THIRD REPORT
The Defence Committee has agreed to the following Report:
THE MINISTRY OF DEFENCE REVIEWS OF ARMED FORCES' PENSION AND COMPENSATION ARRANGEMENTS
SUMMARY
The existing schemes
The Armed Forces Pension Scheme (AFPS) is an occupational pension scheme provided by the Ministry of Defence (MoD) for members of the Armed Forces. In addition to retirement pensions, it provides benefits for those who suffer injuries, illness or death, both as a direct result of military service (attributable benefits), and from other causes (non-attributable benefits).
The AFPS is unusual in that it provides a pension (the immediate pension) at an early age (38 for officers and 40 for other ranks). Its purpose is to encourage personnel to remain in the Services long enough to reach the immediate pension point, and thus improve retention; and to compensate them for a short career and for the lower salary that many will earn on leaving the Services.
The AFPS is a non-contributory scheme. However, the Armed Forces Pay Review Body takes account of the value of the pension scheme in making its recommendations on Service pay levels. Pay is abated to reflect the relative value of Armed Forces pensions compared with other schemes; the current abatement figure is seven per cent.
A separate scheme operates to provide compensation for Service personnel injured or killed during their military service, in the form of the War Pensions Scheme. This provides a tax-free war pension with rates based on the degree of disability. Widow(er)s' pensions are paid to the spouses of those who are killed in military service, or who die later as a result of injuries sustained.
Service personnel injured as a result of a criminal assault may claim from the Criminal Injuries Compensation schemes, but these schemes do not cover injury or death arising from 'warlike activities'. Personnel who believe their injuries or illness arise from negligence on the part of the MoD are also able to make a claim for compensation in the civil courts.
The review process
The MoD embarked on reviews of both the Armed Forces Pension Scheme and compensation arrangements in 1998 with the aim of introducing new schemes which were modern, fair and simpler; which targeted benefits at the most disabled; and which provided an alternative to suing the MoD for negligence in court. Separate consultation documents on pension and compensation arrangements were published in March 2001.
The review process, however, has been dogged by delay and incompetence. The consultation documents were weak and uninformative. It is only in response to our own long list of questions that the detailed information needed to assess the new proposals has emerged from the MoD and been put in the public domain. Overall the MoD appears to be little further advanced in its thinking now than it was when the reviews began. Both proposed schemes are at best inadequately thought-through and at worst fundamentally flawed.
Pensions
The pension review was hamstrung from the outset by the MoD's decision to require any new scheme to be cost neutral in effect. The result is that it proposes improving ill health and dependants' benefits by reducing the pensions of other Service personnel. This is unacceptable.
The MoD also decided not to examine or cost alternatives to immediate pensions. Immediate pensions are an expensive part of the AFPS, but their principal purpose is as a manning tool to assist retention and recruitment. We believe that it was wrong to let manning considerations stand in the way of a properly thorough review of Armed Forces pensions.
The Armed Forces deserve a pension scheme which recognises the unique commitment they make to this country and which compares favourably with what is available to other public service employees. The MoD needs to do a great deal more work on its proposals before they meet this requirement, taking best practice as its starting point, rather than cost-neutrality.
Compensation
The compensation review proposed a completely new system: a lump sum payment for pain and suffering based on a tariff of awards; and a further payment for loss of earnings, calculated as a lump sum but paid in instalments as a guaranteed income stream. The scheme provides for all injuries and illness resulting from military service, and includes dependants' benefits for those killed in service. But it also introduces a limit on the period for making claims of three years after the incident giving rise to the injury occurs. Furthermore claimants would in future have to prove on the 'balance of probabilities' that the injury directly resulted from military service (currently there has only to be a reasonable possibility of a causal link).
The compensation proposals are seriously flawed. The MoD's aim was a simpler, quicker system, but they have not convinced us that their proposals will produce this. Moreover, fairness and justice should not be sacrificed for simplicity. As a result of the way the new scheme has been designed, fewer claims will be successful, as the MoD has admitted. In the absence of any evidence of over-provision or abuse at present, we regard this as unjustified. We do not believe the scheme proposed does justice to Armed Forces personnel and we cannot support it in its present form.
Unmarried partners
Neither review initially addressed the issue of benefits for unmarried partners, although this is now being examined as part of the MoD's further work. We expect to see appropriate provision included in any new schemes.
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