Examination of Witnesses (Questions 40-59)
MR IVOR
CAPLIN AND
MR JONATHAN
IREMONGER
5 NOVEMBER 2003
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 retrospection—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 retrospection
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% 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
accrued rights to a preserved pension. It will only affect their
future rights as from a future date. 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% 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 10%, 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
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 immediate 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 are 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 three 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.
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