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Oral evidence Taken before the Defence Committee on Wednesday 5 November 2003 Members present: Mr Bruce George, in the Chair __________ Witnesses: MR IVOR CAPLIN, a Member of the House, Under-Secretary of State and Minister for Veterans, and MR JONATHAN IREMONGER, Director, Service Personnel Policy (Pensions), Ministry of Defence, examined. Q1 Chairman: Mr Caplin, it seems that pensions policy is far more interesting to the public than the Royal Air Force and the war in Iraq, so no doubt you have great drawing power. Welcome to you both. Just before I leave, I am off to get a flight to New York. I am leading a delegation to the United Nations. Rachel will be standing in, in my place. This is an immensely complicated subject. You have only been in the job a couple of months. Please do not think that as Minister you have to answer all the questions. You have a highly paid civil servant, probably earning far more than any of us here. Let him earn his salary. I have seen macho ministers coming in here who think they are so on top of their brief and they will not even look to advisers or civil servants, even when it is patently obvious that they are wrong. Please do not think that you have to soldier on. If you do not know the answer, even though you are very well briefed, please do not think that you have to answer yourself. With those introductory words, I am going to depart. Mr Caplin: Before you do, can I wish you well on your trip to the UN and say that I thank you for the note that you sent me on my appointment where you listed a whole lot of issues in which you did not include pensions and compensation schemes. Now you call me to appear before you on firework night. I am not sure of the connection. Chairman: I think I said in my letter that we would be having you in to talk about pensions policy next Wednesday but obviously it has taken you a little more time to master this immensely complicated brief. If you have any problems with the answers, we have excellent advisers here who I am sure will be only too pleased to give you a few pointers. I will now pass on to my colleague, Rachel. (In the absence of the Chairman, Rachel Squire was called to the Chair) Q2 Rachel Squire: As you can see, the existing Chairman has decided to try out the early departure scheme which we will be questioning you on later. Can I too welcome you, Mr Caplin and Mr Iremonger, to this evidence session? As has been indicated, the purpose of this session is to follow up this Committee's inquiry of 2002 and particularly to examine whether the MoD's formal proposals for pension and compensation schemes are an improvement on the proposals put forward for consultation and whether, in our view, they meet the needs and justify the expectations of service personnel. As you will be aware, the Committee did examine in detail the general merits of the MoD's proposals during their inquiry in 2002 and I think I can say we were less than impressed with some of them, to put it mildly. We are looking very much today to see how far the changes that are now being proposed go towards meeting the concerns that we and others expressed in that report. Clearly, there have been a number of changes to the government's proposals for the new armed forces pension and compensation schemes since the consultation process carried out earlier this Parliament. We will come to some of the particular individual cases in due course. Some of the changes to the schemes will require extra money: increased death in service benefits and widows' pensions, for instance. Given the government's decision to ensure that any changes to the schemes are cost neutral, can you tell us how these improvements will be funded? Mr Caplin: Thank you. Maybe first I can introduce Jonathan Iremonger, who is the director of service personnel policy, responsible for the review that we have undertaken. Can I say also how much I welcome this Committee's evidence taking session in the inquiry and I agree with your summary. This builds on the two sets of evidence that you received on 13 March and 18 December last year from Adam Ingram and my predecessor, Dr Lewis Moonie. Indeed, it builds on your report of 9 May 2002. In terms of the cost issue, it is our expectation that this new armed forces pension scheme will be cost neutral in the fulness of time. As I indicated when I launched the scheme on 15 September, if there are any initial costs that have to be borne, the Ministry of Defence will bear them because we believe that this is a very important change we are making to service terms and conditions for new recruits from April 2005. Q3 Rachel Squire: Can I ask you whether the overall costs will be greater or lesser than the current scheme? Mr Caplin: The cost of providing benefits is broadly at the moment 22 per cent. You have seen some of these figures. I have rather a hefty note here which I am happy to share with the Committee on accruing superannuation which will explain some of the issues in relation to the 22 per cent to the 24.5 per cent that some people have been mentioning. The cost of providing the current pension scheme is going to go up due to the improving life expectancy. That is our expectation at the present time. That was set out in a table we provided to the Committee previously. Until the new scheme has been introduced, there will be a need to increase our accruing superannuation liability costs by not more than 2.5 per cent. That brings us up to 24.5 per cent of the average pay bill for the armed forces. Against that expectation, best actuary estimates, there will eventually be savings from the slippage of preserved pensions in the current scheme, once a decision has been taken by government on when this becomes compulsory and also as significant numbers enter service on the new scheme. Ultimately, we consider it appropriate for those entering service on the new scheme that they should bear the bulk of the cost of longevity as on average it is they and their widows who can expect to have longer lives. This relates to the two schemes running in parallel, creating possible extra expense at the present time. Eventually, that will fall off. We will be in a position where it will be cost neutral at 22 per cent of the pay bill as it is today. Q4 Rachel Squire: With the initially increased costs and later on a reduction in the overall cost, how are the initial increased costs going to be funded? Mr Caplin: I have made clear right from the start that if we are in a situation where the Ministry of Defence has to bear some costs on day one, 7 April, then we will bear those costs. In my view, it is unlikely that we will be in that position, but I am making the necessary provisions should we have to do so. I expect this new pension scheme to be cost neutral year on year, but I have to make some expectation provision at the present time that there could be some initial costs, including the 2.5 per cent that I have just informed the Committee about. Jonathan can give you more detail on the technicalities of that, or we can give you some more information at the conclusion of the Committee in writing. Q5 Rachel Squire: One of the things we may look at this afternoon is how much detail has been worked out. One of the general concerns is are there benefits that have been cut to finance improvements elsewhere in the scheme and are there savings being made which will not go to finance those improvements in the scheme. Mr Caplin: The big change, as everyone here on the Committee knows, is the change to the early leaver scheme. We are in a position where we have to accede to Inland Revenue requirements, forthcoming government legislation on pensions, the government Green Paper on pensions. Our role has been to take all of that into account, but still try to put forward a scheme that deals with our recruitment and retention requirements, which are to keep people in the armed forces as long as possible and certainly through those key years when they are trained and developed and becoming very effective in any of the three services. That is the aim and aspiration we have for this scheme. I believe we have managed to do that, but there is no denying that that is different from the current scheme. There are lots of differences. There are benefits that have changed as well. No doubt we will get on to that later. Q6 Mr Howarth: Can I pursue those points that you have just raised? If you are saying that you recognise in the interim there will be an increased cost based on the new actuarial assumptions but you cannot tell us how much those costs are, that is not entirely satisfactory and I will tell you why. It is because we already know that the defence budget is under pressure. I am sure you will say every government department budget is under pressure, but I think it would be helpful if you could give us some ball park estimate as to how much extra this transitional arrangement is likely to cost and how much it is likely to run for, because it is about ten per cent extra over the existing budgeted provision for pensions. Mr Caplin: The issue about transition is that we have made absolutely clear from the start that there will be the individual choice for current members of the armed forces whether or not they join the new pension scheme. There will be a transition period when the new scheme will be up and running, if we get it through both Houses of Parliament of course, and the old scheme will still be running as well. Members of the armed forces will have to choose whether or not they join one or other scheme. There are inevitable costs in that but, as I have already made clear publicly and this afternoon, these are costs that we will bear if they come about. We are very serious about securing the best pension and compensation arrangements that we can for our armed forces. Q7 Mr Howarth: My point is that you have a finite budget and within that budget you have to establish priorities. If you are saying that this is going to be an overriding priority, the pinch is going to be felt somewhere else in the defence budget. Mr Caplin: We are not here to speculate on the budget situation of the Ministry of Defence or any other government department. We are obviously well aware that if there were some initial costs the Ministry would have to bear them. We are talking about 2005 onwards, so we can plan for them and I think that is very important in terms of our short term budgeting approach. Q8 Mr Howarth: I am sorry you cannot give us some kind of figure, whether it is likely to be tens of millions of pounds or hundreds of millions of pounds. Perhaps Mr Iremonger might be able to assist? Mr Caplin: In terms of figures, it is far too early. I know the Committee has been through this for two years, but you will appreciate we are now at a very critical stage as to whether or not this Bill is in the Queen's Speech and then we would have the opportunity for both Houses of Parliament to examine it. I accept that some of these issues will come about as we discuss that. Mr Iremonger: We do not have a final figure for the cost. The cost increase relates to the existing scheme, not to the new scheme. That arises from taking account of longevity assumption changes. People are living longer. They are spending longer in retirement. Therefore, pension costs are going up. That in itself has nothing to do with the new scheme. In terms of how much money is involved in that, we do not know precisely in the sense we have a figure which says roughly that the 2.5 per cent is worth about £125 million, but that is not the end of the issue. That is a figure based on an assumption about new entrants to our scheme, people coming in now, who will not start drawing benefits until 40 years' time. The accruing cost of the scheme does not relate surely to those coming in now; it relates to a lot of people who are in the scheme already. The final figure is likely to be a little less than the 125 million but until we have agreed with our actuary and the Treasury exactly what the figure should be the 125 million is the top mark. Every other public sector scheme has the same problems and they will be addressing the same issue about how to manage those costs into their budgets as they get the same news, effectively. Q9 Mr Howarth: Reference has already been made to the actuarial assumptions of last year. We were told by the Ministry that the actuarial assumptions being used to calculate the costs of the existing and proposed schemes were the same. This year you have announced that changes will be "broadly cost-neutral, taking account of the steps taken to cover increasing longevity costs." The question arising is why these new assumptions have been made and why they were not built in, in the first place, but I will leave that on one side and ask you whether this change means that some of the cost savings you will be making under the new schemes will go to pay for pensioners' improved life expectancy, rather than to improve the benefits available under the scheme. Mr Caplin: We have put forward a comprehensive package of improved benefits for the new scheme. They are fundamentally different, I accept, to the old scheme. At some stage this afternoon, it may be useful to put on the record those differences, if the Committee wants me to. The cost neutrality of the situation I have already described in relation to the two schemes. What we need to achieve is the right balance here and I think we have in terms of the benefits that we are able to offer in the new scheme which are considerably better. A 25 per cent increase in widows' benefits is one of them. Q10 Mr Howarth: How would you respond to the suggestion that you are stretching the definition of "cost neutral", given that the same pensioners would live longer whatever the scheme was that you put in place? Mr Caplin: I do not think we are stretching cost neutral. The aim that we have set ourselves is to have cost neutrality in the scheme by changing in particular the early departure scheme that we have already mentioned. Because of long term government policy changes in pension policy, it does produce costs that we can use for benefit. I suppose the genuine answer here is that we will know a lot more in 2005 when the scheme starts -- how many people transfer, etc., and that is something I cannot prejudge this afternoon. Q11 Mr Roy: Are you content that the level of pension benefits will be fair for the vast majority of personnel who will leave service before the age of 40? I am concerned that officers are given a privileged pension opportunity over the lower ranked personnel because they are able to serve for a longer period. Is this not unfair to the vast majority? Mr Caplin: No, it is not unfair. It is the way that the old scheme has grown up. That scheme has been in existence since the end of 1973, I think. The last changes were 30 years ago to a scheme some years before that. I do not think it is wrong that we would have different terms. The one area of change that we are proposing in the new pension scheme is to base the pension on final salary. It will be much more relevant to the salary that someone earns, rather than the rank. I think that is an important change. At the moment, as I am sure you are aware, there is a hypothecated amount based on rank. Q12 Mr Roy: Is there not some sort of distant correlation between the rank and the amount of salary -- i.e., the higher the rank, the higher the salary? Mr Caplin: There is. That is a natural cause. What we are trying to do is to use real figures here, people's salaries, to base their pensions on. This is consistent with good private sector practice and other public sectors as well will probably move to this system in time, if they are not already there. The idea is to use people's final salary for their pensions rather than a mythical amount of money based on rank, which is what happens at the present time. Q13 Mr Roy: I still have it in my head that the officers of higher rank will be getting more money. Mr Caplin: They will get bigger pensions. I am not denying that. Mr Iremonger: Under the existing scheme, other ranks have to serve longer to get a pension, to get an immediate pension -- that is the early pension -- and, under the new scheme, we have done away with that. We have produced a fairer system whereby officers and other ranks will serve the same period to get the immediate pension and the same period to get a full pension. In terms of what we have done on the immediate pension, the change to the value of what you get between the ages of 18 and 35, that is not to the disadvantage of other ranks at all. The majority of other ranks go before the 18 year period. One of the criticisms of our schemes was that too much money was in that middle period of pension and that we ought to take money out of that; that it was disproportionate to what you would get in the private sector scheme outside or in other public sector schemes. Effectively, that is what we have done. We have taken that money and given it to widows who, in large number, will come from the other ranks. Death in service benefit, ditto. If you look at the recent war, the majority of those who have been killed have been other ranks. We are taking money from that middle period where we do not think they need the money so much, because the skills they have are ones now that ought to enable them to get a reasonable job outside, and giving it much more widely, particularly to widows and their dependents but also to unmarried partners. A lot of the unmarried partners are among other ranks as well. Q14 Mr Roy: Do you acknowledge that, of those who serve until the early departure point -- i.e., age 40 -- very few will be given the chance to accrue a full career pension within the armed forces? Mr Caplin: Do you mean my answer earlier? Q15 Mr Roy: Yes, to take it further. Mr Caplin: I think I was referring to the old scheme there and the superannuation point I was making earlier, which is incredibly technical. Maybe I should clarify that in writing. On the issue about early departure, I said earlier that it is important that the services have the opportunity to still bring people through from the moment of recruitment to those key years when they train, develop and are effective members of the armed forces. That is not an age issue; that is a very important issue after five, ten, 12 or 15 years in many of our forces and we do not want to lose that expertise. We try to design an arrangement that will satisfy long term government pension policy, the Inland Revenue and still leave us with that recruiting and retention advantage in the armed forces which is critical to us. That is where we are in terms of the early departure scheme. Q16 Mr Roy: In relation to the full picture and career structure, how has this affected the MoD's thinking on the sorts of benefit that former personnel deserve to receive? Do you think this does help the big picture or not? Mr Caplin: There are two points: firstly, when I launched the scheme, I made it clear that I thought the pension scheme was a significant improvement on the current scheme. It is one that I think will be welcomed, but my clarification on my second point is that the transfer of an individual member to that pension scheme is a matter for individual choice. There will be no compulsion in transferring to the new scheme. Q17 Mr Roy: Do you think the base for this is going to be a saleable item? Mr Caplin: I am in a difficult position here because none of us is licensed to give financial advice. If I say that this is the scheme and all members of the armed forces should join it, that could be construed as a breach of the Financial Services Act, which is not something that I would want to do. That is why I have been insistent that ---- Q18 Mr Roy: Surely you must accept that there is either an improvement or there is not? Do you think you can put the case: here is a pension scheme that is an improvement for you as service personnel? You do not need a financial adviser. Mr Caplin: They may do. Are you talking about current armed forces or future armed forces? Q19 Mr Roy: Future. Mr Caplin: Those who join us from 6 April 2005, provided we have been able to get this legislation through both Houses, will automatically enter the new scheme. Those who are still on the old scheme on 6 April 2005 will have the choice. I believe that we are putting forward a new scheme which offers significant improvements to those new recruits from 6 April 2005 but I am not prepared to say that everyone has to join it. Q20 Rachel Squire: On the new scheme, even those who serve on to the early departure point aged 40, very few will have the chance to accrue the full career pension within the armed forces. Will that be the case? Mr Caplin: With one caveat. We are still working on some interesting models that I would like to share with the Committee at some stage. That work is not complete at the present time. That may help. Mr Iremonger: It is true that most people who get to 40 at the moment do not go on to serve a full career to 55, but most of those do not serve a full career because they choose not to. There are very few people in that gap who are made redundant, so it is their choice rather than our choice. One of the problems we have is the immediate pension as it currently is is so attractive for people in that interim period that more people than we would like are leaving, which is why we see an interest in making it slightly less attractive. Q21 Rachel Squire: Which links into the fact that under the new scheme the benefits provided to those leaving the scheme before the age of 40 will be less generous than they are under the present scheme. Mr Iremonger: No. The benefits for people leaving before 40 at the moment in the new scheme will be fundamentally the same, though it does depend a bit where you are in the sense that a final salary pension may be to the advantage of some people and not to others. Beyond that, the only other major difference is we have brought forward the age at which you can earn a pension. At the moment, you have to be 18 as another rank or 21 as an officer. You can come in at 16 or 17 in the future scheme and earn from that date. I do not think it is true that for people below 40 the new scheme is less attractive. It does depend on your circumstances a bit but in a significant number of cases it will be more attractive. Q22 Rachel Squire: Overall you think it will assist retention? Mr Iremonger: Definitely. Mr Caplin: We would not be doing this if we did not think it would assist recruitment. We will obviously look at the demographics for the years ahead and that is a very important part of the work we have been doing. It will secondly aid our retention. I have already on two occasions made clear this afternoon how important retention of members of the armed forces is, particularly during those years that you have raised. Q23 Mr Jones: Can I turn to the issue of unmarried partners? We were surprised that it was not included in the original review, even though across Whitehall and in the industry the issue has been addressed. I understand that the Iraq war has forced the government's hand in now accepting that unmarried partners where death is attributed in service will take immediate effect. I wonder if I could turn to the issue of cost? You have talked about the scheme being cost neutral. First of all, what is going to be the cost of extending to unmarried partners and is it going to be an added cost to the MoD? Mr Caplin: The unmarried partners provisions that we are proposing in the new pension scheme is nothing to do with any short term issues that may or may not have arisen. This has been part of the planning process that we have been undertaking ---- Q24 Mr Jones: It was not even in the original review. Mr Caplin: Forgive me; I am just going to come to that. It was not in the original consultation document but since the consultation process, which has now been going on since 2001, has been underway, talking to both current members of the armed forces and ex-service groups, I have come to the conclusion that we should extend the scheme to include unmarried partners, in particular relation to the government's excellent equalities agenda. I think it is very important that the armed forces pension scheme should fit in with that equality agenda. Q25 Mr Jones: How do you explain that the original review did not have it in; yet I think I negotiated in industry the first unmarried partners' pension something like ten years ago? I also understand that the Civil Service scheme also addressed this issue. Why did it not get included in the first place if we are committed as a government, as the MoD is, to equality? Mr Caplin: You will forgive me but I have been in post since 13 June and ---- Q26 Mr Hancock: Since when has that been an excuse? Mr Caplin: I have picked up this ball as the Chairman, before he rushed to New York, made clear. Of course I have had the chance to look at some of the papers, to consider the consultation processes that have been undergone, to discuss with officials how we should go forward and of course to discuss with other parts of government. I am quite happy to tell you that I came to the conclusion that it would be absolutely incompatible with the government's wider equality agenda not to include unmarried partners. On the cost issue, it is difficult to judge. You will understand that I am having to caveat some of these answers because we genuinely do not know, but we think in the region of £16 million. Q27 Mr Viggers: Borne by whom? Mr Caplin: That is borne by the fund as a whole. There are changes to all the arrangements here. There are benefits that are improved like widows, 25 per cent or four times death in service and unmarried partners. As I explained earlier, that is borne by other changes we have made to the scheme -- in particular, the early departure scheme. Q28 Mr Jones: Could you explain the criteria to define unmarried partners in terms of a registered partnership or substantial relationship because this was an issue which, last time we took evidence, the MoD were quite vague about. You must have a clear definition if you have been able to put a cost on it. Mr Caplin: I can reassure you that probably we do not have a clear definition, but I am very clear about the fact that we will, in terms of pension policy, be following best practice in the Civil Service scheme and the private sector schemes, inviting people to nominate the partner they wish to gain the benefits. That is a standard practice in the private sector. Q29 Mr Jones: It is but in this case I find it remarkable that you can tell us it will cost £16 million but you cannot tell us what the position is going to be. Surely you have to define what is a partnership first before you can estimate what the numbers will be? Mr Caplin: We know that only around 50 per cent of our armed forces are married. That is a figure given to me by the Families Association. We do have some idea of numbers in the 205,000 people in the armed forces today. We are talking about the future. The relationship issue has come out on occasions during recent conflicts and we have had to take decisions on recent issues in relation to that. We have looked at that relationship issue. As we go through the legislative process of this, I have no doubt that we will come back to this issue and we will need to deal with it. There are ways of dealing with it in terms of pension policy that we need to look at -- in particular in the private sector. Q30 Mr Jones: That does not answer my question. I still do not see how you can make an estimate of what it is going to cost if you have not defined what it is going to be. You say 50 per cent are married but what about the other 50 per cent? You could have people who are cohabiting who are heterosexual, homosexual, widows, individuals on their own, people who are in relationships for short periods of time. Sure it is going to be important to define the criteria before you can give me the figure of £16 million or, secondly, say that it is going to be met within the budget. The thing that strikes me is, if it is going to be met from the budget and you come up with a definition which makes it more expensive, surely you have to cut benefits somewhere else in the scheme? Mr Caplin: No. When I used the figure, I added the caveat that we are still at the planning stage in some respects. We have not published the Bill yet. We have given you a lot of information as a select committee. We will come to some of these issues during the process but in terms of partners and relationships we have already used a substantial relationship test when we have had to prior to this scheme. We will be looking at best practice in the public and private sector, including dare I say it our own parliamentary scheme. We will look at the best way to ensure that this policy is taken forward. I do not think it is going to be that much more expensive than I indicated. Q31 Mr Jones: You do not know. What I still find remarkable, even at this late stage, is that you have not looked at the Australian defence forces scheme which defines registered partners. This policy seems to have the gestation period of an African elephant. It seems to be longer and longer. The MoD seems to be trying to reinvent the wheel rather than look at best practice that is happening elsewhere -- for example, in the Civil Service scheme. It is an issue which would be of concern to existing pensioners if this is going to be costing more than the £16 million. If the cost is not going to be borne by extra money from the MoD, it is going to be borne by people in the scheme which will mean that at some time benefits will have to be taken elsewhere. You have already said that because you are in this cost neutral straitjacket you are having to rob Peter to pay Paul at different times throughout the scheme. Mr Caplin: We have looked at some of the schemes you have raised there. We are not doing this in isolation; we are not reinventing the wheel. We are also aware that there are discussions across government about civil registration which could also play a part in these particular issues. It is in our interests in terms of the armed forces to make sure that we reflect a modern armed force which reflects both the culture and nature of the United Kingdom. That is one of the responsibilities that I and ministerial colleagues have. We are determined to do that. The issue of relationships is not about the gestation of an African elephant. Q32 Mr Jones: I was talking about the time and method which the MoD has taken to develop this policy. Mr Caplin: In the classic TV series, I am saved by the bell. I can only come to you today and reflect on the work that has been undergone since I took post. I am pretty clear in my own mind that we have to have an armed forces pension scheme which reflects Britain today. That includes unmarried partners. I take your point about all the possible unmarried partners that covers. Let me reassure you and the Committee that I am including everyone in that category. The Committee suspended from 3.48pm to 4pm for a division in the House Q33 Mr Hancock: Could I ask a supplementary on the unmarried, if I may? I was curious that you took a lot of credit for saying that you have responded to the magnificent government initiative, but this Committee had a pretty effective initiative when we were pushing for this 18 months, two years ago. We were unanimous in our feeling that you had to address this issue. I ask you, Minister, whether you have read the MoD response to our Committee's report, which was in May of last year? The MoD said this to us: "... understands the importance of defining clear, unambiguous entitlement criteria", and here we are, 18 months on, (and that was specifically on the topic of unmarried partner benefits) and you have not even followed the response that you have given the Committee. Mr Caplin: Chairman, I disagree with that. Q34 Mr Hancock: What, with your response? Mr Caplin: No, I disagree with your assessment of it. We have actually moved on quite significantly from there. We have moved on in terms of unmarried partners generally, we are now moving on in terms of the pension scheme significantly and we are making significant progress. I think it was paragraph 140 of your 9 May report where you actually raised this, and I accept that that was the unanimous issue that was raised over a year ago. That has formed an important part of the consultation process. I do come back to the fact that there has been roughly a two-year consultation process. We are now at a point where I very much hope we will be able to seek the legislative time for this Bill in the next session, and at that stage we will be able to deal with many of these issues. I am well aware of what the Select Committee has said, but I think we have made significant progress on unmarried partners in the Ministry of Defence. Q35 Mr Hancock: Minister, this was what the MoD said. You said, the MoD, not since June but since May last year, that you understand the importance of defining clear, unambiguous entitlement criteria for unmarried partners benefit. That was as a direct response to the request that we made for this to be dealt with and for the potential beneficiaries and the members of the pension fund to be told, as early as possible, if you were going to accept this, what that criteria would be. Today you cannot even say whether it was a week, a month, six months, or whether or not it was to registered next-of-kin. Mr Caplin: We are looking at all of those issues and we continue to do so, because in that intervening period that you have raised, the 18 months, this is also a matter that is across government in terms of civil registrations, and we are looking very carefully at how we might make sure that this pension scheme and the relationships that we are referring to actually fits in across the whole of government. Mr Hancock: Armed forces pensions have never fitted in across government. Rachel Squire: I know Mr Viggers and Mr Howarth want to come in very briefly on this issue, and then I am anxious we move on to try and address some other areas as well. Q36 Mr Viggers: Minister, you have just said that about half the members of the armed forces are married, the actual numbers being: Army, 46 per cent; RAF 53 per cent; Navy 44 per cent. So roughly half are married. The scheme is intended to be cost-neutral and you are extending the benefits of the scheme to a whole new range of people, the unmarried - same sex or different sex. It therefore follows, as night follows day, that if a new group of people are being advantaged then married people must be disadvantaged. That is irrefutable. Would it not be fair for the Government itself to fund this whole new range of benefits rather than expect married service personnel to fund it? Mr Caplin: The issue is pretty clear to me. We are talking about the pension scheme from 2005. That is the scheme that we are discussing and debating legislating. The current scheme will continue to operate and it is the new scheme that I have been talking about this afternoon. Mr Howarth: Can I say, Minister, that Mr Jones, I think, made some very pertinent points and I think it is amazing that the Department - and I do not blame you, you have only just come in post - has not come up with a definition yet. I am afraid I am frightfully old-fashioned and hugely politically incorrect, but as far as I am concerned evidence of an enduring relationship is on your finger and mine, Minister, and it is called a wedding ring. It seems to me that is the best test of all and it is a shame we cannot stick to that. Can I put to you some concerns which have been expressed by the Forces Pension Society, because they draw attention to the anomaly which will arise as far as widows are concerned? They have suggested to us that the unmarried partner, possibly of the same sex - and you might like to comment on that - in the new scheme will retain their pension for life regardless of how many subsequent partnerships they may care to form. As the Society says, this is clearly bizarre and is a case of reverse discrimination. Do you have a view on that? Rachel Squire: Just before you come in on that, I know Mr Crausby is keen to come in on the area of widows. Is there anything you want to add before the Minister answers that question? Mr Crausby: I think it has been pretty well covered by Mr Howarth's question. Q37 Rachel Squire: There is a clear consensus here and a real concern about the less generous benefits that some widows, in particular, are entitled to, in comparison to these new proposed arrangements for unmarried partners. Mr Caplin: I understand what you are saying, Chairman. Maybe I could come to that in a moment. Let me, if Mr Howarth will allow me, deal with the two points that he has raised. Firstly, in terms of relationship, I have been quite clear this afternoon about the issue. We are talking about substantial relationships; we need to work out exactly what that means but we have already used criteria that we have had to use because this particular matter in relation to death-in-service has already been used on occasions in terms of compensation. We have started to use some of that and we are still working that out, and I think that is what you would expect us to do, based on circumstance, and I think that is very important. The second point you raised seemed to me to be rather bizarre, actually. I do not accept that at all. I do not think that we will be in that position. Members of the armed forces who join this scheme from 6 April 2005, whether or not they are new recruits or people transferring to the scheme, will be well aware of the rules of the scheme and we will make sure that is properly communicated to them. The rules will be there and they will be abided by. That does not mean that we should not follow the agenda which I know you do not share, Mr Howarth, and we have discussed this many times in other places; you do not share that equality agenda, you do not share those same views and I readily acknowledge that, but those are the views that I share and the Government shares, and we intend to pursue that agenda. Q38 Mr Howarth: May I just refer to one other point in this connection made by the Forces Pension Society? They say that the announcement that unmarried partners under the new scheme will in future receive the same benefits as married couples has provoked a backlash amongst the victims of traditional legacy issues. I do not want to go into the legacy issues but you know what they are - the pre-1973 retirees and the pension drop, and all that sort of issue. There clearly is an issue here that you are looking favourably at unmarried partners and that those who have had a long-standing concern are being ignored in favour of extended benefits to unmarried partners. Mr Caplin: Again, we are talking about the future here and the future way it looks, in terms of armed forces. I should just say that we have tested this; this consultation process has not just been about the Select Committee, much as we value the role that Select Committees play; we have actually spoken to members of the armed forces about this, we have spoken to the ex-service community, and in the end you have to come to an overall decision and decision package, which is what we are trying to now pursue. Q39 Mr Howarth: You have sent out 5,000 questionnaires on the unmarried partners business. Admittedly the document has been ---- Mr Caplin: You can consult in many ways. Since 15 September, whenever I have been out and about with members of the armed forces we have discussed the pension and compensation arrangements I have announced and they have been pretty much welcomed, and that is without them knowing the full details. Mr Howarth: I do accept that there are many provisions in this which are good news. We all agree on that. Q40 Mr Crausby: I do not want to detract in any way from the benefits to unmarried partners (I do not share Mr Howarth's view on that), but it is clear that there has been something of a backlash, as will inevitably be the situation, from those people who consider themselves to be victims of the legacy issues. The Forces Pension Society have very strongly made the point on that. The important issue is it should not be a question that just because unmarried partners have got one quite justifiable benefit that another group of individuals should not also get a very justifiable benefit. As Gerald Howarth has already outlined, there are a number of groups of widows and widowers who feel discriminated against. So the simple question is: looking at cost-neutrality, is there anything that can be done in relation to these groups who will quite clearly feel discriminated against in comparison to unmarried partners? Mr Caplin: I fear I am going to disappoint you, Mr Crausby, this afternoon because retrospectivity - which is broadly what we are now discussing - has never been a matter which successive governments have ever chosen to bring into pension policy - I have to say I believe with good reason. To go back and draw a line somewhere else in the sand would be extremely difficult to do in terms of the whole public services pension policy. What I can say is that the line that we are drawing here is for new people entering a new scheme on 6 April 2005, followed by the opportunity to transfer. So those who transfer into the new scheme will be well aware of the terms and conditions of the scheme when they transfer into it, if they choose to do so. I have made absolutely clear this afternoon the importance of individual choice. However, should we draw a line in the sand somewhere else in relation to what has happened over 30 or 40 years ago? No, I do not believe that would ever be possible in public service pension policy. Q41 Mr Crausby: Is it not retrospective to pay benefits to unmarried partners in the sense that that was not a benefit previously and yet the widows benefit will not just cover the period from the point where unmarried partners then qualified, it would clearly apply retrospectively to unmarried partners for the whole of the service of the pension. Is that not retrospective? Mr Caplin: No, not in my view. What we are saying here about unmarried partners is that here is a new scheme, those who transfer into it can gain the benefits of it and everyone will be aware of the situation when they make that particular transfer, if they choose to do so. I do not accept under any circumstances that there is a link between retrospectivity and what happened 30 or 35 years ago and extending benefits to unmarried partners. I just do not accept that. Q42 Mr Crausby: We are not just talking about 30 or 35 years ago. OK, for those before 1978 that is clearly a retrospective issue, but what about those personnel whose death was not attributable to service who lose their pension if they remarry? That is not a question of a retrospective issue. Mr Caplin: I am sorry, I missed the question there. Q43 Mr Crausby: Those widows or widowers who lost a spouse as a result of a death not attributable to service then lose their pension in the event that they should remarry. That would be a change in benefits, really, rather than a retrospective change in benefits. Mr Caplin: Again, in the future we intend to change that so that people will be able to keep their pensions. I think that is a reflection both on the Select Committee - I believe you raised that last time in your report of 9 May 2002 - and the process that we have been through. We have reflected on that and decided to extend that benefit as well when it occurs in the future. That is not retrospective. Rachel Squire: I think there are issues here that the Committee may well be looking to raise again. I am anxious to move on because I know we are going to have another vote in half-an-hour. Q44 Mr Cran: Minister, as I understand it - and I had better say it first to make sure I have got it right - preserved pensions for personnel who leave the service before the age 55 will be payable from age 65 rather than from age 60. I have got that right, have I not? Mr Caplin: That is correct. Q45 Mr Cran: If I were the recipient of these changes I think my nose would be somewhat out of joint at the decision you have taken. Perhaps you could outline in some detail to the Committee why you have taken that decision and, at the same time, tell us have you calculated the amount of money that the armed forces pension scheme is going to save as a result of raising the age? Mr Caplin: I cannot today place figures on it, so let me get that out of the way in opening these discussions. We did talk earlier in the Committee about why we are changing the situation. One of the things I need to say is that this is about future pension provision. I am sorry to keep coming back to this but it is actually a very important point; we are talking about what happens in the future, not necessarily what happens at the present time. Again, I know it sounds complex but there will be two schemes operating, and in the end we have to look at how the public services generally are viewing retirement; we have to look at pension policy within that aspect, and you will have been well aware of the Government's Green Paper on pensions which suggests a retirement age of 65, and we have taken that into account in bringing forward this package of proposals. Q46 Mr Cran: I will say to you that all my life I have been at the thick end of decisions taken by pension schemes all over British industry, of which I am a member, with endless justifications of why this, that and the next age should be raised, why this, that and the next benefit should be reduced, and so on and so forth. Should we not be completely honest and go back to the line of questioning we had earlier: you are just looking around for ways of reducing your commitment? Mr Caplin: No. Q47 Mr Cran: That is how it is going to be, I would respectfully say to you. That is how it is going to perceived by potential members. Mr Caplin: You are more than entitled to that opinion; I happen to disagree with you. I disagree with you because we will be using what I believe is a very good scheme with excellent benefits when we are recruiting people into our armed forces from April 2005. I believe from the discussions that I have had with many members of the armed forces - those who are currently serving - that they, too, value the benefits that this scheme will being. So I just disagree with you. Q48 Mr Cran: Doubtless you believe what you say. I have heard this before, too. The net result is that I have ended up, in my case, with a great deal less pension than I would otherwise have had if all the commitments that had originally been made to me had been kept. I would respectfully say to you that those at the thick end of this are not going to look at it in quite the rosy fashion as you are putting it. My question is: you said that you do not know how much money is going to be saved but what I would like to know is when are you going to know, and when you do know is any proportion of that money going to be used for improving benefits? Or is none of it? Mr Caplin: All of any money that is saved, and I am certainly going to look at the figures (I am being cautious about the figures and you will understand why), from one part of the scheme will be used in benefits on other parts of the scheme. How on earth could we improve widows' benefit by 25 per cent or pay four times death-in-service, or include unmarried partners - we could not do any of that unless we used the savings that we make from elsewhere, particularly on the early ---- Q49 Mr Hancock: That is not correct. Mr Caplin: I have already said that earlier today. Q50 Mr Cran: Just so that I am clear about this (maybe others are): are any of the savings that accrue through the principles we have been talking about not going to be used to improve benefits but are going to be used for some other purpose? Namely, the cost-neutrality issue and so on and so forth? Mr Caplin: No, any savings that come about ---- Q51 Mr Cran: All savings? Mr Caplin: All savings will be used on the benefits of the scheme, but this is about the future scheme. Q52 Mr Cran: Of course. I entirely understand that. Mr Caplin: I am sorry about the lack of financial advice you have received in the past, by the way, Mr Cran. Q53 Mr Cran: That just leads those of us who look at pension issues to be exceedingly careful about the commitments which, in this case, you as the employer made. Mr Caplin: Can I say to you that I wholly agree with you on the need for caution and concern about general pension policy. As you and the rest of the Committee will know, I have been engaged on that for much of my career as well. Q54 Mr Cran: I have two further questions. It is our understanding that the MoD is raising the preserved pension age for existing scheme members without consultation. Have we got that right, and if we have got it right how do you justify it? Mr Caplin: I do not know the answer to that but Jonathan will be able to help you. Mr Iremonger: It is true that from a future date it is planned that the preserved pensions for existing members should go up, but that will not affect their crude rights to a preserved pension, it will only affect their future rights as from future dates. So all the service they have already done will still pay a pension at 60. Mr Cran: I will leave it at that. Q55 Mr Hancock: I was curious about the fact that all of the money that currently is paid for preserved pensions will continue to be paid by the Government, when that manifestly is not the case, is it? You have talked about the potential 16 million to pay for unmarried partners in the scheme and said "Oh, the scheme will have to cover the cost of that". There was no suggestion that the Government is actually going to pay more into the scheme to pay for that, you were alluding to the fact that the scheme would have to pay for that. Yet you will actually save money, will you not? If you are not paying a pension to someone at 60 until they are 65 you are actually saving a considerable amount of money. If you and I live for 20 years after we are 60 and we do not get our pension for five years you have saved 25 per cent of the costs. Are you seriously telling us that the Government is going to continue to pay that into the fund? Of course they will not. That must be a saving to the MoD, must it not? Mr Caplin: I gave quite a long discourse at the start of the Committee, Mr Hancock, and I am not sure you were here. I bored the whole Committee rigid on superannuation accounting, and Mr Iremonger as well. We went through a number of these financial issues, Chairman. The simple fact to say is that we are making significant changes to death-in-service benefit and we are making significant changes to unmarried partners and to widows' pensions. Of course that comes from somewhere in the scheme, but it comes from within the scheme. Q56 Mr Hancock: You are saying that the Government will save no money at all from just changing the preserved pension age from 60 to 65. If you are, that is irrational to me; I cannot see how you can say that. Mr Caplin: I am saying what I said on 15 September and what I have said today, which is consistent. There may actually be some costs to the MoD in the initial years, as we go through transition, and if there are we will have to bear them. Q57 Rachel Squire: I am anxious we move on to the Early Departure Scheme. Can I just ask a question in comparison with other public servants? Would you agree that raising the preserved pension age will be more financial onerous for armed forces personnel - who, for the most part, do not serve to the age of 40 let alone to the age of 65 - than it would be for most other public servants who can often choose to continue in public service until retirement age? Mr Caplin: I think that is a very interesting area of discussion. As I see it, we are talking about retirement age but what happens in the armed forces is that people serve for a period of time and then they come out and they, thankfully, re-employ. Just to give you, if I may, some examples with my Minister-for-Veterans hat on, (in relation to which no doubt you will be summoning me before you on separate matters): some recent research that we published a couple of months ago showed that something like nine out of ten people who leave the armed forces actually get well employed jobs. There is a problem with the ten per cent, I am not denying that, and that is an issue that we may well come back to, but in general terms those people who depart from the armed forces find themselves in good employment and are very pleased with the role they have played, and many of them become reservists or join the TA. I was with a number of reservists and TA members last night. I think there is a balance to be had between what they then contribute to UK plc, which in my view is significant, and that single issue of retirement age. Rachel Squire: I think that is another one we may well come back to. We will move on to the Early Departure Scheme before any more Members of the Committee have to make an early departure. Q58 Mike Gapes: I hope I am not interrupted by the bell, in which case we will all be departing for a little while. In an earlier answer you mentioned the changes brought about with regard to the Department of Work and Pensions document announced in June and the Inland Revenue's proposals to change the rules. That will have an impact and, as a result, you are having to abolish the immediate pension. Can you give us any further information about that and further details of the new Early Departure Scheme? Mr Caplin: Firstly, Mr Gapes, we are not abolishing the pension because, of course, we are talking today about a new scheme from 6 April 2005 - the old scheme will continue with the benefits that it operates at the present time. As I have said before, some people may choose to move on to it. I did say earlier to the Chairman that I am certainly keen for us to do some work on illustrative models. We have not yet done that work. I just say this to the Committee, we have done a huge amount of comparison work and there is independent assessment of the scheme as well. We are preparing, of course, in the hope of legislation, so we have not been able to complete that work on modelling that we had hoped to do. As soon as we have I am more than content to share it with the Committee. Q59 Mike Gapes: The Department of Work and Pensions' Action Plan on Occupational Pensions was announced in June. Why are we, five months on, still waiting? Why are things in such an embryonic stage with your Early Departure Scheme? Why has it taken so long? Mr Caplin: It has not taken so long; we are reflecting in the Early Departure Scheme both the policy areas that the Department of Work and Pensions is pursuing in its Green Paper and, also, Inland Revenue requirements, which are the regulations I mentioned earlier. I do not believe it is taking long. The aim is to have the scheme up and running in April 2005. We are quite a long way away from that. I accept the argument that you could be putting forward is: are we ready to legislate next month? That is a wholly different argument, but the simple fact of the matter is that we still need to do some work on illustrative modelling. Jonathan will be responsible for doing that work and he can tell you a bit more about it. Mr Iremonger: We have done some modelling already but we have not finalised that modelling. The difficulty is that there is a lot of complexities about the three requirements of the different services: the Army have one requirement, the Navy have a different requirement and the Air Force has a third requirement again. So we have drawn up a number of models, we are working on those with the civil services, we have not finalised those, but we hope to finalise them relatively soon, but we have not got anything we can give you as being the firm, final picture. Q60 Mike Gapes: When can we expect to see a full explanation of the scheme? Mr Caplin: You will forgive me, Chairman, if I do not commit to a date, but let me just say that I am keen to share with the Select Committee, in the very near future, that modelling. I will do so as speedily as I can. Rachel Squire: Can you give us any indication whether that is this year, next year ---- Q61 Mr Gapes: Or sometime never? Mr Caplin: I think, given that we have a break for Christmas, it would be unreasonable of me to retain the staff in the old War Office throughout the Christmas period to achieve this. I think we are definitely looking at next year.
Q62 Rachel Squire: Early next year? Mr Caplin: It has got to be early next year. Hopefully, fingers crossed, we will be in legislation at some stage in the new year, so if this Bill is in the Queen's Speech clearly I would want the Committee to have that information before the legislative process commenced. Q63 Mike Gapes: I do not know whether that is a hint that it is going to be in the Queen's Speech or not. We will wait and see. Mr Caplin: I do not know either. I cannot help you with that one, I am afraid. Q64 Mike Gapes: On the basis of what you are already doing on this, how much less generous will the new Early Departure Scheme be than the current Immediate Pension? Mr Caplin: I am going to defer to Jonathan on that point. Mr Iremonger: The two schemes are designed slightly differently, in the sense that one scheme currently lasts from 38 for an officer to 55, and the new scheme, because we will not pay a pension until 65, will last all the way through to 65. If you take just the front end, the common bit of that, the value of the bit at the end - 55 to 65 - remains the same. If you take the bit before that, we have taken somewhere around a third of the value of that out. If you take the 45 to 55 period we have taken about a third of the value of that. Q65 Mike Gapes: In cash terms what would that be? Mr Iremonger: It is somewhere around £100 million, and that covers widows pension benefit improvements and the cost of greater longevity, which would otherwise need to be covered by increased contributions or reductions in benefits elsewhere. Q66 Mike Gapes: One hundred million per annum? Mr Caplin: That is the point I was making about superannuation earlier. Q67 Mike Gapes: Will the Early Departure Scheme maintain enough flexibility to be able to adjust to the long-term needs of the services? Mr Caplin: I believe it will, yes. I have said already, Mr Gapes, on a couple of occasions that it is important we have a scheme that not only is encouraging people to be recruited into our armed forces but retains them through those crucial years. I firmly believe that that will be the case. Mr Iremonger: Could I make one comment? The Early Departure Scheme gives us much more flexibility than a pension scheme does. With a pension scheme you have to pay a fixed level of benefits over a period. As it happens, what we do at the moment is we pay a pension at the age of 37 or 38 for an officer which we do not increase by the retail price index until 55, so the value of the pension between 45 and 55 goes down, depending on how high inflation is, which in a way is counter-intuitive because somebody who gets to 55 is likely to be more in need of a pension than they are at 40. The new scheme gives us more flexibility because we can make it more or less whatever shape we want. So we believe it is much better fitted to our needs. Q68 Mike Gapes: You are making these changes now but what protection can you give to service personnel to ensure that any payments they receive will not be affected by last minute changes to the scheme in future? Mr Caplin: There will be Parliamentary protections. We are going to have to produce enabling legislation to bring in this scheme in April 2005 and there will be, I anticipate, in the Bill, if it is in the Queen's Speech, protective measures to allow Parliament to consider those matters. Q69 Mike Gapes: No doubt we will return to it in due course. Mr Caplin: I have no doubt about that. Q70 Mr Havard: I have a few mechanical questions. Is the Early Departure Scheme going to remain within the armed forces pension scheme? It is. If it was not we would like to know how it was going to be administered separately, but it is going to remain part of the scheme. Mr Iremonger: Formally it will not; the regulations will be separate because it will not be a pension benefit it will be an alternative benefit, but it will be underwritten by the same sorts of guarantee in the sense that if somebody enters a commitment to a particular level of Early Departure payment then we will honour that in the same way as we would a pension. Q71 Mr Havard: So technically it is not in the scheme but, yes, it is going to stay in the scheme. I am getting confused. Mr Iremonger: It is not in the scheme but it replaces a benefit that was in the scheme, and it will be a separate scheme of its own independently. Q72 Mr Havard: How will it be administered then? Mr Iremonger: It will be administered in the same way as it is at the moment, by the same agency who will work to a set of rules which we will provide which will determine the level of benefit to be provided at a particular point if somebody goes out, and then graduated depending on how we design the shape of the payment profile. They will pay according to that. Mr Caplin: Can I just help here, Mr Havard? What we have had to do, taking account of Inland Revenue regulations under current rules, is to look at a way of building a model that allows us the flexibility that Mr Gapes was talking about but still allows us to have a benefit. That is where we have obviously negotiated this matter with Treasury and the Inland Revenue, to ensure that everyone is happy with this arrangement. I am pleased to say they are. Q73 Mr Havard: OK, so in this what I understand may be some analogous or parallel scheme, but it is within the pension scheme, is the value of this scheme going to be taken into account in some fashion by the Armed Forces Pay Review Body in terms of abatement? Mr Caplin: The Armed Forces Pay Review Body is obviously independent of the Ministry of Defence and reports to the Prime Minister not to the Secretary of State. It will be a matter for the Armed Forces Pay Review Body as to whether or not they take these matters into consideration in due course, remembering that we are talking about a new scheme and the scheme that we currently have continuing. I am sorry I keep repeating that but it is actually a very important part of the situation. Q74 Mr Havard: Are you going to recommend that they do take it into account? Mr Caplin: We do not make recommendations to the Armed Forces Pay Review Body. It is not the same as other pay review bodies; they are an independent body and they look at the issues themselves and they consider the evidence that is given to them in sessions like this where the Secretary of State will give evidence to them. It is not like we make recommendations. Q75 Mr Havard: No doubt you will draw it to their attention. In the previous report that was done by the Committee (I was not here then) the suggestion was that removing the Immediate Pension arrangement from the scheme might allow the services to target the compensatory element of the Immediate Pension to what was then the 50 per cent of personnel who earn less when they leave the services. So rather than it being used as a universal benefit, to factor a scheme in such a way that it could be used in a targeted fashion. What thought has been given to that? Has any thought been given to it? Are you thinking of doing it, given that the scheme is in its embryonic stage of development? Mr Caplin: Are you talking about the compensation scheme? Q76 Mr Havard: The compensatory element. Mr Caplin: In terms of the compensation scheme that will be part of this package, yes, we will certainly be looking at how we target the more disabled in respect of greater benefits. That is no secret, to some extent. I am not sure, on the other issue, that I can actually assist. I do not even know if Jonathan can. Mr Iremonger: If I understand you correctly, certainly in our original proposals there was a proposal that we might use the value of the Immediate Pension, as it was then but now the Early Departure payments, in a different way to incentivise people to stay rather than to pay ---- Q77 Mr Havard: These are elements of the pension scheme? Mr Iremonger: They are elements of the Early Departure payment scheme - let me put it that way. We are developing a proposal under which, for a discrete group of employees in the MoD, in the armed forces, we would pay bonuses to the same value as the Early Departure payment, so the same chunk of money would be used (there would be no loss to those individuals) but used to pay bonuses at fixed points through their career, where they are changing their commission, for example, to draw them on through their career. So rather than paying them a chunk of money at 40 when they go, we will pay them a chunk of money, say, illustratively (and it probably will not look like this), at 33 to incentivise them to go through to 40, then maybe at 42 to take them through to 45 and then a chunk of money to take them through further. That sort of approach - incentives to stay rather than money when they go. Q78 Mr Hancock: Would that be something you decide or they could request? Mr Caplin: It is too early to judge. Q79 Mr Hancock: That was the issue we had when we discussed it. Mr Iremonger: It might be a combination of the two, in the sense that we might bring it in for new entrants and give them no choice but for existing members of the armed forces we would certainly have to give them a choice. Mr Caplin: We have not come to a conclusion on that. Rachel Squire: That may be another area we come back on. I know there is going to be a vote shortly. Can we, given the shortage of time, move on to compensation arrangements. Mr Roy, you have some questions about the standard of proof. Q80 Mr Roy: First of all, rather than the standard of proof, the point I have is on the burden of proof in relation to the civil balance of probability, Minister. Under the existing scheme it is for the Secretary of State to show beyond reasonable doubt that service has not played a part in causing or worsening the condition for which a claim is made. After these new proposals the burden of proof on compensation claims moves from the Ministry to the claimant themselves. Obviously, that claimant will then have to prove the balance of probability - which, for a normal employee would be fair enough. However, the claimant, as I understand it, in order to prove the burden of responsibility would need to go to an MoD doctor to get the MoD records or an MoD hospital to get an MoD record in order to claim compensation against, would you believe it, the MoD. That seems to me to be a bit unfair. Would you accept that? Mr Caplin: Chairman, I think this is a very important issue and I am not sure I can do it justice in one minute. Rachel Squire: Can I adjourn the Committee for nine minutes, to give the Minister a chance to think up a comprehensive answer. The Committee suspended from 4.41 to 4.50 for a Division in the House. Q81 Rachel Squire: Thank you very much. It is nice to see that the Defence Committee can certainly act as a rapid reaction force when we have got our mind to it. Minister, would you like to begin to answer Mr Roy's question? Mr Caplin: I was tempted to say "especially on joint operations" but maybe not. I certainly would not ask Mr Roy to repeat the question, I got the gist of it before we had the enforced break. The first point I want to make about the change in the standard of proof is that I believe that we are creating modern pension compensation arrangements. Let us just focus on compensation because that is where this sits. To do so, I want the scheme to be consistent with the civil courts, and that is what this change will do. So it is about trying to create the right scheme in the right time for a modern armed forces, remembering that from the effective date, which we are assuming in this session is 6 April 2005, the compensation scheme will be across the board. The decision-making process that Mr Roy has described is probably familiar to all of us as constituency Members of Parliament when we are dealing with our caseloads. What I can say is that I am very sure we have to make sure the scheme is seen as fair. That is why within the legislation there will be an independent tribunal option that people independently will have to go to the pensions appeal tribunal and to appeal a decision taken by the Veterans' Agency in terms of compensation. So there will be an appeals process - let me underline that. The specific point, if I recall it correctly, and do please correct me if I am wrong, was about is it right for an MoD doctor to pass views. In my view, yes it is, because the armed forces doctor will have been a consistent view throughout someone's military career and be able to make good points about that. Let me also say that in terms of the final view, if someone had been out of the forces for a while, then clearly their own GP would also be an influencing factor on any final decision. Q82 Mr Roy: You are saying if they are out of the forces for a while. When I used to work for a living I was a steel worker, Minister, and I remember having to go in front of various company doctors - or some of my colleagues had to go in front of company doctors - who did not really understand who they were there to represent, either the health of the patient or the balance sheet of the company (?). That was the perception of the reality for the worker. I have just got this fear that this burden of proof is, maybe, just a cost-cutting exercise because, maybe, less people will be inclined to make a claim because they are having to make a claim against the MoD and have not used all the avenues available from the MoD in order to make that claim. That is what my worry is. You have said that you support, obviously, that it has got to be consistent with the civil courts, and I can understand that. However, the job is not consistent with a steel worker's job, and that is my great fear. You seem to be saying that that is how the rest of the world lives but the rest of the world are not asked to put their lives on the line in the way that armed forces personnel are, so you cannot look at them as like-for-like. What I would be expecting from you, Minister, is an assurance that those claimants will not be at a disadvantage. It is OK waiting until the appeal process - to lose your case and then go to appeal - but what will you do to ensure that there is no trepidation on behalf of the claimant to go to their employer - ie, through the doctor, or hospital that has their records - so that they can make a claim against the same employer? Mr Caplin: Can I say, Mr Roy, I think that is a fundamental question and one which is very, very important. I think this comes down to our ability as the employer to communicate properly and effectively with our employees. One thing I would make 100 per cent clear to the Committee today, is that whilst we have not started it yet - I think quite rightly - once we are in the process of developing the final stages of both the pensions and compensation schemes we will be very clear in our communication network with our employees. So I am confident that when I return to the Committee, in however long it is to answer about the communication strategy and how we have been able to talk to all 205,000 members of our armed forces, that is what we will do. I think the point you have made is absolutely valid in reminding us that we have that responsibility in terms of our communication strategy, and I will certainly take it on board. Mr Roy: I do accept you are confident that you will be able to come back and give us good news, but what is at the back of my mind is that if you were the minister in ten years' time would you come back here and say "From 2005 there has been a drop in claimants"? I genuinely believe that that can be the case with some people who have made claims, from my experience of working in heavy industry. I will leave it at that. Q83 Mr Jones: Can I ask about records and how the new system is going to cope with inadequate or lost records? In the case of inadequate or lost records, will the burden of proof revert to the Government where military medical and other records are inadequate? Mr Caplin: I think the Committee is well aware of the issue of record-keeping over the years, Chairman. I think this has been a perennial matter which the Select Committee has returned to. I think you have probably recently - I do not know how recently - had evidence from the Surgeon General on the improvements that we have made to record-keeping. I am pretty confident that our record-keeping is certainly far better than it was ten years ago, although I am not a politician who tends to look ten years in advance - I think it is quite an unwise thing to do, you can never tell what might happen in a ten-year period! However, I can certainly say that our record-keeping is far better today than it was ten years ago, and I think the Select Committee accepts that. If there is a concern at any stage, Mr Jones, then I think the responsibility lies with us as the employer, without question, in my mind. So what I would say to the Committee this afternoon is if for some reason medical records are not available but otherwise it appears likely that a claim is reasonable and fair, then an award would be made. Q84 Mr Jones: I am not questioning your word or what you have actually said, but is it not important to actually have that written into the scheme so that that is clear? You said, also, about records being improved but clearly, in terms of the first Gulf War, the admission, for example, that records were not kept of the vaccinations people had - I accept that things have changed now - is obviously very controversial. If you are introducing a new scheme I think it has got to be clear what are the responsibilities and how these cases will be dealt with. We are bound to come up against some of these issues. Mr Caplin: That is a very important and interesting point that Mr Jones has made, Chairman. I would like to take that away and give that some consideration as we get into the stages of legislation. Q85 Mike Gapes: Can I ask you to explain why the proposals include two separate forms of compensation for loss of earnings: on the one hand, an assessment on the basis of the individual's earning capacity in civilian life and, on the other hand, a Guaranteed Income Stream on the basis of tariffs associated with particular injuries? Why is it necessary to have these two benefits to achieve, essentially, the same purpose? Mr Caplin: Maybe I can deal with the Guaranteed Income Stream and ask Jonathan to deal with the other point. The Guaranteed Income Stream is, I suppose, an approximation, really, for lifetime earnings. That is the sort of area we are looking at. What I think it is quite difficult to do today is to provide you with a sort of detailed analysis of how the relationship will work between those areas because partly we are still talking to the Department for Work and Pensions about how the Guaranteed Income Stream will work and I think we need to bring that work to a conclusion when we can. The second point, the medical point, is about the tariffs and disorders. That work is also not yet finalised. I am not really in a position to give you the absolute answer to that question, but it is work in progress. Mr Iremonger: Perhaps I could add to that. The new scheme is very different from the old scheme in the sense that the old scheme is based predominantly on a pension, a stream of income. The people who undertook the review, before my time - and I absolutely agree with their judgement - did not think that was a fair approach. Their view was that there should be two components: there should be a lump sum payment, basically a pain and suffering payment - you could be severely burnt with 90 per cent burns on your body and under the existing scheme you could carry on being employed and you would get no compensation for that, and we thought that was unreasonable. That sort of injury required some sort of redress more widely. So we thought there should be a lump sum payment which we also believe will have value in terms of enabling those who are seriously injured, in particular, to transition into their new state of life. Somebody who loses a limb or somebody who is totally paraplegic needs quite a chunk of money to adjust to life: to do their house and change their car. So that is the lump sum payment bit. That is graduated across the tariff scale according to the degree of disablement. That is one element of it. Beyond that, we took account of the fact that there should be a stream of income as well, and the view of the stream of income was that that should be designed to reflect the extent to which there is a loss of earnings capacity. There are some people who leave the services with a very slight injury but are not employable within the service - perhaps because they are a pilot and a sight injury means they cannot fly - but are perfectly capable of going outside and getting a job outside which pays a full salary. We believe that in those cases it may be appropriate to pay them a lump sum compensation payment but that it is not appropriate to pay them a pension for loss of earnings capacity because there is no real loss of earnings capacity. On the other hand, there will be a significant number of people for whom that will not be the case, where the injury will substantially affect their ability to go outside and earn. In some cases they will not be able to earn an income at all and part of the tariff scale we have (and the tariff scale needs refining) identifies those sorts of injuries where we think it will totally remove their ability to earn an income outside and there will be a generous level of income support, if you like - a stream of income for life - for those people. Below that there are people who can earn but their earnings capacity may be affected to a lesser extent, and we believe some sort of payment is appropriate for them as well. So that was the basic approach. Q86 Mike Gapes: I understand there is a scale of tariff levels within the system. Correct me if I am wrong, but I understand that service personnel who fall within levels 1 - 11 will receive a sum to cover potential loss of earnings in addition to this lump sum for pain and suffering which you have mentioned. Mr Iremonger: Yes. Q87 Mike Gapes: However, for the other levels, with an injury assessed at level 12, they will not. There are differences depending on which level of the tariff you are at. Could you explain why that is and exactly how it is going to work? Mr Caplin: I think you are in for the answer here, Mike! Mr Iremonger: The injuries below scale 11 are really generally quite minor injuries, a lot of them are recovery injuries so there is no effect on earnings capacity, for example the dislocation or fracture of a jaw is full recovery. In that case it may be appropriate to pay a lump sum for a period of pain and suffering but there will be no effect on earnings capacity afterwards and we do not believe it is appropriate to pay those people a pension. We believe pensions are only appropriate where earnings capacity is significantly affected. The basic premise is that people below tariff 11 are people whose injuries will not affect their earnings capacity afterwards, in many cases they will recover immediately and in those cases where they do not recover immediately the level of residual disability will be extremely low and might affect their employment in the service but will not affect their employment generally and for them a lump sum is an appropriate way of compensating them rather than a pension for life. Q88 Mike Gapes: Would you not accept even if their injuries are not so severe nevertheless it might be likely to affect the future job prospects of many people and can even have a potential of reducing their chances of getting employment or good paid employment without having particularly serious injuries. If tariff level 11 includes injuries such as serious scaring of the face and then tariff level 12 includes injuries such as two frozen shoulders with continuing significant disability, clearly the division between the two is difficult to assess, the injuries being different, but nevertheless is this not an arbitrary cut-off point and are we not in danger of having people who might be entitled to some kind of on-going Guaranteed Income Stream not able to receive it even though their own future employment prospects are not actually as good as they would have been if they had not had the injury? Mr Iremonger: Perhaps I can say two things, first this table is not the final one, there are discussions going on about exactly where it is appropriate to put particular injuries within this table. You may find when you see the final table that things have moved round a bit, there is room for debate about that. The structure of the tariff system, as we have it, is not dissimilar to the structures operated by a number of other groups, the Criminal Injuries Group is one example and they operate on exactly the same basis that we are proposing. There are some injuries where we believe a lump sum payment is appropriate because there is not a significant effect on earnings capacity and there are some where there clearly is an effect on earnings capacity where a pension is appropriate. Scaring of the face, it is unlikely in most cases, particularly for people in the Services - if you are an actress it might well affect your earnings capacity - there are not many people, if any, I would suggest who are in that sort of position. Serious scaring of the face will not generally affect their earnings capacity, it may affect their personal life quite significantly, it may affect their self-esteem, and things like that, but a lump sum appropriately set at a level is we believe appropriate for that, their earning capacity is not affected, they can go out and get a job tomorrow at the same level. Frozen shoulder, we can look at whether that is in the right place but the broad philosophy of is one that we would want to defend. Mr Caplin: It comes back to the fact that this is still work-in-progress, as I said in response to your first point, Mr Gapes. We do have some more work to do. Q89 Mike Gapes: Do you have any idea when that work might be concluded? Mr Caplin: I am in that rather difficult area, we are going to go through that legislative process. Quite clearly before we get to an effective date of 6 April 2005 we need to have this not just in place but properly communicated. Q90 Mike Gapes: Would you envisage this would be in some kind of schedule or actually in the legislation whenever it comes or would it be something whereby the MoD could reassess from time to time without any further reference to Parliament? Mr Caplin: All I can say to you is that I do not anticipate it being in the primary legislation. I will certainly have a look at whether it should be in the secondary areas. Q91 Mr Jones: In terms of the payment of lump sums you come at the injury from the point of view that injuries do not affect earnings capacity, is it the case that the lump sum payments could affect their own earnings capacity in terms of access to benefit? Have you considered the fact that you may give them a lump sum payment in one hand and take the money out of the other hand in terms of the benefit system? Mr Caplin: That is why we are still in discussions with the Department of Work and Pensions to try and establish when we have the Guaranteed Income Stream it actually works properly to reflect the points that Jonathan has made. Q92 Mr Jones: The reason why I say it is an important point is because under a PI case you could protect that lump sum but it does not appear under this system. It used to be seen as an advantage to people, we do not want it to be launched to find that certain people who get lump sum payments are taken out of benefits altogether. Mr Caplin: I think you are establishing an area of discussion that we certainly need to make sure that we get right. Mr Jones: I look forward with interest to see how you persuade the Treasury! Q93 Mr Havard: Can I ask you about transition arrangements? You are keeping people informed and letting them understand what will be available to them, let me just ask you a general question first, what are you going to do to ensure currently serving personnel are able to make this informed choice between the existing and new pension schemes that will be on offer? Mr Caplin: We have already made a start. When I made the initial announcement on 15 September we ensured that that announcement was then transmitted throughout all of our Armed Forces by the Chief of Defence Staff General Sir Michael Walker. Indeed I can assure you that it has been transmitted because when I arrived at RAF Innsworth on Wednesday 17 there it was on the notice board for me to see. I do not think it had been put up just for my benefit, it was actually there and there were a couple of people reading it when I arrived. We are on the starting point of communications but there is obviously a lot to do still. Q94 Mr Havard: I will come back to that, if I may. The reason we asked the question is we want to know whether you acknowledge that there is a risk that inadequate information and advice could leave the Government open to complaint about unfairness, about inequitable treatment and even possibly to legal action, is there an appreciation that may well be the case? Mr Caplin: Yes, there is. We need to make sure that the Government is not open to such actions in the future, that is certainly the aim. I have already made the point during this afternoon's session that in terms of transition from the old pension scheme to the new pension scheme it will be a matter of individual choice based on people's own decision in terms of their own financial circumstances. I have also made clear that we do not plan to engage in that because the importance of that being there is a choice. In terms of compensation schemes clearly everyone will be subject to the compensation schemes from the effective date. One of the areas that we have just been discussing is clearly an area that we need to have clarified before that effective date comes into operation. Q95 Mr Jones: As I understand it there is a variable experience, you have just related your own experience in terms of what information has been given out already. I have had experience as well and people say to me, "what are you on about, never seen anything, do not know what you are talking about", there is a range as to what people fully understand. The policy revision has some form of review about how successful your current efforts have been to get information across, have you learned anything or produced results from that? Mr Caplin: I know that some of you have just been to Afghanistan and I am sure you found that an interesting experience talking to our troops out there. Pensions and compensation does come up when I sit and talk to people in small groups, and it is a very important subject. We have made sure that it has been widely covered in all of the in-house magazines and other in-house communications within the Ministry of Defence and the Armed Forces. I think at the present time we are at a starting point in the communication strategy rather than a finishing point, we have a lot more to do. Q96 Mr Havard: The compensation scheme, unlike the pension scheme, will apply to everyone, there is no opt-in or opt-out, so the extent to which people understand that and that information is conveyed to them is very important. It goes back to something that my colleague alluded to, if you change the burden of proof from reasonable doubt to the balance of probabilities, which is why I asked the initial questions about the legal possibility, that you may have for claims against you then it is clearly very important that all of this is made very clear to people and we have a level of emphasis that is slightly different to changing a few terms in the pension scheme? Mr Caplin: I can assure you, Mr Havard, that the communication strategy and the communicated compensation schemes are absolutely crucial during the course of next year. Q97 Mr Havard: There were new key targets for the Veterans Agency announced at the end of October, including targets for reduction by more than one third of the time taken to process war pensions and war widows' claims. How are you going to ensure that this increased administrative efficiency is not set back by the introduction of two new schemes? That is the claim that is being made. Mr Caplin: I have been to see the Veterans Agency and we have already started talking about how this whole operation will be undertaken. I am fairly confident that given the way that the Agency is operating it is actually in a very good state to achieve that process. Clearly they also have some time now to do that, given we have 18 months or so before the effective date. I have to say it is a very good operation and I highly recommend it to you, Chairman, if you are thinking of visiting the North West to make a visit to the Veterans Agency and go and sit on the help desk, which I spent an hour doing, and listen to some of the calls coming in, it is a very illuminating experience. Q98 Mr Havard: Do you have confidence that is going to be the case, they can operate all of these schemes in tandem? Does that include having extra resources? There have been discussions with the trade unions representing people involved, what about the joined-up discussions between all of the other departments who have relationships with the Agency, there is Work and Pensions, there is the Inland Revenue, and so on, how confident are you about the joined-up government approach in relation to paying this, because they cannot work in isolation to achieve those benefits? Mr Caplin: Those cross-government discussions are on-going at an official level and they have been very good discussions and they have been well received and we have made a lot of progress in the past few months on both pensions and compensation through cross-government working. That is not to say we do not have areas, particularly in compensation, that we still need to talk through with the Department of Work and Pensions, the point I was just making to Mr Jones. Q99 Mr Havard: In all of that process that you have unfolded to us how are you going to take into account advocates of various sorts who can help people through the process and actually operating the processes when they are in place, whether they be relationships with voluntary organisations and/or other parts of the statutory agencies? Mr Caplin: That is a very interesting area, I am thinking about the Citizens Advice Bureau, and areas like that. That is something that we need to ponder on and to consider as part of the communication strategy how we discuss these issues with those other agencies. Q100 Rachel Squire: Can I ask one final question on improper taxation of invaliding pensions, can you say when a compensation package will be announced for those 1,200 or more former personnel whose invaliding pensions were improperly taxed? Mr Caplin: I understand this has been going on a long time and the Committee has been exercised by it in the past. I think you will also be aware that we are still considering whether to pay compensation in addition to the repayment supplement that has already been provided under the Inland Revenue's legislation. What I want to confirm and announce to the Committee this afternoon is that we are going to confirm our decision no later than 18 December, before Christmas, in Parliamentary time. Q101 Rachel Squire: I would certainly hope so. I know it was not yourself, it was the previous Minister, Dr Moonie, who told us in December last year that he would certainly expect this to be done within the timescale of the other cases which we were reviewing, which we hoped to have completed by the summer, and I would hope we would get it done much more quickly than that, so we are somewhat behind the time. Mr Caplin: I entirely except the quite legitimate slap on the wrist you are giving me and say to you again the 18 December is the date that we are now aiming for and I would expect us to stick to that date. Q102 Rachel Squire: On that point can I bring this Committee's session to an end, Minister. I think the issue of pensions and compensation will certainly continue to be raised by all of us, particularly so this weekend when on Remembrance Sunday many of us will be with current and retired members of the Armed Forces and their families. Can I thank you for coming to this evidence session this afternoon. I think I speak perhaps not just for myself but also for my colleagues when I say that there are now even more questions that I think we would like to be answered and more issues raised. This is going to be an area of very intense activity over the next few weeks and few months on what is an area of vital importance to our Armed Forces, those who have served and those who are still serving in them and their families. Thank you very much for coming to give evidence this afternoon. Mr Caplin: Thank you, Chairman. |