House of Commons - Defence

Select Committee on Defence First Report

3 Differences from consultation proposals

32. As we have seen, the Government has continued to insist that the new schemes should cost no more than the existing schemes. Nonetheless, within these confines, the Government has taken on board a number of the criticisms made of its original proposals, and the changes that it has made are largely welcome.

DEPENDANTS' BENEFITS

33. Dependants' (widow(er)s' and partners') pension benefits have been increased from 25 per cent, as originally proposed, to a maximum of one third of pensionable pay; while death-in-service lump sum benefits to dependants have been increased from three times pensionable pay, as originally proposed, to four times pensionable pay, an enormous improvement on the current scheme which pays only 1.5 times salary.[54] Although this is generous, it is a little less so than it may appear, as the short-term pension (3 to 9 months' continuing pay at full rate) will no longer be paid. The Forces' Pension Society regards the changes to death-in-service lump-sum benefits as taking "this aspect close to the top of the Public Sector league table which, given the service person's unique commitment, is exactly where it should be", and the first change as "a significant improvement". The Society is "generally pleased to see that improvements to the scheme have been focused on the benefits earned by long servers and on dependants".[55] We too welcome the MoD's decision to improve provision for dependants, particularly where personnel have died in service, given the unique commitment that these personnel make to the service of their country.

UNMARRIED PARTNERS' BENEFITS

34. The original scheme proposals made no provision for unmarried partners, although the MoD acknowledged as early as November 2001 that it would "need to look again" at its position on the matter.[56] In our previous report, we described the issue as "one which the Armed Forces can no longer ignore" and we said that we expected "to see appropriate provision" in the MoD's final proposals.[57]

35. The recent war in Iraq has forced the Government's hand on the issue. On 20 March 2003, the Government announced that from that date benefits would be paid to unmarried partners where death related to conflict. On 15 September, the Government broadened the scope of these benefits to unmarried partners where death is attributable to service, with immediate effect.

36. The schemes as announced include "an extension of dependants' benefits to unmarried partners where there is a substantial relationship", including where death is not attributable to service, with effect from April 2005.[58] As the Minister explained, this extension fits with the Government's commitment to an equality agenda.[59] For personnel in the existing scheme, unmarried partners will only be entitled to benefits where death is attributable to service.

37. As we noted in 2002,

The extension of benefits to unmarried partners, unlike other improvements, has not required any reduction in other benefits available under the scheme. Even though the majority of Armed Forces personnel are male, and the majority of spouses are female, the gap between male and female life expectancy is expected to shrink.[61] The cost of traditional spouses' benefits will therefore decrease, as they will generally be claimed later and for less time.

38. The range of unmarried partners who will qualify for benefits needs to be clearly defined. According to the framework document for the pension scheme "registered unmarried partners are … eligible to receive a widow/widower's pension subject to the relationship being substantial at the time of death",[62] while according to a question and answer brief on the MoD's website, "benefits will be extended to registered unmarried partners (both heterosexual and same sex partners) who can demonstrate they are in a substantial relationship including financial inter-dependency".[63]

39. We sought further clarification on this from the Minister. His evidence, however, left us in some confusion. We were told that "probably we do not have a clear definition", and that "I am including everyone in that category".[64] Given that benefits have been payable to some unmarried partners since March 2003, and that the cost of extending benefits has been provisionally assessed at £16 million,[65] the Minister's answers surprised us.

40. A written submission from the MoD has clarified matters. A provisional set of criteria was indeed agreed in March 2003, closely reflecting the guidelines for the Civil Service scheme. These have since been refined and promulgated. They do not require a set list of criteria to be met, but set out a range of indicative criteria, with a broad judgement to be made against the evidence submitted. The two basic criteria are that a relationship must be substantial and established, and that it must be exclusive.[66]

41. It is essential that the schemes should be as clear as possible about when unmarried partners will qualify for benefits, both to avoid bad feeling among non-qualifying partners, and to avoid potentially expensive legal action. We welcome the fact that criteria have been developed against which to assess whether a substantial and exclusive relationship exists between unmarried partners, which would entitle them to benefits.

42. The Queen's Speech on 26 November 2003 announced impending "legislation on the registration of civil partnerships between same sex couples", although not of partnerships outside marriage between heterosexual couples.[67] It is unclear whether this has been factored into the MoD's proposals for unmarried partners' benefits, and also whether this might have an effect on the provision of other benefits (outside the scope of this inquiry), such as service families' accommodation.

43. The Forces' Pension Society notes that "the announcement that unmarried partners under the new scheme will in future receive the same benefits as married couples has provoked a backlash amongst the victims of the traditional legacy issues. They feel alienated, neglected and discriminated against with every justification."[68] One of the necessary but unfortunate side-effects of improving benefits for the future is that those who remain entitled to the lower level of benefits available under past and existing arrangements will see themselves as having lost out. We consider legacy issues later in this Report.[69]

How these improvements will be funded

44. As already noted, because of its commitment to 'cost neutrality', the MoD is only able to improve aspects of the schemes by removing value from other benefits. The benefit which seems likely to bear the brunt of these cuts is the Immediate Pension, which under the proposals is to be replaced by an Early Departure Scheme.

EARLY DEPARTURE SCHEME

45. As we noted in our previous report, the Armed Forces are unique in the way in which they use Immediate Pensions as a man management tool, to encourage trained personnel to remain in the Services. Immediate Pensions are currently paid to officers who delay leaving the Services until age 38 (or after 16 years' service, whichever is later) and to other ranks at age 40 (or after 22 years' service). Under the proposed new scheme, Early Departure payments will be made to all personnel who delay leaving the Services until age 40 (or after 18 years' service).

46. In practice, service manning patterns are complex and, of those leaving the Services each year, fewer than 20 per cent do so at their Immediate Pension Point. Of all personnel leaving the Armed Forces in 2001, 72 per cent (13,483) left before the immediate pension point. Of officers leaving the Army in 2001, 56 per cent (513) left before the immediate pension point; of other ranks leaving the Army in 2001, 82 per cent (8,002) left before the immediate pension point. The RAF, with its different manning requirements present rather a different picture: of officers leaving the RAF in 2001, 34 per cent (217) left before the immediate pension point; of other ranks leaving the RAF in 2001, 59 per cent (1,969) left before the immediate pension point.

47. Immediate Pension payments constitute about one third of the total cost of all payments under the existing pension scheme.[70] The MoD told us in March 2002 that while Immediate Pensions were being re-examined as part of the review, "no detailed descriptions of options, costings or estimates of the different impact on retention" were available.[71] It is striking that in November 2003, more than 18 months later, the Minister told us that work on illustrative models for the Early Departure Scheme were still "not yet done",[72] and was not expected to be available until 2004.[73] Watson Wyatt, a firm of actuaries and consultants commissioned by the Government to produce a report on the proposed pension scheme, confirm that "details of this Early Departure package have not yet been finalised".[74]

48. The Government's pension policy more generally has had an impact on the MoD's plans, as explained by Watson Wyatt:

49. But the solution to this problem seems to be relatively straightforward: the Immediate Pension is to be abolished, and will be replaced by an Early Departure package "providing an immediate lump sum and a stream of income … payable from outside the pension arrangement".[76] The flexibility of payments made outside the pension arrangement seems to have encouraged the MoD to explore with the single services more imaginative options for how Early Departure payments might be structured. While this is to be welcomed, we are disappointed that details of the new Early Departure scheme are not yet available to inform Parliament in its consideration of the primary legislation now before it.

50. Watson Wyatt reveals that the Early Departure scheme "will be designed to provide a benefit which is overall lower in value than the Immediate Pension".[77] We sought to discover in evidence how much value the Early Departure scheme would lose, compared to the current Immediate Pension. One complicating factor is that the change to the preserved pension age means that Early Departure payments will be payable until age 65, as opposed to age 60.[78] While we had no clear answer during our evidence session, once again, subsequent written clarification has been useful and informative:

In cash terms, it is intended that the Early Departure scheme will cost about £100 million (or two percentage points of pensionable pay) less annually than Immediate Pensions currently cost.[80]

51. The Pensions Review document of March 2001 concluded that to alter the Immediate Pension substantially "would place manpower planning at risk".[81] Evidently, the MoD has rethought its position. It believes that today's personnel have less need for this benefit than their predecessors, with "longer expectation of life … accompanied by an improved fitness to work for longer" along with "much better transferable skills for achieving a successful second career than their counterparts in 1973, when the current scheme was designed".[82] On the face of it this seems to be a sound argument; but we have not seen any evidence which specifically supports it.

52. The Immediate Pension also no longer seems to be fulfilling its role as a manning tool. We heard in evidence that

This is a difficult balance to strike. If the MoD removes too much value from the Immediate Pension, its ability to retain expert personnel will be adversely affected, to the detriment of the Armed Forces as a whole.

53. We noted in 2002 that the Immediate Pension is "an expensive element of the pension scheme", accounting for 30 per cent of the total scheme costs,[84] and that it has a "distorting effect".[85] We noted also that only a limited number of personnel enjoy the benefits of the Immediate Pension,[86] but that all contribute towards it through the abatement of 7 per cent which the Armed Forces Pay Review Body includes in its calculations of appropriate levels of service pay. Given that the MoD is operating within the self-imposed constraint of 'cost neutrality', we agree that the Immediate Pension was the appropriate benefit to cut in order to fund improvements to benefits elsewhere in the pension scheme.

Removal of early departure payments from the pension scheme

54. We have no problem with the decision, forced on the MoD, to take early departure payments outside the pension scheme. Indeed, in 2002 we recommended that the MoD should "examine options for removing Immediate Pensions from the Armed Forces Pension Scheme and operating them as a separate component of Service pay",[87] noting that this would "give the three Services greater flexibility to vary the timing and structure of payments to allow each Service to tailor its terms and conditions to its needs and to adapt to changing circumstances".[88]

55. The MoD seems to be taking such ideas on board. We heard in evidence of a proposal for a "discrete group" of Armed Forces personnel to be paid "bonuses to the same value as the Early Departure payment … to draw them on through their career".[89] For employees whose job prospects outside the armed services are likely to be good, this sort of approach seems sensible. But it is important not merely to regard Early Departure payments as a manning tool, but also to recognise that for some personnel, employment prospects on leaving the armed services are less rosy. One of the purposes of the Immediate Pension has been to compensate service personnel for their reduced employment prospects outside the Armed Forces. The Minister told us that approximately ten per cent of former service personnel do not go on to well-paid employment when they leave the Armed Forces.[90] As we noted in 2002,

Taking early departure payments out of the pension scheme could be a blessing in disguise for the MoD, by allowing it to use the money more flexibly. The Government, however, needs to ensure that Early Departure payments are targeted not only to help the Armed Forces retain skilled personnel who would otherwise leave, but also to support former personnel who are in most need of such payments.

56. The current Immediate Pension is not uprated for inflation until age 55, but at this point and thereafter it is index-linked. The Government does not propose to protect Early Departure payments from inflationary price rises at all—a step that it would not be able to take if these payments were to remain within the pension scheme. On its website, the MoD remarks that

This is a crucial change, of which we have not been directly informed and which has not been included in the more prominent announcements relating to the consultation. It is a potential source of substantial cost savings to the MoD. It is a hidden cut in benefits, because it allows the MoD to reduce the value of early departure payments over time without actually reducing the headline figure they pay. The Government should be more explicit about its intention not to protect early departure payments from inflation, the savings that they expect to make from this, and the likely effect on payments to personnel.

57. It is also an unpredictable step, because the exact outcome, both for the MoD and for personnel, depends on the rate of inflation. But even with a relatively low annual rate of inflation of 3 per cent, the real value of a level of payment at age 40 will have halved by the time a preserved pension can be drawn at 65. If not protected from inflation, the real value of a fixed rate early departure payment is likely to decrease substantially over time.

58. The Government has taken welcome steps to limit the recurrence of the 'pension trough' phenomenon, whereby the pensions of personnel were devalued by pay restraint in times of high inflation. However, the proposals for early departure payments are likely to have a similar 'trough' effect. A member of the Armed Forces leaving just before a period of high inflation will see the real value of his early departure payments substantially devalued over a short period of time, whereas another person leaving at the top of an inflation curve will receive a higher real value of early departure payment over a longer period of time. If early departure payments are not protected from inflation, the real value of these payments over time to personnel leaving at different points is likely to differ substantially, as the rate of inflation varies. This may well lead to future grievances.

59. A very real objection to the Government's proposal is that it is likely (barring a period of deflation) that the value of early departure payments will decrease in real terms as former personnel grow older and become less able to pursue a second career. The MoD has told us that it wants to "focus" early departure payments "on the periods of greatest vulnerability after leaving the Services",[93] and that the lack of indexation in the current scheme between the ages of 40 and 55 is "counter-intuitive because somebody who gets to 55 is likely to be more in need of a pension than they are at 40".[94] The total lack of indexation of the early departure payment would seem to be more counter-intuitive still, using the MoD's own rationale.

60. We understand that the MoD does in fact propose to raise the level of early departure payment later in life, but not by as much as if the payment were index-linked. In other words, the payment is likely to decline in value between the ages of 40 and, say, 55, and then to increase slightly at 55, but not to the same level as at age 40. The proposal would almost certainly result in former service personnel being paid more in real terms at the age of 41 than at the age of 64. This would seem to be in conflict with the likely needs of former personnel at those ages. It would be most unfortunate if those former personnel who rely on Early Departure payments for a basic standard of living were to see the value of those payments decrease in real terms as they grow older and become less able to pursue a second career.

Treatment of officers and other ranks

61. One of the positive aspects of the proposed changes is that benefit entitlements for officers and other ranks are to be calculated on the same basis. On the existing scheme, officers accrue a full pension on 34 years' service, other ranks on 37 years' service. This is to be evened out to 35 years' service for all ranks. Officers have also been entitled to receive Immediate Pensions earlier than other ranks, after 16 rather than 22 years' service for other ranks. Early Departure payments will be made after 18 years' service for all ranks.

62. Officers will continue to benefit from higher salaries, and therefore higher pensions, than other ranks, and also from the fact that officers on average serve for longer than other ranks, and therefore accrue higher pensions in this way as well. All ranks will benefit from the fact that under the new pension scheme, they will begin to accrue their pension entitlement from the actual date of enlistment, rather than, as at present, from age 21 for officers, and age 18 for other ranks. We welcome the fact that the MoD has taken the opportunity to ensure that all ranks are treated equally under the new schemes.

63. Many of the improved benefits within the schemes will also principally benefit other ranks. As was explained to us in evidence,

We have taken … money and given it to widows who, in large number, will come from the other ranks. Death in service benefit, ditto. If you look at the recent war, the majority of those who have been killed have been other ranks. We are taking money … and giving it much more widely, particularly to widows and their dependants but also to unmarried partners. A lot of the unmarried partners are among other ranks as well.[

Similarly, compensation payments for serious injuries are to be increased under the new scheme, and other ranks are likely to benefit from this change more than officers.

64. We note, however, that all of these examples will only benefit other ranks, or more often their dependants, where they die or are seriously injured. The increase in the preserved pension age, on the other hand, will have a negative affect on surviving members of other ranks (the vast majority, we trust) to a greater extent than on officers, because by far the majority of those who serve to the retirement age of 55 are officers.

Compensation proposals

65. While changes to the proposed pension scheme since 2002 are relatively far-reaching, the new compensation scheme continues to look much as it did in 2002. We welcome the fact that some of the safeguards within the compensation scheme have been strengthened: proposals for an independent appeals process have been set out; and the time limits for claims have been extended from 3 to 5 years, with exceptions for late onset conditions.[96] Some of the bones of the scheme have been fleshed out: it will be delivered by the Veterans' Agency; and tariff bands for various forms of injury have been suggested.[97] But our essential concerns about the structure of the compensation scheme have not been addressed.

STANDARD AND BURDEN OF PROOF

66. One of the main objections to the proposals continues to be the change in the standard and burden of proof for claims under the scheme. Under the existing scheme, it is for the Secretary of State to show beyond reasonable doubt that service has not played a part in causing or worsening the condition for which a claim is made. Under the proposals, the standard of proof is changed to a 'balance of probabilities', with the onus on the claimant to make his case. The Royal British Legion claims that this is a cost-saving exercise, which will make it harder for claims to succeed, and which at least initially will not even save any costs (as most claims will continue to be under the old scheme):

To introduce a burden of proof based upon the balance of probabilities is likely to be very divisive as the majority of acceptable claims will be from the pre 2005 ex service population under the rules for the War Pension Scheme with the conditions post 2005 being far more restrictive.[

67. The aim of the change, according to the Government, is to bring the compensation scheme into line with "civil law and common practice", and "reflects modern practice".[99]

68. We argued in 2002 that trying "to emulate the civil claims system for calculating awards" amounted to "forcing the compensation arrangements into a format which clearly does not work" in order to "reduce the number of civil negligence cases brought against [the MoD] by Service personnel".[100] The MoD told us in reply that "the adoption of balance of probabilities standard of proof … will not be obstacles to those entitled to compensation".[101]

69. The essential difference between the armed services and almost all other employment is that Armed Forces personnel can be asked to put themselves in harm's way, indeed to die for their country. This makes compensation for injury a rather different issue for the Armed Forces than for civilians. Armed Forces personnel can be required to submit in circumstances of some urgency to unusual medical precautions—combinations of vaccines, for example—and to experience unusual situations both on the battlefield and off. It may not be entirely clear either during or after the event what those precautions and situations involved, let alone what their consequences might be for the health of personnel, even given the ever-advancing state of modern medical knowledge. Veterans who attribute their illnesses to service during the first Gulf War would have been less likely to succeed in their claims for compensation using a balance of probabilities standard of proof for precisely these reasons. Because of the special risks that Armed Forces personnel are required to run, and because they are likely to be involved in situations of great uncertainty, with uncertain effects on their health, we continue to believe that the onus should remain on the Government to prove that service was not responsible for causing or worsening a condition for which a compensation claim is made.

70. The issue is as much about the burden of proof as the standard of proof. Personnel might be discouraged from making compensation claims by the hurdle of having to present their own case. There are also concerns, which we discuss below, about the records on which they would have to base this case. If the Government continues to insist on applying a 'balance of probabilities' standard of proof, a possible solution might be to apply a double test to compensation cases to ensure that the burden of proof does not unfairly discriminate against service personnel. Under such a system, a claim for compensation would only fail where both: (a) the claimant is unable to prove on the balance of probabilities that a condition is due to service, and (b) the MoD is able to prove on the same standard of proof that the condition is not due to service. We have not assessed how this proposal would be implemented in practice, but believe that the MoD should seriously consider it in the light of the special circumstances of Armed Forces personnel.

Military records

71. Armed Forces personnel are also put in an unusual position by the fact that their medical records are in the hands of the employer against whom any claim for compensation will be made. There is no doubt about military doctors' honesty, but it is wrong in principle that they should be put in the position of creating the documents on which compensation claims will be based while at the same time relying for employment on the very employer against whom those compensation claims will be made.

72. Moreover, as the Minister himself has acknowledged, the MoD's history of medical record-keeping is less than perfect.[102] We explored in 2002 issues regarding the accuracy and completeness of military medical records,[103] and we raised these issues again with the Minister during this inquiry.[104] The MoD has provided us with information on the "fundamental improvements" to medical record keeping in the forces that have occurred since the Gulf War of 1991, improvements which we welcome.[105] However, it would clearly be unfair to refuse a claim because the medical records needed to support that claim were inadequate or incomplete. We therefore welcome the Minister's undertaking that "if for some reason medical records are not available but otherwise it appears likely that a claim is reasonable and fair, then an award would be made".[106] The Government should ensure that the compensation scheme rules set out clearly how a claim will be handled where medical records are inadequate or incomplete. It would be unfair, as the Government has acknowledged, if claimants were unable to make a successful claim because of the inadequacy of the records held by their employer.

FOCUS ON THE SEVERELY DISABLED

73. The written Ministerial statement of 15 September 2003 noted that the new compensation scheme would have "more focus on the more severely disabled", and that it would provide new lump-sum payments for pain and suffering, including to those who remain in service, with a Guaranteed Income Stream (GIS) for those who suffer significant loss of earnings capacity.[107] We welcome these basic aims, which seem both sensible and just.

TARIFF BANDS FOR COMPENSATION PAYMENTS

74. In practice, however, the way in which payments will be determined risks being unhelpfully mechanistic.

75. The framework document for the compensation scheme proposes a tariff-based lump sum payment to compensate for pain and suffering, along the lines of the Criminal Injuries Compensation Scheme, with awards banded at 15 levels. Levels of payments in the exemplary tariff set out as an annex to the framework document range from £287,500 for conditions such as "extremely severe brain/spinal cord injury", down to £1,050 for "minor permanent scarring of the face" and rib fractures.[108]

76. The MoD has said that the aim of the new system was simplicity for claimants; and that the Judicial Studies Board (JSB) Guidelines for the assessment of general damages in personal injury cases were used in drawing up the tariff.[109] The JSB Guidelines classify injuries within broad brackets of awards; judges and parties to claims may also draw on awards made in previous cases, in deciding on final amounts in specific cases. They are explicitly only guidelines, and not intended to be prescriptive.

77. Service personnel who fall within levels 1-11 of the proposed tariff will receive a sum to cover potential loss of earnings, in addition to the lump sum for pain and suffering which they will receive under the tariff system. This will also be calculated as a lump sum but will be paid in instalments for life, as a Guaranteed Income Stream (GIS). The rationale behind this was explained to us in evidence:

110

It is by no means clear that the system as proposed matches this "basic premise".

78. Personnel suffering injuries at tariff levels 1 to 11 will receive from 100 per cent down to 30 per cent of their salary in basic GIS. Personnel with an injury assessed at tariff level 12 will receive no GIS at all. The cut-offs between the tariff levels seem designed more for the sake of administrative simplicity than logic.

79. The upper tariffs are relatively straightforward: it is obvious that someone suffering from serious brain or spinal cord injury, or who has lost both legs or arms, will deserve a high level of compensation for loss of earnings. However, the middle and lower tariffs are more problematic.

80. Personnel suffering injuries at tariff level 8 will receive a basic GIS of 50 per cent of their salary. But this tariff band includes injuries such as "severe burns to face", which will by no means necessarily have a major affect on future earnings, and "loss of sight of one eye", which might have a serious effect on the employment prospects of many personnel, but by no means on all. Tariff level 11 includes injuries such as "serious scarring face" and fractured ankles with full recovery—while deserving of some form of compensation, this kind of injury need not lead to loss of earnings. Tariff level 12 includes injuries such as "two frozen shoulders—continuing significant disability". It is unlikely that personnel suffering such an injury would be able to remain in the Armed Forces, or would be able to find manual labour elsewhere. Likewise "disabling mental illness lasting 2 to 5 years", also in tariff 12, might be thought to have a significant effect on someone's job prospects. As they are currently drawn, the boundaries in the new compensation scheme between injuries leading to compensation for loss of earnings, and injuries leading to no such compensation, seem illogical.

81. We have been told by the MoD that the tariff boundaries as currently set out are not final, and that certain injuries and disabilities may be moved from one tariff band to another.[111] But a system of assigning tariffs to injuries, while it may be a useful guide, cannot be fair if it is applied mechanistically. Employment in the Armed Forces covers a wide range of occupational groups and the impact of any one type of disablement on civilian employment prospects will vary widely from one individual to another. This was implicitly acknowledged in the evidence we heard:

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However, the conclusion reached by the MoD, that such a person is nonetheless "perfectly capable of going outside and getting a job outside which pays a full salary" is rather surprising.

82. If someone is trained as a pilot, and has served for ten years as a pilot, it surely follows that his most obvious employment prospect outside service would be as a pilot; it might be rather more difficult for him to obtain employment in another field. In such a case a relatively minor sight injury might be thought deserving of compensation over and above a lump sum for pain and suffering. An injury impairing physical strength or the ability to lift heavy objects might impair the employment prospects of many Armed Forces personnel, but perhaps not those of a telecommunications engineer, for example. The Judicial Studies Board tariff guidelines are precisely that—guidelines. They were never intended for mechanistic application, as the publication in which they are contained makes clear.[113] The system of tariffs as proposed fails to take account of the fact that similar injuries will affect the employment prospects of different personnel in different ways (and indeed, may cause radically different levels of pain and suffering to different people). This will continue to be the case, no matter how tariff boundaries are drawn and redrawn.

METHODOLOGY FOR ASSESSING AWARDS

83. The proposals for a new pension scheme include a three-tier ill-health retirement system based on an assessment of an individual's earning capacity in civilian life, irrespective of whether an injury is caused by service or not. This system will be administered by the Armed Forces Personnel Administration Agency. However, the proposals for the Guaranteed Income Stream (which is only available to those personnel whose injuries are caused by service) under the compensation scheme describe a three-tier system based, as described, on the degree of disablement, rather than on an assessment of earning capacity. This system will be administered by the Veterans' Agency. It is odd enough to have two different benefits in two different schemes to achieve essentially the same end—compensating disabled service personnel for loss of earnings. It is frankly bizarre that entitlement to the two benefits should be assessed in two entirely different ways by two different organisations.

84. We raised this point with the MoD, who explain that the non-attributable ill-health benefits under the pension scheme are "not primarily derived from loss of earnings, but rather are based on accrued pension rights".[114] However, the tier of invaliding pension to which someone is entitled will depend on an assessment of their earning capacity in civilian life, not on the type of injury they have suffered. Our point is that the purpose of these benefits is similar to that of the Guaranteed Income Stream under the compensation scheme: namely, to compensate former personnel for loss of earnings. The Government acknowledges the link between these benefits by abating the Guaranteed Income Stream where an ill-health pension is also received.

85. Guaranteed Income Stream payments should be based on a proper assessment of earning capacity in civilian life for each individual, on the same lines as ill-health benefits under the pension scheme, rather than on the basis of tariffs for types of injury which may affect different individuals' earning capacity in very different ways. The Government should also reconsider whether it is appropriate to have two such similar benefits administered by different organisations under different schemes.

Court decision relating to the existing scheme

86. The existence of two different but very similar benefits has caused the MoD enough trouble as it is. As revealed in a written Ministerial statement on 19 November, the MoD has decided to accept a decision by the Court of Appeal which means that personnel and their dependants who have been awarded invaliding and death-in-service benefits under the War Pension Scheme (which the new compensation scheme will replace), but not under the Armed Forces Pension Scheme, will become entitled to backdated payments under the AFPS. The MoD states that it does "not know how many pensioners are likely to have been affected or the likely cost", and that it will be around a year before it does know.[115]

87. In 2002, we sought to assess the MoD's contention that compensation claims are sometimes successful where conditions are only tenuously linked to service, and were told that records are not kept of cases in which a war pension has been granted but an invaliding pension has been refused.[116] As a result of this legal case, these records will have to be recreated. We would welcome an undertaking that, whatever the cost to the Government of extending backdated ill-health and death benefits under the pension scheme to those in receipt of equivalent benefits under the War Pension Scheme, it will not have a negative effect on the future entitlement of service personnel to benefits under the pension and compensation schemes.

54 Ev 21 Back

55 Ev 30 Back

56 HC (2001-02) 666, Ev 111 Back

57 HC (2001-02) 666, para 140 Back

58 Ev 18 Back

59 Qq 24-26 Back

60 HC (2001-02) 666, para 134 Back

61 Ev 43 Back

62 Framework document for the New Armed Forces Pension Scheme, para 6.1 Back

63 http://www.mod.uk/issues/pensions/new_afps/news/questions.htm Back

64 Qq 28, 32 Back

65 Q 26 Back