Examination of Witnesses (Questions 127
- 139)
WEDNESDAY 13 MARCH 2002
RT HON
ADAM INGRAM
AND MR
BARRY MILLER
Chairman
127. Minister, thank you very much for coming.
I understand you would like to make a statement as a preliminary.
(Mr Ingram) Yes, Chairman. With me I
have Barry Miller, who is the Director General of the Service
Personnel Policy section. I am grateful for the opportunity to
make just a brief statement on this, as I think it is important
to set out some of the directions from where we come on this.
I really do welcome the opportunity to give evidence to the Committee
today on the Armed Forces pensions and compensation arrangements,
because I genuinely feel this will help the process. I want to
cover, in broad terms, the why and the what. The Armed Forces
Pension Scheme review, as the Committee will know, was born of
Sir Michael Bett's Review of the Armed Forces Manpower, Career
and Remuneration Structures. It was started in late 1998, after
other related aspects of the Bett Review, such as career structures,
had been resolved. Like other employers, the scheme for us is
part of our manning strategy and the review was set up to create
a more up-to-date scheme to support recruitment, retention and
the motivation of new entrants well into this new century. Above
all else let me make clear, it will, as the present scheme does,
recognise both the special commitment given by Service men and
women and the need to act as a good employer in terms of benefits
for retirement and ill-health. It seemed sensible to look at the
compensation area at the same time. The current arrangements are
complex, confusing and inconsistent with wider current thinking
on compensation. For instance, at the moment, there are compensation
arrangements associated with both the Armed Forces Pension Scheme
and the War Pension Scheme. Because of this, we propose to replace
these two schemes with modern, fair and simpler arrangements,
focused more effectively on those who are most severely disabled.
We have entered into a genuinely open, and far-reaching consultation
process. I believe it is an authentic seeking of views, and this
session with you today is part of that approach. We are still
listening, developing and open to input. Clearly, a framework
has been developed against which alternative views can be set.
I believe there are few who contest that the current pension and
compensation schemes are generous—as indeed they are. The
aim of the reviews is to make sure that the money we have available
is focused as effectively as possible for Service personnel, consistent
with our overall objective of being a responsible employer. Through
our memorandum we have already explained to the Committee that
cost-neutrality was not originally and necessarily one of the
ground rules for the pension review, although cost-effectiveness
and affordability were specified. However, we could only justify
more money if we could prove that the pensions area caused us
real problems in recruitment and retention. Objectively we cannot
do that. There are particular small groups of Service personnel
for whom pensions are an issue, and we can best deal with these
specifically and we will do so. Of course, the ex-Service community
seeks to maximise the benefits available—that is well understood—and
we value their ideas, but we believe we cannot "cherry-pick"
all the best bits from all other schemes and try and make a new
whole. It is not a sensible or productive way of handling an issue
as complex as this. I am sure I do not need to elaborate on the
growing trend in the private sector to move away from final salary
schemes. But we remain committed to the final salary approach
with no diminution in the overall level of employer contribution.
That said, there is a need to examine the best distribution of
those contributions to maximise benefits across the board and
to remove any glaring inequities within the existing scheme. I
want to stress that whatever precise shape the new scheme takes,
it will be aimed at new entrants. Serving members will not have
to transfer to it, but we hope that many will see the advantage
in doing so. It will be their choice, and to help them make them
an informed decision we will provide all the information required
and in a form that is understandable. This communication challenge
is no less important for the proposed new compensation arrangements.
All attributable injuries and ill-health occurring after introduction
of the new scheme will be covered by it. Conditions that arose
before the review will continue to be assessed under the old arrangements.
Finally, we do not underestimate veterans' concerns or their apprehension
and we will continue to address both as best we can. In conclusion,
Chairman, I believe that the timing and constitution of the reviews
is logical; I believe that we cannot justify spending more on
a new pension scheme; I believe that the new compensation scheme
is focused on future needs and should be simpler and more effective
in delivery terms; I believe that the present schemes rank high
in the public and private sector and that the new scheme will
at least match that standard. Let me end where I started: we have
entered this process in an open and transparent way. I believe
the Committee's inquiry and conclusions will help me in framing
the new pensions and compensations arrangements which will add
to the overall package of pay and conditions available to the
men and women of our Armed Forces.
128. Thank you very much. Minister, the reviews
of both pensions and compensation arrangements—certainly
pensions—have a long history. The Bett Inquiry was published
in 1995. You are not responsible for a response in 1995, but even
when the process began under this Government with the SDR it has
been subject to delays. The latest information is that you do
not now expect firm proposals to be put to the Cabinet until "the
autumn". Is that right? If it is, why as late as "the
autumn"? What has caused the delay?
(Mr Ingram) Let me say that in one sense it can be
viewed as a delay but I would hope that the Committee takes on
board the way in which I have tried to explain the overall strategy
on which we approach this. We are trying to be open and transparent,
trying to listen, assimilate and take on board all the different
views which are out there, which necessitates an in-depth examination.
Over the period of course we have now taken on board the issue
relating to unentitled partners, unmarried partners, which is
another area we are now looking at. Yet within that time-frame
the staff themselves have been engaged in dealing with other issues
which have come up unexpectedly in relation to some legacy matters.
Those are some of the aspects associated with this. If I was looking
at this, as a Minister, thinking there was an undue delay and
there was great pressure out there for early implementation and
that it was important to the department then, of itself, that
would force the pace, but we have also got then to put what we
are seeking to do into the context of when will it be implemented.
As we build up our new IT systems, the likelihood is it will be
not before 2004 and well into 2005 before we begin to see the
play-out of this, because we have got to take the legacy systems
which are currently in place, marry them into the new IT systems
and then implement this. It would be a disaster, I would suggest,
if we rushed into this, given the complexity of the issues that
we are dealing with. That is just some of the flavour as to why
there is the longer time-scale. It had been intended that there
would be a report in May of this year but that is now likely to
be slightly pushed towards the autumn, and that is now our working
time-scale.
129. You say that a number of "major areas"
of the proposals are being re-examined. In retrospect, were the
proposals sufficiently thought-through and developed before the
consultation documents were published a year ago?
(Mr Ingram) I would say the answer to that is yes.
That then becomes a debatable point, I suppose. My view would
be that we have tried to identify as best we could all the areas
and the framework within which we were seeking to develop the
new structure. Of itself, that then generates the inputs from
the concerned organisation and bodies who are out there. If we
had answered all the questions then I think, probably, it would
have been the first time in pension history that any government
department would have got a pension strategy correct from day
one; this is a very complex area, no matter which department is
dealing with it. It is important that we do get that discourse
with the wider community. My view on this would be that the broad
reach of what we sought to do identified the issues we were seeking
answers on, and was broadly correct—and stimulated and anticipated
debate.
130. Have you pre-empted the process by saying
"We cannot justify spending more on a new pension scheme"?
(Mr Ingram) Not pre-empted—and again you appreciate
this pre-dates my involvement—but having looked at it myself
I would come to the same conclusion, that if this was a pressing
issue, because it was a manning tool, if this was an issue that
we believed to be ranking high in terms of recruitment and retention
strategies, then a bid would have had to have been made to say
"We now need to do something more substantial within the
existing scheme and any proposed new scheme". That would
have been the imperative in all that. However, that is not what
we are finding in terms of our assessment of the market-place—to
use that terminology. Therefore, it is a case of we believe it
is a very substantial scheme as it stands, we are using the same
global sum of money and moving it around to try and make it better
focused, as I said, in delivering it in certain key areas where
we believe there are significant shortfalls—in areas like
dependants' benefits and so on. I do not think it is a pre-emption
at all. If we had entered this with a blank cheque then that is
not the way in which I would suggest policy should be developed
on this or any other area, because it is "Where is the top
line in that"? We believe this is a substantial scheme with
a substantial sum of public money going into it, it is not one
of the high-ranking issues—although it is a manning tool—in
terms of retention and recruitment strategies, and we believe
that the money is better targeted for those types of issues in
specific areas.
Chairman: I am sure my colleagues will wish
to come back to this.
Mr Jones
131. Just on that, the problem I have with the
entire review is that you have just referred to it being used
as a manning tool for the Armed Forces, but can I just quote back
to you what you said earlier: "Although cost-effectiveness
and affordability were specified ... we could only justify more
money if we could prove that the pension area caused us real problems
in recruitment and retention." Is it a manning tool or is
it not?
(Mr Ingram) It is part of the overall manning strategy,
along with all the other pay and condition issues with which it
is associated. It is not the key issue. If there was a debate
out there that was saying "This is the one, key issue which
said that we would join the Armed Forces, or this would ensure
that we will stay in some of those key sector areas", then
that sets the alarms going and we say "Okay, now there is
a real issue out there that has to be addressed by using this
mechanism". If you use the analogy, say, with air crew retention,
there is a clear analogy where there is an identifiable problem
and money is then put in to seek a resolution to that particular
problem. Only time will tell whether it solves that or not. That
is the way in which we would tackle the manning issue—if
it was highlighted as a key issue of concern to the department
in terms of its overall recruitment and retention strategy. That
is why I say what I say, and I think it can be tested against
the analysis which we have done on this.
Chairman
132. Thank you. I cannot offer any advice on
IT but the record of government in general in implementing its
IT strategy is a pretty miserable one, from reading newspapers
on this. Can you give us some assurance that we are not going
to find, in 2004-05, that whoever contracted to do the work cannot
deliver on time? So two questions: can you give, as far as you
can, an assurance that the programme is on target? Secondly, are
you certain that 2004-05 is the date at which it is operational
because it has elongated the process even further?
(Mr Ingram) I would just say do not believe everything
you read in the newspapers about the Ministry of Defence, but
I think I would take some of your prejudice—if that is the
right word—about the legacy and about the way in which some
systems have not been well-implemented, not just—
133. Across government in general.
(Mr Ingram) Yes. It is a long time since I worked
in the IT industry, but it seems to me that the scale of what
is done in government is so huge, so complex that there is always
a possibility of weaknesses creeping into complex systems. I think
we have decades of bad history in this. It is for that reason,
when I was looking at this overarching IT strategy, in terms of
the personnel schemes, that I have become personally involved
in this and I am asking those very same questions: that we should
seek as best we can to ensure there is no repetition of any failings
of the past. There is no certainty in life, but there is a lot
of effort being put into this. On the time-frame, it is more likely
to be in 2005 before we can begin to move forward on this. Barry
may want to come in and explain it in greater detail, but with
all the legacy systems in the three services, you are trying to
marry all of that up and look for every glitch that can appear
that does not bring about the implosion of your new system. We
will also be running the old legacy system alongside the new pension
system. This is a big area of activity. If there is slippage in
it I can only say that there would be slippage for a good reason;
that is, we have identified problems that need to be resolved.
We are pushing on to get this implemented, because it is not just
in the pension sectors, of course, it is across a range of other
aspects of personnel delivery that we need to get new IT systems
in place.
134. Minister, could you drop us a note on the
process? Have you offered the contract? If you could just give
us some information.
(Mr Ingram) I think we can, but Barry may want to
comment further on that.
(Mr Miller) Chairman, we are talking about what we
know as the Joint Personnel Administration Project. The aim is
to replace the rather more than 200 legacy systems in the field
with a single system using off-the-shelf software. The project
is at a relatively early stage as yet. We have only just down-selected
the particular software that we intend to use and it will come
to Main Gate in just under 12 months. It is a bit difficult to
be too positive about time-scales until we have completed the
Main Gate process. However, at the moment, we are on time and
we are reasonably optimistic.
135. Perhaps we should put it on our "at-risk"
list of procurement projects. Last question from me at this stage,
Minister: the Civil Service is currently coming to the end of
a similar exercise in moving from their existing pension scheme
to a new one. How far is the MoD taking account of the practical
lessons learned from this exercise?
(Mr Ingram) I would hope they are taking lessons across
the reach in terms of this. Do you mean specifically in terms
of benefits, or is it the implementation strategy?
136. The benefits process and the implementation
strategy.
(Mr Ingram) Barry may want to deal with that because
he is dealing with the actual in-depth detail of these matters.
(Mr Miller) We have been keeping a close eye on the
Civil Service proposals and, indeed, on other work that is going
on in the public service on pension schemes. In particular, we
are watching very closely the way in which the Cabinet Office
does its communications in connection with the new Civil Service
scheme because that is an area where we think we have got quite
a lot to learn.
Chairman: Thank you.
Mr Cran
137. Minister, you said in your opening statement,
and I quote the words: "I believe there are few who contest
that the current pension and compensation schemes are generous—as
indeed they are". That may well indeed be your view, but
the fact of the matter is there are those who contest that statement,
and they would contest it very strongly indeed—just to mention
one, the Forces Pension Society. I wonder if you could justify
to the Committee that statement, which is, as I say, heavily contested?
(Mr Ingram) I did say there would be few who would
contest it, and that means that I recognise that some would contest
it.
138. That Society represents a lot of people.
(Mr Ingram) Then you are into, I suppose, a quality
against quantity argument as to the direction from which it comes.
Also, later in the statement, I refer to the concerns and the
apprehension of the ex-Service community. We clearly recognise
all this and some of the issues—and we may explore them
today—which have been raised with us are taken on board
to examine "Is there a way of dealing with the concerns which
have been raised?" It would need an actuary, I suppose, to
be able to argue convincingly whether and where this particular
scheme sits in any right order. Because we are not comparing,
in many ways, like with like, it is very hard to take our scheme—existing
and proposed—and set it against the wider trend within both
the public and private sector, because people retire earlier and
there are other matters relating to dependants' benefits and so
on, which we have tried to correct. I think it can be tested,
but it is only an opinion. It is for that reason that I have asked
if there is a way in which this can be examined on an independent
basis to make sure that that particular statement stands true
examination. I do not have that audit at the present time. Whether
we can get that or not will remain to be seen, but if that becomes
available then I would make the commitment that we would so advise
the Committee on this, because I am fairly sure, in terms of the
overall breadth and depth of the existing scheme, that it does
rank high. You can take individual elements and say that it is
not as good as another public sector scheme, or, indeed, a private
sector scheme, but that is why I also say in the statement that
it is wrong to cherry-pick and take a very good idea from one
scheme and try to implant it into another complex scheme. By taking
one concept or one benefit, it then has to be set against what
it means elsewhere and against, also, the fact that no new money
is going into this particular pot. So, to repeat the point, although
I think it is an opinion I think it can be tested, and perhaps
one testament to it would be the Pay Review Body's own assessment
of this, where they say there is a 7 per cent benefit compared
to the comparators they would draw upon. Now, the question of
independent audit, I think, could be important in proving that—or
not, as the case may be.
139. I would just like to make my view known
that where, in your statement, you said about it being a generous
scheme, that is merely an opinion, and you yourself have agreed
that it is unsupported by actuarial or other advice.
(Mr Ingram) No, there is a good basis for saying this,
but to take it on an element-by-element basis, as others do, and
say "It is not as good in this area as another scheme"
is not the way of looking at the totality of a pension entitlement.
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