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Mr. Mark Francois (Rayleigh) (Con): I want to make two brief points in this debate. I should declare an interest, as I am the president of the Rayleigh branch of the Royal British Legion—and proud to be so—and I am in the process of applying to become an associate member of the Rayleigh branch of the Royal Naval Association, which is based in part on the fact that my father, Reginald Francois, served in the Royal Navy in the second world war.
I wish to address my remarks mainly to new clause 4. First, I want to follow up the point made by my hon. Friend the Member for Aldershot (Mr. Howarth) about the comparison with the pension scheme that Members of the House enjoy. I am pleased that the Ministry of Defence has decided to match the four times death-in-service benefit, which I am sure will be popular among service personnel and their families, and it is appropriate that there is now equanimity between the benefit that we enjoy and the benefit that those who are prepared to fight on behalf of our country will enjoy.
It is important to remember that, relative to the MOD's scheme, our pension scheme is contributory, which is not always brought out when it is reported in the press. Members who chose the option of fortieths will now be paying 9 per cent. of their gross salary, so it is a fair comment that we are chipping in from our salaries under our scheme. I entirely understand why those in the services, who are very sensitive to changes in their pension arrangements, for reasons to which I will refer in a moment, would look with understandable scrutiny at our scheme, and perhaps would not be slow in making comparisons with any changes that relate to them. If I were a serviceman, I would be doing exactly the same, and it is right that we in the House should acknowledge that understandable desire to match in some respects what we have.
That leads on to my second point, which I have raised previously in the House in other contexts: the importance of retention in the armed forces. Arguably, people in this day and age are much more sensitive to pensions and changes in pensions than perhaps they were 10 or 20 years ago. The pensions market and the structure of pensions have changed a great deal in that time. There has been the business of Equitable Life and
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other problems in the pensions industry, which I will not rehearse again this afternoon. Suffice it to say that, because of a number of those changes and events, people now pay much closer scrutiny to their future pension than they might have done two decades ago, and that affects their career planning. In the context of this debate, that also firmly affects the decisions that they and their families make about whether, as they approach middle age, they retain their post in the armed forces or move on to seek an alternative career. Ministers must therefore be careful before they change any of the arrangements, as they may start to see a knock-on effect on retention if they get some of the issues wrong.
My hon. Friend the Member for Aldershot dealt very well with the technicality of that, and the hon. Member for Moray (Angus Robertson) made a thoughtful contribution about how such things play out over the long term. I remind the Minister that although recruitment figures for the armed forces remain healthy, almost as many people are leaving at the moment as are joining. The key is the net figure and the overall ability to retain skilled and experienced personnel. That is even more important, because no matter how enthusiastic the recruits, they cannot, at least in the first few years, make up for the experience that the armed forces lose when an experienced non-commissioned officer, such as a colour sergeant in the infantry or a staff sergeant, decides to leave the Army. We face the danger of a gradual hollowing out of our armed forces as more and more experienced personnel leave and are replaced by recruits without experience. That is a worrying trend over the long term, and Ministers must deal with it if they are to be consistent. As I have said, I have raised the point before.
The future pensions of servicemen and women are becoming increasingly important to their calculations and their decisions on whether to stay or go. I issue a plea to the Minister, as others have done: the Government must think very carefully before making any long-term changes. They must be very mindful of the likely effect of such changes on the retention of experienced key personnel. After all, it takes a great deal of time and money to train them. The Government must be extremely careful in everything they do that affects service pensions, because it will begin a knock-on process that may prove very difficult to reverse if Ministers get it wrong.
Mr. Caplin: I welcomed the speeches of the hon. Members for Moray (Angus Robertson) and for Rayleigh (Mr. Francois). Perhaps the hon. Member for Moray and I could discuss his points in more detail outside the Chamber. I found them especially pertinent, given my ministerial responsibility for veterans. As for the hon. Member for Rayleigh, I was particularly interested in what he said about recruitment and retention. As he and his hon. Friends know, I pay close attention to those issues. The 20,000 people who leave each year become veterans, and it is important for us to look after their interests as well.
Angus Robertson:
I appreciate the Minister's invitation to discuss with him the issues that I raised. May I now ask him to put something on record? Does he believe that the new early departure scheme will not
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have a negative impact on the number of retiring personnel who wish to stay on and contribute, in an important way, to low-wage economies, often in peripheral areas?
Mr. Caplin: I understand the point that the hon. Gentleman is making—we have touched on it briefly before—but I have done no detailed work on it. That is why I suggested that we discuss it at some point in the future.
My hon. Friend the Member for Dunfermline, West (Rachel Squire) mentioned index-linking. We have adopted the same approach to the early departure plan as we currently apply to the immediate pension. It is not index-linked, but it will be once a person reaches the age of 55, which seems to us appropriate. My hon. Friend will recall that at one stage there was a slight error on the MOD website; we corrected it in response to the Select Committee's report.
As for my hon. Friend's second point, I do not expect any major changes in early departure plans. As currently happens with the immediate pension, people will sign on for the terms offered to them at the time. I do not envisage any small changes in those terms.
The 66.67 per cent. of final salary mentioned in new clause 4 will obviously have a cost implication, of which I am sure the hon. Member for Aldershot (Mr. Howarth) is aware. Under the Bill, personnel who serve until the normal retirement age of 55 and have served for 35 years under the new pension scheme will receive pension benefits comparable with those available under the current scheme, which will be paid much earlier than those in most other schemes. As the hon. Member for Rayleigh pointed out, dependants' benefits will be significantly improved. Personnel who wish to improve their pension benefits further will have the opportunity, as they do now, to purchase additional voluntary contributions. The extended accrual period of 40 years will provide sufficient headroom for them to receive benefits up to the current Inland Revenue limits should they wish to do so.
The new scheme has been designed to be equitable, treating officers and other ranks in the same way with a common, even accrual rate. The Select Committee's report applauded us for that. The new clause would benefit only a limited number of personnel who serve a full career, as the majority will have left before the new early departure point—18 years' service, at a minimum age of 40. I feel that it is therefore counter to equality of treatment.
I shall also deal briefly with new clause 5, and I do not think that the hon. Member for Aldershot will be at all surprised by my response. I do not know how many times he has heard this argument, but I do not propose to accept the new clause for the reasons that I outlined on Second Reading and in Standing Committee. Such details should not, in my and the Government's view, be included in primary legislation.
As the hon. Gentleman rightly acknowledged, I gave the Standing Committee two detailed notes on the early departure plan and put copies in the Library. He was kind enough to say in Committee that they were "clearly written" and "relatively easy to understand". I take that
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as a compliment for a Ministry of Defence document of that type. The documents will form the basis of the separate statutory instrument setting out the scheme rules. However, it is important that I point out that the early departure plan is not part of the new pension scheme, as the benefits paid under it are not pension benefits.
I have no particular difficulty with some of the separate points made in new clause 5. Indeed, the first three subsections simply repeat details that were set out in the notes that I published previously. The only new point is in subsection 4, which seeks to embrace the early departure plan within the scope of the independent, external validation review of the new pension scheme that we debated earlier.
As I have just said, EDP benefits are not pension benefits, and that is a large part of their attraction to our armed forces. They have allowed us to develop more flexible arrangements that, I hope, will better meet the needs of our service personnel while providing the savings to fund significant improvements to widows' benefits and to help offset the rising cost of longevity. However, I want to make it clear that we plan for the AFPRB to look at the level and broad design of the EDP within its quinquennial review and as part of its broad remit with respect to remuneration.
I do not intend to accept the new clauses, but I hope that what I have said reassures the House. Perhaps we can move on.
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