces Compensation arrangements
and social security benefits. The Department recognises that this
sum cannot remain static over time and will be considering what
uprating mechanism might be used.
The review document's proposals for a tariff-based
system for compensation for pain and suffering are modelled on
the Criminal Injuries Compensation Scheme. But the CIC scheme
has itself been widely criticised. Why was the CIC scheme chosen
as a model? What consideration was given to using the Judicial
Studies Guidelines in drawing up the tariff system? How will the
tariff levels be uprated over time?
A key aim of the review was to devise a system
which was simple for claimants to understand, consistent in awards
paid, and quick to administer. A tariff with published injury
descriptors linked to fixed award levels seemed appropriate. The
CIC Scheme which has existed since 1964, based first on common
law damages, and since 1996, on a tariff base, presented a useful
template in respect of its overall approach to offering a tiered
system of lump sum payments for pain and suffering and, where
appropriate, a regular payment for loss of earnings. It was not
the model for specific levels of payment. As was explained in
the consultative document, although it was felt the tariff approach
for the lump sum payments would be well suited to the type of
disablements likely to be suffered by the majority of claimants
from the Armed Forces, it was not thought appropriate to adopt
the specific range used by the CIC Scheme which is designed to
deal with injury arising from criminal assault among the civilian
population.
The Department is aware of the criticisms of
the CIC Scheme, including the levels of awards. However, as explained
above, the tariff chosen for the proposed Armed Forces compensation
scheme is not the specific model for levels set. The Committee
asks specifically whether consideration was given to using the
Judicial Studies Guidelines. In fact, the proposed scheme's tariff
was devised from information and categories of injury contained
in the Judicial Studies Board Guidelines for the Assessment of
General Damages in Personal Injury Cases. But, it should also
be noted that the tariffs for the CIC Scheme are derived in a
similar manner.
The published tariff relates only to pain and
suffering. Both the CIC and the Department's compensation proposals
also address "loss of earnings". The CIC has a ceiling
for net loss of earnings or earning capacity (prior to any abatement)
set at 1.5 times the gross average industrial earnings at the
time of the accident and in line with Office of National Statistics
figures. This constraint does not apply to the proposed Armed
Forces compensation scheme and loss of earnings are based on the
individuals own salary.
Since the exemplary tariff was produced, both
the CIC tariff and the Judicial Studies Board Guidelines have
been revised. These changes, which cover both award levels and
spectrum of disorders, will be taken into account in our final
proposals. The published tariff will be kept under regular review.
The scheme is intended to focus on those most seriously disabled,
and tariff levels 1-11 will be accompanied by a GIS which will
be automatically be uprated due to the direct link to salaries.
Why was the decision taken to include in the tariff
system compensation for minor injuries, from which full recovery
is expected, and which do not affect military careers? What assessment
has been made of the possible scope for abuse of this facility?
Does this provision not conflict with the overall intention of
the scheme to target assistance to those with greatest need and
to focus resources on "those who are clearly disabled on
account of their service" [para 4.4]?
The need to provide adequately for those most
seriously disabled was, as noted, a key objective of the review.
Nonetheless, the Department recognised that the new scheme should
reflect wider practice in the UK on compensation of lesser injuries.
Indeed, the position of such individuals was a key concern of
many of those responding to the consultation, some of whom suggested
that the focus on the most severely disabled due to service should
not be to the detriment of those with lesser injuries.
A decision to include minor injuries in the
JCR was made on the basis that it would be reasonable to do so
and would replicate what would be available to a claimant pursuing
a claim under common law. Although a claimant may have suffered
a minor injury and would probably fully recover, there would have
been an element of pain, suffering and loss of amenity. Some of
the injuries, such as those involving disfigurement, may involve
no loss of earning capacity, but may lead to appreciable suffering
and "loss of amenity".
The published Tariff is exemplary and for discussion.
The definitive list of disorders/injuries covered, award levels
and relative positions on the Tariff will be informed by further
discussion with experts and responses to the consultation document.
The Department does not believe that compensation
for minor injuries runs counter to our objective of targeting
those with the greatest need. The structure of the Scheme is such
that those in most need are targeted with not only a lump sum
compensation payment but also compensation for loss of earnings
through a Guaranteed Income Stream. For more minor conditions,
below Tariff level 11, there is only a lump sum payment for pain
and suffering in recognition of the fact that earning capacity
should not be affected. The range between the top and bottom of
the Tariff (currently £250,000-£1,000) also demonstrates
the differentiation made by the Scheme for those severely disabled
compared to those suffering minor injuries. The current War Pensions
Scheme includes specified minor injuries in the schedule of statutory
assessments. Such injuries are also included in the various Criminal
Injuries Schemes and there would be inequity if access to compensation
for the same injury were dependent on whether it occurred by criminal
or war-like activity.
The Department recognises that there is always
a risk of abuse of any compensation Scheme, and have some experience
of dealing with this through our current administration of the
Criminal Injuries Compensation Overseas Scheme. The Department
believes that the opportunities for abusing the new compensation
Scheme for minor injuries while still in service would be limited.
This is because the individual will still be under Service scrutiny
and rules and thus subject to Service discipline. Claims for minor
injuries after leaving Service will have the same requirement
of proof based on the balance of probabilities based on evidence
provided. However, the Department is not complacent about the
risk of abuse and when the detailed work on the administration
of the Scheme is begun it will give careful consideration to what
mechanisms might be required to minimise the risk of abuse whilst
bearing in mind the need to avoid making it difficult for those
with genuine cases to qualify.
Who will carry out the medical assessments on
Armed Forces personnel who wish to make a claim under the new
tariff-based system?
The administrative details of the proposed Scheme
are not yet developed. However, it is proposed that decision-making
will be for administrative officials with access to legal and
medical advice. This reflects the approach common in modern schemes
such as the Criminal Injuries Compensation (CIC) scheme.
Decisions in the Scheme will be evidence-based
and suitable training, published guidance and definitions will
be required. In some cases, administrative decision-makers will
need help in interpretation of the medical evidence. The medical
advice to the decision-makers will be dedicated, impartial, and
provided by a doctor trained in occupational medicine or disability
assessment medicine.
4As in all disability Schemes, medical evidence will
be key. In devising the proposals the Department was conscious
of the delays in claims-determination that can arise where medical
examinations are used to inform decisions. In addition, evidence
generated at the time of the incident or event rather than that
generated in the context of compensation is likely to be more
robust.
The eligibility rules of the new Scheme—including
the opportunity to claim while still in service—mean that
special medical assessments are unlikely to be routinely required
for the new arrangements. Decisions on claims will in the main
be informed by existing medical evidence, particularly the service
medical records. The current work in the Surgeon General's Department
on new systems of record keeping, health and environmental monitoring
will be supportive of this. It will, nonetheless, be open to the
claimant to submit independent medical opinion where he or she
considers this appropriate.
For claims at service medical discharge, and
perhaps for in-service claims, papers will be automatically forwarded
to the Scheme administration. For post-service claims the service
medical documents will again be important. However, the claim
form will record details of the claimant's own clinicians and
any treatment for claimed disorders in the post-service period.
It may also request permission to obtain medical details to inform
case adjudication. Dependent on the case-specific facts, further
medical evidence in the form of factual reports from GP, hospital
clinicians or other health practitioner, or examination by medical
board or accredited specialists may be obtained. Fees for such
commissioned evidence will be for the Department. As indicated
above, claimants will, however, be free to submit their own medical
evidence.
The review document states that "decisions
on claims should in most cases be taken within a few weeks of
their submission" (para 2.1.2). What evaluation has been
undertaken to assess the time, which the claims process, including
medical assessment will take? Can we see the results of any such
evaluation?
The Department's intention is to introduce arrangements
that are simpler to apply and to administer and easier for claimants
to understand. The Department recognises that delays in claims
being dealt with can be frustrating, and cause uncertainty and
temporary hardship. As the scheme has not been finalised, no detailed
work on administrative arrangements has been undertaken but some
informal work between MOD and the then DSS concluded that this
timeframe seemed a reasonable assumption. It was, therefore, thought
reasonable to set an objective of processing the majority of claims
"within a few weeks of their submission". The Department
also took account of the fact, noted above, that under the proposed
scheme, decisions will be taken by non-medical specialists and
the medical information on which the decision is taken will generally
be available at the time the submission is made. It is, of course,
recognised that where cases are more complex or where further
medical evidence is required claims may take longer to settle.
When the new compensation scheme is approved for introduction,
the Department would expect to conduct a detailed evaluation of
how claims will be processed. The need for an expeditious but
fair process will be a key objective in this work.
Please provide figures showing the total paid
to Service personnel in compensation in each of the last five
years, as a result of employer liability and negligence claims;
and the legal and other administrative costs to the MoD of dealing
with such claims.
The total paid by the Department to Service
personnel in compensation, including adverse costs (the Claimants'
legal costs), in each of the last five years as a result of employer's
liability claims is as follows:
| Financial Year |
(£m) |
| 1/4/01-31/12/01* | 29.0
|
| 1/4/00-31/3/01 | 47.2
|
| 1/4/99-31/3/00 | 40.7
|
| 1/4/98-31/3/99 | 36.5
|
| 1/4/97-31/3/98 | 28.8
|
| * First 9 months only |
The Department does not record separately legal costs incurred
as a result of dealing with claims brought against the Department
by Service personnel, and those received from civilian personnel
and third parties. The information requested could only be provided
at disproportionate cost.
The administrative costs to the Department of dealing with
employer's liability compensation claims received from Service
personnel in each of the last five years is as follows:
| Financial Year | (£M)
|
| 1/4/01-31/12/01* | 0.382
|
| 1/4/00-31/3/01 | 0.427
|
| 1/4/99-31/3/00 | 0.455
|
| 1/4/98-31/3/99 | 0.432
|
| 1/4/97-31/3/98 | 0.482
|
| * First 9 months only |
Please provide details of the role of the MoD's claims handling
agents (AXA and Royal Sun and Alliance) in the present compensation
claims arrangements.
The Department employs commercial claims handlers to deal
with certain types of claims for compensation for acts of negligence
allegedly committed by the Department or its employees. These
arrangements cover the handling of the legal and administrative
aspects of settling claims only. No insurance cover is provided.
The funding of compensation payments is made directly from the
Department's current expenditure.
AXA Corporate Solutions Services Ltd handle claims against
the Department in respect of Employer's Liability for civilian
members of staff and claims from third parties for personal injury
or damage to property arising out of motor vehicle accidents.
They have held this contract since 1981.
Royal & Sun Alliance plc (RSA) handle claims against
the Department in respect of Employer's Liability for Service
personnel. They have held this contract since 1996, the first
time this work was put out to contract.
AXA and RSA provide a complete claims handling service including
receipt of a claim, investigation, gathering of evidence, assessment
of liability, negotiations with a claimant's solicitor, conduct
of cases in Court, settlement and award of compensation. They
normally deal directly with the relevant Units of the Armed Forces
and the Department.
Both contracts are due to expire on 31 April 2002. New contracts
to continue the work from 1 May 2002 until 31 April 2007 have
been awarded as a result of a competitive tender exercise which
was evaluated on the basis of providing the most cost-effective
service for the Department. Under the new contracts, AXA will
handle claims from third parties arising out of motor vehicle
accidents and RSA will handle all claims in respect of Employer's
Liability for both civilian staff and Service personnel.
The review document asserts that civil negligence claims can
be "confrontational and protracted, cause distress to claimants,
and result in disparate awards for the same disablement".
On what evidence is this statement based?
The Department recognises that the handling of civil negligence
claims has changed significantly since the time when the review
of compensation for the Armed Forces was being considered. In
introducing his reforms on the Civil Procedure Rules, which were
introduced on 26 April 1999, Lord Woolf stated the intention that
"litigation will be less adversarial and more co-operative"
and that "people will be encouraged to start court proceedings
to resolve disputes only as a last resort, and after using other
more appropriate means when these are available". These reforms
had not had a chance to have much impact on the perception that
civil negligence claims could be protracted and difficult at the
time of the review and the consultation document was written reflecting
the unreformed civil litigation process.
In handling civil negligence claims today, the Department
takes due account of the Woolf Reforms. The Department fully complies
with the civil procedures rules and less than 3 per cent of the
Department's cases now go to Court Wherever liability is not an
issue, the Department tries to settle claims in Counsel-to-Counsel
discussions to avoid the cost and personal stress of extended
court cases. This method of negotiated settlement has had a significant
effect on the way claims are handled due to the claimant and defendant
showing an element of goodwill combined with a realistic approach.
This has demonstrated that it is possible to agree a settlement
without recourse to the courts. As the Committee will be aware,
if a person or organisation fails to comply with the Woolf rules,
sanctions can be applied. To date no sanctions have been taken
against the Department.
While the Woolf reforms have done much to simplify the claims
process, it is still true that there are disparate awards made
for similar disablements in civil litigation. This will always
be the case, as in settling the claim such issues as the value
of lost earnings, age of the claimant and their expectations will
all have an impact on the assessment as well as other factors
unique to the case and the judgement of the Court. The variation
in these settlements is most clearly demonstrated in the Judicial
Studies Guidelines which give an indication of the range of payments
made against particular conditions.
The review document says that "the structure of the new
compensation package should be not too far out of line with awards
available in civil negligence claims". In coming to this
viewpoint, what assumptions have been made about levels of awards
in legal cases and the methods use in calculating them?
The proposed compensation schemes structure reflects two
of the key elements of awards made in civil negligence claims.
It provides, firstly, compensation for pain and suffering and
secondly, where appropriate, compensation for loss of earnings.
The payment of a lump sum for pain and suffering is in accord
with the majority of civil settlements, and, while the approach
varies in civil settlements, loss of earnings are often awarded
as an income stream. The courts would seem to prefer future settlements
of loss of earnings claims to go down the route of income streams,
in preference to lump sums. There is also understood to be discussion
within the judiciary on whether a Judge should be able to make
an "income stream" a condition of settlement rather
than, as currently, where both parties in the claim have to agree
the terms of payment. Regular income streams are a common feature
of public service compensation schemes.
With regard to the levels of awards, the civil and proposed
Armed Forces schemes are not directly comparable. Proven negligence
is always an issue in civil damages, while that is not so in the
proposed scheme. The proposed scheme does not, therefore, make
specific provision for medical or nursing care. In considering
provision for care, the Department was satisfied that appropriate
medical management, care and rehabilitation for the overwhelming
majority of disorders that will be seen in the new scheme is available
under UK statute (for example National Health and social services),
and that this should be the usual delivery route under the scheme.
Where a claimant believes that negligence is involved and that
such compensation as has been offered is not sufficient, it remains
their right to make a civil claim against the Department for care
costs, even if they have already applied for or received compensation
from the proposed scheme.
As was explained in answer to question 21, the values of
the tariff for compensation for pain and suffering were devised
reflecting information from the Judicial Studies Guidelines. The
Department's understanding on how the levels of awards are made
in legal cases is as follows:
First, an amount of damages for pain, suffering and loss of
amenity is taken from the Guidelines for the Assessment of General
Damages in personal Injuries produced by the Judicial Studies
Board. This is normally non-controversial and ensures parity in
awards to Claimants suffering very similar injuries.
In estimating the financial or pecuniary loss, an opinion
is formed, from the evidence and probabilities in the case, about
the nature and extent of the loss. In the case of loss of earnings,
a view must be taken to decide what the Claimant would have been
earning if the accident had not happened, allowing for any future
increase or decrease in earning power. Then it is necessary to
assess how long the loss will continue—whether there is
incapacity for life, or for a shorter period. Finally, an estimate
must be made of the amount (if any) which the Claimant can still
earn in the future, notwithstanding his disability.
Similarly, if medical and nursing expenses are claimed, it
would be a matter of fact what expenses have already been paid
and an estimate be made for those not yet incurred.
Lastly, due account is given to damages awarded in similar
cases and publicised in law reports and journals.
Is there a technical difference between being "invalided
out" of the Services (para 9.2) and "medically discharged"
(para 9.3).
No. Both terms describe a Service person being discharged
from service due to injury or ill health. In using both terms
the Department was not trying to draw a distinction between the
circumstances described. The Department recognises that for consistency
it would have been preferable to have used the same term throughout,
and medical discharge perhaps offers a clearer description of
the situation.
| 
