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Angus Robertson: The Government are not taking a leap in the dark when we consider the examples that the Ministry of Defence has worked through to compare the early departure scheme payments with the immediate pension scheme payments. Under the new scheme, the amounts are halved per annum. That is the effective difference for all ranks. Does the hon. Gentleman believe that that will make the new scheme more attractive to those who are currently serving? Will they wish to change to a scheme that will mean the effective halving of their annual income?
Mr. Howarth: The hon. Gentleman makes a good point. He is right that the new scheme puts especially those who leave early at a disadvantage. As the Under-Secretary said earlier, those who are currently serving and remain in service on 6 April next year will have to decide for which scheme to opt. They must determine whether to choose the new scheme and substantially reduced benefits. They will have to trade that against, for example, the welcome salary multiplied by four for death in service under the new scheme. Again, that is equivalent only to the provision that the House makes for its Members and therefore, although it is welcome, it is not exceptional.
As I said in Committee, I envisage some difficult conversations in military households throughout the land, especially when Her Majesty's armed forces are called on to undertake war-fighting operations or dangerous peacekeeping operations. There will be pressure on soldiers from wives who say, "If you are killed and you stay in this scheme, I get one and a half times your salary, but if you opt for the new scheme and you are killed, at least the children and I will get four times your salary." Against the current background, that will be a compelling argument because it is relevant today, but not perhaps in 15 years, when the person becomes entitled to an early departure scheme payment.
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The hon. Member for Moray (Angus Robertson) is right. A staff sergeant who leaves the service at the age of 40 on a pensionable salary of £30,820 will get a lump sum of nearly £30,000 under either scheme, but his annual pension will effectively be halved. His early departure payment at the age of 55, uprated for inflation, would be about a quarter or a third less than he would receive under the immediate pension arrangements. The overall saving to the Government that has been calculated in that case would be about £57,000. Equally, it has to be said that if that same staff sergeant retired at the age of 54—which is much less likely, as they tend not to stay on that long—there would be a cost to the Government of £56,000. Given the present profile of service, however, it is much more likely that the Government will save money.
I do not wish to labour these issues, because they were extensively debated in Committee, but concerns have been raised in the Defence Committee about the early departure scheme. We can see the purpose of it. It is true that it will deliver £100 million a year in savings to the Ministry of Defence, which could be redeployed elsewhere, but it will disadvantage some of those who are currently serving and will be serving. The issue will cause considerable grief in households up and down the land, and the least that the Minister can do is to ensure that the scheme is put in the Bill. I look forward to hearing his comments when he winds up this debate.
Rachel Squire: I welcome the details that the Government have provided on the early departure scheme since the Select Committee produced its report and since our Second Reading debate. I was not on the Standing Committee, so I would like to take this opportunity to ask the Minister a couple of brief questions. First, given that the early departure scheme will not attract index linking to inflation, how does the Ministry plan to deal with the fact that the real value of the scheme will apparently decrease over time? Secondly, what consideration has been given to the possibility of payments to personnel differing substantially over time in the early departure scheme, possibly leading to grievances and disputes between personnel who find themselves receiving very different payments?
Mr. Breed: I should like to make a couple of points in support of the two previous speakers. I just do not believe that it is beyond the wit of the MOD to address the full career pension issue. The current concerns seem totally disproportionate to the likely cost involved. If the Government could address some of the issues that are engendering criticism and objections without it costing them a significant amount within their total budgetary constraints, I hope that even at this late stage they will consider doing so, and give us an indication accordingly. The percentage difference is relatively small, and the measures seem likely to apply to so few people that the issue ought not to be such a running sore for some.
Secondly, in relation to the early departure scheme, I want to mention the issue of erosion over a period of time. Thankfully, we live in low-inflationary times. I pay tribute to the Government for that—it is very welcome
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indeed, notwithstanding the slight interest rate rise earlier today—but many of us are beginning to grow used to it. However, we are discussing schemes that will have effect long into the future—who knows what will happen then?
We do not want to make the mistake, which was made in the past, of producing a so-called pension trough. It appears to me that we held back during a period of high inflation and wage restraint, so we have had the trough going forward. That subject has been debated. Without any index linking and without a clear indication of how the Government would address that particular potential problem, the early departure scheme runs the risk of experiencing exactly the same difficulty in a few years. If we are to learn from the past, perhaps we should envisage that the pension trough issue will arise again if we go into a period of high inflation, and undergo some pay policy restraint. We must face up to the issue, even if it is not totally apparent in today's inflationary climate.
Angus Robertson: I want to make a brief contribution on a subject that I raised in an intervention, which involves the early departure scheme and, in particular, how it might impact on communities that are perhaps viewed as more peripheral and which have a low-wage economy. Some of those communities also have a significant military footprint, which is certainly the case in my constituency, where a third of all service personnel north of the border are stationed.
The early departure scheme is not an academic exercise. It is a real, important issue affecting the income of many people, particularly in lower ranks, when they make decisions on their future and where they see themselves and their families living. The hon. Member for Aldershot (Mr. Howarth) is right that many people will have to make a difficult decision on whether to remain in the current scheme or to transfer to the new one.
Politicians are often accused of not having a particularly long-term view. I want to try to break that mould in a small way in addressing this scheme and how it may impact in 10, 20 or even 30 years' time. That is what we must do in considering the issue. I want to paint a theoretical picture, although I would be grateful if the Minister confounded me and reassured me that my fears are misplaced.
According to some trade union estimates, the area that I represent—Moray—has the lowest average wages in Scotland, although central Scotland has areas of significant poverty and low wages. It is also a fact that many hundreds, if not thousands, of service personnel take early retirement at an age when they can still enjoy a second career. They do so with great happiness. Moray is a tremendously beautiful part of the country with a high quality of life and there are job opportunities, but, because of the nature of the market, those jobs are not particularly well paid.
One reason for many of those service personnel being able to remain in the community to which, often, they have moved from elsewhere in Scotland or down south is that they have a cushion that is provided through the immediate pension scheme. I am concerned that, if those who enter the service or choose to go into the early departure scheme see that annual payment effectively halved, a significant number might choose not to remain.
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The House should remember that I am painting a picture of what things may be like in 10, 20 or 30 years' time. The population projection for my constituency is a decline of up to 38 per cent. by 2018, so the potential double-whammy of significant population decline and economic disincentive caused by the new scheme will not help the area.
I have raised the issue with the Minister, and he has signalled an interest in and understanding of the question. I am keen for him to signal that he understands that there may be a significant impact on communities in Scotland, and I imagine that that is the case not only in Moray but in Fife and around the Clyde. Is he confident that the new early departure scheme arrangements will not have a negative impact on the number of retiring personnel who wish to stay on and contribute in an important way to local economies, such as those in Moray, Fife, the Clyde or elsewhere in the UK?
4.15 pm
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