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Mr. Kevan Jones (North Durham) (Lab): I sympathise with the point that the hon. Gentleman is making, but do not most people in the armed forces leave in their 40s, because of the physical nature of much of their work and the fact that the armed forces do not want them to stay on longer than they should?

Sir John Butterfill: It is true that the majority do. But I am talking about those who stay to 55 or close to that age. The army needs those people as well; they are a significant proportion of its work force. I am concerned that for those who stay on longer, this could be a painful process.

The Government should give consideration to that drawback, because the armed forces are in a unique position. I sympathise with the Government's idea that people will have to defer retirement. In general, that is a good thing. Members of Parliament, who at present can retire at 60 with a full pension, without diminution, should perhaps consider whether they, rather than the armed forces, should set a precedent. I know that we cannot always serve until we are 65, because the electorate or the boundary commission may intervene to prevent us. Nevertheless, I should have thought that we would be a more appropriate precedent than the armed forces. That is the only point that I am trying to make. Some people will have real difficulties as a result of what is being proposed today.

I wish to put a suggestion about housing to the Minister. I agree with hon. Members who have said that there is a problem of housing for members of the armed forces. It might be asked why they do not buy a property early in their career. They could live in it and then let it when they have to move out. One of the big deterrents to buying to let is that the Inland Revenue would not regard such a property as their principal place of residence, and so they would pay capital gains tax if they ever sold it. Could the Minister suggest to his right hon. Friend the Chancellor that in those circumstances, forces personnel trying to secure their place on the property ladder—or rather, with house prices as they now are, the property escalator—should, uniquely, be exempted from capital gains tax?

4.19 pm

Mr. Mark Hendrick (Preston) (Lab/Co-op): Today we debate an important and just Bill, which will provide a fair pension for those who have served in the armed forces. The armed forces compensation scheme will also benefit many soldiers. The Government initiated

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reviews of both pension and compensation arrangements for the armed forces in 1998. Consultation documents were issued in March 2001 and decisions were announced in September 2003.

The Bill sets out a progressive policy that offers choice, equity and best practice, while addressing the special nature of the jobs of the armed forces. Personnel will be able to choose whether they want to transfer to the new scheme or to remain in the existing scheme. The new pensions scheme will provide a pension based on final salary rather than rank; give equal treatment to officers and other ranks; replace the immediate pension, which can be paid as early as at age 38, with an early departure payment; retain the normal retirement age of 55, but bring deferred pensions into payment at 65 instead of 60; increase widows' and widowers' pensions from 50 to 62.5 per cent. of the spouse's pension; increase death-in-service benefits from one and a half to four times pensionable pay; and extend survivors' benefits to unmarried couples, including same-sex couples. The hon. Member for Ruislip-Northwood (Mr. Wilkinson), who is not in his seat, made comments about payments to same-sex couples that are indicative of the views of many Conservative Members. The fact that such attitudes still prevail perhaps explains why they are not in government.

The hon. Member for Canterbury (Mr. Brazier) referred to retirement at the age of 40. I remember losing my seat in the European Parliament at that age and having to go back into industry. In today's world, 40 is the new 30. I note what the hon. Member for Bournemouth, West (Sir John Butterfill) said about the difficulties that may be faced by somebody aged 55, but many people who choose to leave the armed forces can start a new job and career.

The new compensation scheme will provide a lump sum payment for pain and suffering and a guaranteed income stream alongside higher-level tariff awards for those who suffer a significant loss of earning capacity. Unlike the current arrangements, the new scheme will provide in-service lump sum awards for pain and suffering, including injuries arising from warlike activities. Unmarried and same-sex partners will be covered, and there will be a time limit of five years on most claims. The hon. Member for Ruislip-Northwood said that five years was not enough, but his concerns were addressed by the Secretary of State, who said that he was prepared to consider exceptions. At present, there is no time limit on war pension claims, and those made within seven years are decided on the less stringent test of "reasonable doubt".

A new pension scheme for members of the reserve forces will be made separately under powers contained in the Reserve Forces Act 1996, including more protection for reserve force members who are injured, suffer ill health or die as a result of their service. At present, the rules of the armed forces pension scheme, or AFPS, are set out in prerogative instruments that derive their authority from the Queen and are not subject to approval, annulment or amendment by Parliament. For the Royal Navy and the Royal Marines, the prerogative instrument is an Order in Council under the Naval and Marine Pay and Pensions Act 1865. For the Army, it is the Army Pensions Warrant 1977 made under the Pensions and Yeomanry Pay Act 1884. That needs to be simplified, and the Bill will enable a single scheme to apply to all three services.

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The AFPS also provides attributable benefits for servicemen and women who suffer ill health, injury or death owing to service, and there is a separate scheme for attributable benefits for reservists. The Bill provides for those different compensation arrangements to be combined in a single scheme—the armed forces compensation scheme. After this Government came to power in 1997, they initiated reviews of the compensation arrangements and the pension scheme, and two consultation documents were published. What we have today is largely the result of that consultation.

Between March and October 2001, the Ministry of Defence consulted both serving members of the armed forces and service organisations such as the British Legion and the Forces Pension Society on their proposals. On 16 December, the Select Committee on Defence published a report that recognised that the final proposals had taken account of many of the criticisms made during the consultation process.

The Bill reflects the Government's wider pension policies, which are designed to cut the costs of pension provision by encouraging people to work longer and raising the age at which people can claim their pension. Consequently, the final armed forces pension scheme will raise the age at which preserved pensions can be claimed from 60 to 65 and replace the current system with one of early departure payments, which will not be classified as pensions.

When we took office in 1997, the basic state pension was £62.45. Today it is £75.50 a week—an increase of 5.5 per cent. in real terms. That was not enough, so the Government introduced the minimum income guarantee in 1999 to protect pensioners who had no savings. This financial year, the Government are spending an extra £6 billion in real terms on pensions. That includes £2.5 billion for the poorest one third of pensioners. The Government are now ensuring that our armed forces receive equal and fair treatment. Companies that do not provide good pensions lose their employees' loyalty and that can only be bad for business. The Bill will ensure that forces personnel have a decent and fair pension and compensation provision, to match their service to our country.

People should have the right to retire when they want. Retirement should no longer be a cut-off point so that someone is a valuable worker one day and unemployable the next. It should be gradual and voluntary, not a process of compulsion.

The Government's document "Civil Partnership: a framework for the legal recognition of same-sex couples", which was published in 2003, makes it clear that public service schemes will be amended to provide survivors' benefits for registered same-sex partners and, if they can afford it, benefits will be extended to unmarried partners of the opposite sex.

After wide consultation, the Government are introducing a Bill that will allow members of the armed forces to have a decent and secure income in retirement. The measure is equitable, transparent and offers fair and consistent outcomes. It will focus resources on those most in need, especially through compensation for the most severely disabled. The measure will reduce cost and rationalise armed forces pension provision. It reflects best practice and is part of a progressive agenda to provide more equitable and just pension provision. It

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deals with the need to provide for veteran pensioners who live longer. It increases widowers' pensions by 25 per cent. and extends dependants' benefits to unmarried partners.

As my hon. Friend the Member for Glasgow, Anniesland (John Robertson) said, in the 18 years of Conservative Government the armed services were deeply underfunded. The Labour Government have introduced the largest increase in the defence budget for 20 years, with an extra £3.5 billion by 2006. The fundamental changes that the Bill introduces will create a better and fairer pensions and compensation system for those in the armed forces. I believe that it will allow our servicemen and women to retire when they wish, with dignity, security and peace of mind.

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