Examination of Witnesses (Questions 40-59)
WEDNESDAY 18 DECEMBER 2002
DR LEWIS
MOONIE, MP, MS
LIZ MCLOUGHLIN,
CBE, AND MR
ALAN BURNHAM
Mr Cran
40. Minister, you will recall, because I dare
say you read our last report on this subject, we took a very dim
view of cost neutrality. It was not nearly as dim a view as the
Forces Pension Society, which really does take a very dim viewit
calls it a straitjacket. The question the Committee want you to
answer is, how do you justify that the needs of the Armed Forces
can be met within this, as the Forces Pension Society calls it,
straitjacket?
(Dr Moonie) This "straitjacket" phrase is
being used and no doubt will appear again in the future. There
was a straitjacket to apply a "no additional cost per annum".
The cost of pension schemes is rising anyway with increased longevity
in society. As I said earlier, we have to balance all our decisions
on how we apply our resources. Resources are scarce; the demands
on them are virtually infinite. There will always have to be decisions
made like this. We have had no choice, and I support that decision,
although I was not responsible for it at the time. I think we
had no option but to try to alter the scheme within its existing
parameters. We do not have the resources to do anything else.
41. We can see, I can see, and everybody can
see the question of resources is one key element and I could not
argue with you. The question, however, that I was really trying
to get to ask was: are you absolutely confident that this will
not in any way damage the ability that you must have, given the
role that the UK plays, in attracting the calibre of people you
need into the Armed Services; because your critics would say that
it does?
(Dr Moonie) I think that the new scheme, from what
I have seen of it, is an improvement on the existing one; and,
therefore, we have no evidence whatsoever that the present pension
provisions are in any way a disincentive to people. Despite that,
we are really trying to make them more attractive. I think the
new scheme is better and will be better in many ways. There are
substantial changes within the overall parameters of the scheme.
I think it is also fair to say that if any savings are made then
an attempt will be made to apply those to pay for additional benefits.
42. I take it you are saying very clearly to
the Committee that there will be no deleterious effects on recruitment
and retention through the pension fund?
(Dr Moonie) That is a very, very difficult claim for
me to make; but I have no evidence to suggest that it would be,
and we have been looking at it very closely. Obviously, as I have
indicated, young men and women pay very little attention to their
pensions provision until they get considerably older. The fact
that it does not impinge on their decisions does not necessarily
mean it is a negative or positive thing; but just means they have
ignored it completely. We are trying to improve and increase the
volume of information given to people; and this will be a key
feature of the scheme, to ensure that people know exactly what
is going on and how it is sold to them as a concept.
43. It would be true to say, would it not, that
cost neutrality has really stifled the range of options open to
you, has it not, in terms of any improvements you could have made
to the pension scheme; or in terms of any improvements which the
Forces Pension Society and others have made?
(Dr Moonie) We would not have been able to make any
improvements retrospectively, anyway; they would apply to existing
people who join the new scheme and future entrants to the new
scheme. Yes, financial restraints do apply strictures to the way
in which we have to behave. There is no doubt about that. I am
not going to apologise for it. All governments have to do that.
Yes, it would be very nice if we had an open-ended budget where
we could have made some wider arrangements, but we did not. I
have to defend that.
44. My final question is simply this: because
of the view you have taken on cost neutrality you really have
opened yourself to the charge, have you not, that you see your
obligations to Service personnel merely in terms of financial
obligation; really the minimum you can get away with without damaging
recruitment and retention? That is what your critics would say
and, indeed, are saying to you?
(Dr Moonie) It is very definitely not that. The fact
is all decisions on whatever we do are resourced-based decisionsthey
have to be. At the end of the day somebody has to put their hand
in their pocket and pay for them. That does not alter the way
in which we look on our people; we value them; we value the risks
they take on our behalf; and we want to give them the very best
provisions that we can afford. We believe that our scheme is a
good one; and that is why we felt that it could be reformed within
the existing budgets we had.
Chairman
45. Minister, if you are operating within this
"straitjacket" are there any examples, and if there
are will you tell us, where if savings are found the Treasury
tries to claw them back before you have the opportunity of transferring
any savings from one sector of the pensions scheme to improve
another sector? Do you have absolute power to change within the
MoD budget, or do you have to report to your masters first?
(Dr Moonie) Obviously since pensions in general are
unfunded, in the sense that they are paid from taxation, then
the Treasury have a role in all of these things. All I can say
to you is that we will attempt to deploy all the savings which
are likely to be made to produce improvements to the scheme. I
can give you no absolute guarantee that we will be able to do
that; but we will be substantially successful. As I have indicated,
of course, the cost of these schemes is rising anyway, and the
Treasury is well aware of that.
46. If the Treasury does claw back money from
the existing budget I am sure you will be only too pleased to
inform us so we can write to the Treasury?
(Dr Moonie) I think it would become very clear if
that happened, Chairman.
Mr Hancock
47. Is the pension fund within the MoD ring-fenced?
For example, if a high proportion of servicemen never draw a pension,
and leave before for various reasons, the money that has been
paid in on their behalf what happens to that?
(Dr Moonie) Money is not paid in; it is not done like
that. It is an unfunded scheme.
48. It is completely unfunded?
(Dr Moonie) It is paid for out of current revenue.
49. As and when they retire?
(Dr Moonie) Yes, so in that respect it is an open-ended
scheme. The earlier they retire and the longer they live, the
more pension they are paid.
Mr Crausby
50. We have touched on this to some extent,
and the Chairman asked a question about clawback. I guess it is
difficult to be completely cost neutral, absolutely cost neutral.
The Forces Pension Society have expressed some concerns about
that. They are concerned that money saved in one area might not
be ploughed back into pensions. I accept that it is difficult
to be completely spot on, but are they justified in that; in the
sense that the further work that the review team is doing on the
final proposals, we understand, includes ideas for a further reallocation
of resources. Can you confirm that the government will not use
the outcome of this particular further work as an opportunity
to reduce the overall cost of the scheme and then turn the review
into a savings exercise? I accept that no-one expects it to be
better than cost neutral; but I think there will be some very
big concern if it was substantially worse than cost neutral.
(Dr Moonie) I do not think it would be substantially
worse anyway. Obviously this is a matter for discussion with the
Treasury once the savings are identified, and once we see what
we want to spend them on. I am reluctant to go into details of
a paper of which I have only sketchy knowledge at present, until
the full thing is put to me next month. I am quite sure we will
be having other sessions on it, and I am happy to defend whatever
decisions are made. To the best of my ability I would say that
any resources which are spared will be devoted to improving the
scheme. I cannot give you any guarantees.
51. I would not expect any guarantee of these
things, and I would not expect a guarantee on the margin. As I
say, I think it is absolutely impossible to get cost neutrality
right. I think it is important for people to expect that the principle
would be not to make savings.
(Dr Moonie) The principle would be that wherever possible
we employ any money we have available to make the scheme more
attractive.
Mr Jones
52. Minister, the internal MoD review of the
Taxation of Armed Forces Invaliding Pensions that we have seen
says that there are something like 1,200 cases where taxation
was improperly levied. The recent internal review links the errors
between 1995 and 1999 with management failures. Why was this allowed
to exist for so long? The review blames poor management for some
of the failures. Can you tell me what action has been taken since
to improve the situation? Can I ask a supplementary to take the
wind out of Gerald's sailswhat is actually being done with
the individual cases in terms of people with grievances still
ongoing?
(Dr Moonie) The period of the late 1990s was a very
difficult one for the pensions administration in the MoD. There
were substantial change with regard to relocation; changes to
top management; and, at the same time, substantial downsizing
in the number of staff involved. A relatively small number of
managers had to take on a very great deal of responsibility. I
do believe sincerely that this was an undue burden placed upon
them and allowed mistakes to continue in practice which should
not have done. This was, as you have said, identified in 1999
and we took action from then on to correct it; although it only
became widely known to the public earlier this year, but that
action was and is still being taken to remedy that. With regard
to individual managers, I think because of what I have said, it
would probably be invidious to single out individuals. We will,
however, look at it, if nothing else, to see and make sure the
important thing takes placewhich is that in future we do
things better.
53. I asked what changes have been put in place,
and what is actually happening in the individual case?
(Dr Moonie) They are being dealt with as quickly as
possible. There is still a huge number of records to go through.
As has been pointed out in the report, which I know you have all
had copies of, it is vital it is done properly, because it is
such a complex area and it is possible still to make mistakes
in it. It is done by experts. It takes a long time. We are going
to spend six months over it. The vast majority of the errors have
now been identified and payments have been made. We will do our
very best to ensure that all others are made as quickly as possible;
and try to prioritise older cases, for example. I have to say
though, for many of the people who get in touch with us about
their records, because it was such a long time ago records are
sketchy, it is a very difficult exercise. I think my people are
doing very well indeed and would compliment them on it.
Mr Roy
54. Minister there are 1,200 cases of people
improperly taxed, and probably more. I am sure you will agree
that those people at this stage have been feeling ripped off and
quite angry and also very concerned that if mistakes have been
made with them they do not want it to happen in the future, because
sometimes that can really burn into people. What steps are you
going to take to make sure that there is closer cooperation amongst
the agencies to make sure that they do speak to and understand
one another and are able to move on?
(Dr Moonie) It is an interesting point. As you know,
the first thing we have done is appoint a Veterans Minister who
actually has responsibility clearly defined for seeing that this
thing takes place. I am accountable for the way in which things
happen from now on. We have a situation here over a period of
many decades where three individual haphazard Service-based schemes
with different parameters grew up, with the Veterans Agency, formerly
the War Pensions Agency, responsible for compensation payments
which was separate and actually administered by another department
from about the 1940s onwards. It is not a situation which is conducive
to good management. However much we may talk about joint working
in government, it is much easier to work if you are doing it from
within one department. Bringing the War Pensions Agency into the
MoD was a start. What we have to ensure is that there is effective
management all the way through the system; that we have a decent
system that operates (and, quite frankly, the quicker we get a
proper computer based system in and working the better), that
the staff are properly trained, properly supervised, and the proper
audits are carried out to make sure things remain accurate. Some
of the errors are random errors. There are errors where people
have been paid, and have been given tax free pensions when they
should not have been. Rather than any systematic error on one
side, there were general errors taking place in the system. I
believe now that effective management action has been, and is
being, taken to ensure that does not happen again. Most of the
cases have been identified. I have a table here to look at. We
have reviewed 126,000 files, of which roughly 125,500 were correct.
We still have a great many files, 13,000 to go through, but these
are the ones we have to look at in detail.
55. You look at those files in detaildo
you contact those people to say, "Just as a matter of course,
we think you should know we have looked at your pension";
have you done that?
(Dr Moonie) No. The minute we identify an error we
would let somebody know.
56. I understand you would do that. At the same
time, once you identify that a person's pension is fine, do you
also reassure those people?
(Dr Moonie) I am not sure.
57. It seems to me there are an awful lot of
people out there who do not know you are doing the review in their
particular case. If you were reviewing my case ten weeks ago and
I was fine, I would like to be told you had done it and it was
fine.
(Ms McLoughlin) Some of the reviews will be as a result
of enquiries that were invited by advertising; and to that extent
the enquirer clearly would be told the result.
58. The Minister has just told us he has done
120,000-odd. Have you contacted those 120,00-odd people to say,
"We have looked at your case and, as a matter of course,
this caring government has looked at your case ....."
(Dr Moonie) No, we have not. Most people are very
well aware of whether their pension is taxed or not taxed, and
whether it is being done properly or not. Frankly, we have seen
no need to do that. Concentration has been on rectifying errors.
59. Surely, there is a need to be proactive
instead of just reactive when there is a problem? Surely it is
a classic case where you could be proactive just to reassure people
that everything is fine?
(Dr Moonie) I think if we had any great feeling from
our pensioners that they were concerned we might have done that,
but we have not. It is an interesting suggestion and possibly
a valuable one. I think we should look at that.
Chairman: The concept that MoD does things
right is well worth transferring to the rest of the world and
should be done more often!
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