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'The Secretary of State shall provide mechanisms to ensure that all personnel in this scheme who have completed 35 years service, but are not retained in service after their 55th birthday, receive pension benefits which are based on 66.67 per cent.of their final salary.'.—[Mr. Gerald Howarth.]
Brought up, and read the First time.
Mr. Howarth: I beg to move, That the clause be read a Second time.
Mr. Deputy Speaker (Sir Michael Lord): With this it will be convenient to discuss new clause 5—Early departure—
'(1) Those serving 18 years and having reached age 40 (whichever is later) shall be entitled to a system of Early Departure Payments.
(2) Individuals meeting the requirements of subsection (1) shall receive payments until the preserved pension comes into payment at age 65.
(3) The Secretary of State shall by order set out details of these payments.
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(4) The payments will be monitored by the Armed Forces Pay Review Body which will submit to Parliament a report on any changes.'.
Mr. Howarth: The last vote was close, and I am sure that the Minister will take the message back to his Department.
The objective of new clause 4 is to allow people to earn a full career pension in the armed forces. Under both the current arrangements and the new arrangements, the armed forces pension scheme is the only scheme in the public sector that does not offer genuine full career benefits up to the public sector benchmark or the limits allowed by the law, even for those who serve a full career. Only a very few—those who join when they are very young or those who reach a senior rank and are therefore allowed to serve beyond the age of 55—can accrue maximum benefits.
It has been calculated that it is virtually impossible to earn more than 62.5 per cent. of one's final salary unless one joins extremely early or one is promoted to a high rank and invited to stay on. It is perhaps a paradox that the Labour Government—should I call them the new Labour Government or the tarnished Labour Government?—are proposing a scheme in which those on the highest salaries command the best final salary pension arrangements, and I am sure that others have also noticed that.
The unusually low normal retirement age of 55 is required not by the armed forces but by the employer for reasons, many of which are entirely legitimate, relating to the age profile of personnel. It is physically demanding and arduous to be a member of the armed forces, and it is therefore right and proper that those services predominantly employ the young and fit, so the unusually low retirement age of 55 is legitimate. The low retirement age is not a perk of the job, and it is not a dispensation to soldiers, sailors and airman to retire at 55 because they have done such a good job. It principally benefits the employer, the Ministry of Defence.
The new arrangements will seriously inhibit the opportunity to earn a full career pension through service. Few servicemen and women join young enough or serve long enough to earn full career benefits, and extending service length while the retirement age is low will exacerbate the problem. It is disingenuous at best to structure a scheme in which more than 90 per cent. of its members are debarred from earning a full career pension without buying additional voluntary contributions. The normal retirement age is a misnomer; it is actually the age at which the full career pension is payable. Allowing personnel to remain in service for 37.5 years would allow them to earn a full career pension at the public sector benchmark and the current limit of the law, but the majority, who are constrained by the normal retirement age of 55, cannot obtain a full career pension.
We believe that the scheme should be altered to allow those who serve a full career to earn full benefits of 66.67 per cent. Options to achieve that include increasing the normal retirement age, increasing the terminal grant, improving the accrual rate—as Members of Parliament have in order to assist ourselves, the fact of which has not been lost on the services—or introducing shared-cost additional voluntary contributions. Such measures
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are widely available in other schemes for occupations where short careers are common—not only Members of Parliament, but, for example, the police. It really is an issue out there that we have changed our scheme to suit the particular requirements of service to this House. I personally think that those changes are entirely reasonable and appropriate and reflect the fact that most of us provide a service to the House of Commons, but what is good enough for us we should regard as good enough for our armed forces.
The fact is that at 55 the armed forces employee has very limited prospects of earning a second career pension of any comparable value and is therefore uniquely disadvantaged among those employed in the public sector. That experience is shared in this House. Members who leave, voluntarily or involuntarily, at the age of 55 and having served in particularly important Departments such as the Ministry of Defence might well find themselves with handsomely rewarded consultancies or directorships; but for every one of those, I venture to suggest that many others will have been in the foot soldier category and not find such lucrative employment possible. A reflection of that fact of life informs the current scheme and should inform the new scheme.
The new clause would place on the Secretary of State a requirement to provide a mechanism to deal with that. We did not spell out what that mechanism should be, but left Ministers with the flexibility to devise a scheme that uses some of my suggestions to enable the intent of the new clause to be met.
I mentioned the parliamentary scheme, but let me for the record remind the House that the police service scheme's accelerated accrual rate in the last 10 years of service could be replicated for the armed forces. The Government are fond of saying that considering comparable public sector schemes is part of their benchmarking exercise in trying to come up with the right solutions for the armed forces pension scheme. The police are an example of a public service that is similar to the armed forces, as police officers also—all too often, sadly—put their lives on the line for the security of our nation. The police service's scheme recognises the particular difficulties that its employees face. That gives the Minister something to go on, and I hope that he will accept the new clause.
New clause 5 would add to the Bill the provisions of the early departure scheme, details of which were given to Members only during our considerations in Standing Committee—they were not available on Second Reading. The new clause sets down the bare bones to give the scheme specific parliamentary protection and to leave it less vulnerable to ministerial manipulation—although, in fairness, the Defence Committee thought that the scheme had enough flexibility to enable Ministers to manage the business of manning control in the armed forces.
The immediate pension scheme is a not inexpensive benefit that accounts for about a third of the pensions budget. That substantial amount of expenditure has meant that benefits for full career servers and their dependants were depressed well below the benchmark and modern good practice.
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The Ministry of Defence proposes to change from the immediate pension scheme to the early departure scheme for three principal reasons. First, it will improve the benefits for full career servers and their dependants in the overall cost-neutral constraint that applies to the Bill. Secondly, it will comply with Green Paper proposals on the wider subject of pensions, which will make it illegal to pay a pension to someone who has not reached the age of 55. Thirdly, it will remove the inequities between officers and other ranks that are inherent in the immediate pension scheme and are caused by different accrual rates for qualifying periods.
Both the immediate pension and the early departure schemes were and are designed as manpower control tools to improve retention. That is a matter for principal personnel officers and is not pensions business, but the efficacy of the proposed early departure scheme as a manpower control tool is speculative. We simply cannot judge its effectiveness today. We know the current effect of the immediate pension scheme on retention and, to a lesser extent, recruitment. However, the proposal contains an element of leaping in the dark. The early departure scheme will be used for manning control and we shall not know for probably 20 years whether it will prove efficacious in Ministry terms in retaining the skills that we need to keep.
4 pm
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