Select Committee on Defence First Report


Conclusions and recommendations


Lack of progress

1.  It seems from the evidence we have received that several crucial elements of the schemes have still not been finalised despite an unusually long period of review and consultation. It is vital that these elements are clarified by the time primary legislation is brought before Parliament, so that an informed debate is possible on the issues at stake. It would be wholly unacceptable if Parliament were asked to approve enabling legislation without a clear understanding of its implications for Armed Forces personnel and their dependants. (Paragraph 11)

Cost basis for schemes

2.  The Government intends to use savings that it is making within the pension scheme not only to improve other benefits to personnel, but also to cover the estimated cost of personnel and their dependants living longer. (Paragraph 16)

3.  The Government is proposing to reduce benefits to Armed Forces personnel on the basis that they will live for longer, without also giving them a real opportunity to work for longer within the public service. This is not reasonable. (Paragraph 19)

4.  The Government is basing its decision to reduce the cost of the pension scheme on the expectation that each individual member of the pension scheme will cost the MoD more in future because of increased longevity. However, because of the reduction in Service numbers over the last two decades, we would expect the MoD's total pensions bill to decrease just as the financial effects of increased life expectancy kick in. In terms of the total cost to the public purse, there is no need to adjust the pension scheme to reflect increased longevity in order to achieve 'cost neutrality'. It is only fair to point out that any cost increases as a result of pensioners living for longer are likely to be more than compensated for by the reduction in the total number of pensioners. (Paragraph 22)

5.  As a matter of principle, we are not convinced that it is right that the financial cost of increased life expectancy should be borne by service personnel, particularly not through reduced benefits. But even if the MoD can justify its claim that personnel should bear some of the burden of the increased costs brought about by improved longevity, it should not have devised the new scheme as it has, on the basis that personnel in the scheme will bear the entirety of costs, particularly where it appears that these costs are almost certainly in excess of what the MoD itself will have to bear. (Paragraph 23)

6.  With the introduction of the new pension scheme, the MoD has changed its definition of 'cost neutrality' to seek to ensure that the future cost of an average member of the new scheme should not exceed the current cost of an average member of the existing scheme. (Paragraph 25)

7.  Personnel transferring to the new pension scheme will receive benefits of a lesser overall value than those remaining on the existing scheme. This would in many circumstances seem to be a fairly obvious disincentive to transfer. (Paragraph 26)

8.  We have always been unhappy that the Government in its review of Armed Forces pensions has imposed on itself the constraint of how much current benefits cost, rather than looking more generally at what Armed Forces personnel deserve. We are even less happy now that it emerges that the Government proposes to reduce the overall value of benefits under the new scheme, compared with the existing scheme. The goalposts of 'cost neutrality' have been shifted—to the disadvantage of future personnel. (Paragraph 27)

Welcome improvements

9.  The Government should ensure that any money which would have been paid to pensioners in the existing scheme were it not for the rise in the preserved pension age is used to improve other pension benefits. (Paragraph 31)

10.  We 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. (Paragraph 33)

11.  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. (Paragraph 41)

Early Departure Scheme

12.  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. (Paragraph 49)

13.  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. (Paragraph 52)

14.  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. (Paragraph 53)

15.  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. (Paragraph 55)

16.  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. (Paragraph 56)

17.  If not protected from inflation, the real value of a fixed rate early departure payment is likely to decrease substantially over time. (Paragraph 57)

18.  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. (Paragraph 58)

19.  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. (Paragraph 60)

Treatment of officers and other ranks

20.  We welcome the fact that the MoD has taken the opportunity to ensure that all ranks are treated equally under the new schemes. (Paragraph 62)

Compensation proposals

21.  We welcome the fact that some of the safeguards within the compensation scheme have been strengthened. But our essential concerns about the structure of the compensation scheme have not been addressed. (Paragraph 65)

22.  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. (Paragraph 69)

23.  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. (Paragraph 70)

24.  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. (Paragraph 72)

25.  We welcome the focus of the compensation scheme on the severely disabled, and the new lump-sum payments for pain and suffering. These basic aims seem both sensible and just. (Paragraph 73)

26.  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. (Paragraph 80)

27.  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. (Paragraph 82)

28.  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. (Paragraph 85)

29.  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. (Paragraph 87)

Communications with personnel

30.  The MoD should identify lessons from the shortcomings of the consultation process to ensure that information about the new schemes reaches all levels of all units. (Paragraph 91)

31.  There have been various failures in information provision to service personnel on pensions and compensation, including in the very recent past. It is crucial that the MoD learns from these experiences in designing and implementing its communication strategy on the new pension and compensation schemes, if the transition to these schemes is to be a success. (Paragraph 92)

32.  The new schemes are scheduled for implementation in less than 18 months' time. The MoD needs to ensure that its communications with personnel are well underway as soon as possible. (Paragraph 96)

33.  It is essential that communication with personnel on those aspects of the new schemes which are yet to be finalised (such as early departure payments) are both complete and timely enough to allow for the information to be properly considered before any choice is made. The MoD should issue information to all serving personnel to enable them to make an informed choice, including pensions forecasts for both the existing and the new schemes tailored to individual personnel. (Paragraph 97)

34.  The MoD needs to ensure that the impact of the new compensation arrangements on existing personnel is clearly communicated. (Paragraph 99)

35.  It is vital that the rules for determining whether injuries and illnesses should be treated under the old or the new compensation scheme are not only clearly defined, but also clearly communicated. (Paragraph 100)

36.  Consultation with Armed Forces personnel on raising the preserved pension age to 65 is particularly important, because this change will affect the Armed Forces very differently from the rest of the public sector. A majority of Armed Forces personnel will be financially disadvantaged by this change. Moreover, even of those personnel who do serve to the retirement age of 55, very few are likely to be able to take advantage of any enhancement to benefits which the opportunity to serve to age 65 might bring. (Paragraph 104)

37.  Further details need to be published clarifying how an increase in the preserved pension age for existing personnel will impact on the benefits they receive and when they receive them. (Paragraph 105)

38.  The MoD has failed to consult with serving personnel on the timescale for changing the preserved pension age, and it has already begun to define how the change to the preserved pension age will be introduced for serving personnel, again without consultation. This is unacceptable, given the Government's public undertaking to "consult on how and to what timescale the higher pension age and any associated enhancement to benefits could be extended to existing employees, while protecting rights already accrued". Proper consultation, as promised, should be carried out as soon as possible, to establish what measures might be appropriate to mitigate the special impact of the higher preserved pension age on Armed Forces personnel, both those who serve to the early departure point and those (the majority) who do not. (Paragraph 106)

Timescale to implementation

39.  We are concerned by how much work still needs to be done in relatively little time, both in terms of finalising the schemes, and in terms of communicating to personnel what they mean. (Paragraph 107)

Legislation

40.  Because of inadequate consultation, because of the evidence we have heard that the elements of the schemes will not be fleshed out until consideration of primary legislation is already under way, and because Armed Forces personnel have no body representing their interests as employees, it is essential that the Government should seek explicit parliamentary approval for the schemes themselves, as well as for primary legislation. (Paragraph 114)

41.  Any amendments to the schemes which could negatively affect the benefits of personnel and their dependants under the schemes should also be approved by Parliament. (Paragraph 116)

42.  We also believe that there is a strong case for setting out the basic principles of the schemes in primary legislation, for example as a schedule to the bill. (Paragraph 117)

43.  In order to ensure that future major changes to the schemes involve proper consultation, and to ensure that Parliament is able to suggest changes to the schemes themselves, we recommend that major changes to the schemes in the future should be by statutory instrument subject to super-affirmative procedure, allowing for consultation both with interested groups and with Parliament, before final secondary legislation is presented to Parliament for approval. (Paragraph 118)

44.  We regard it as essential that a framework document for the new Armed Forces Early Departure Scheme should be available to Members before second reading of the bill, as well as the framework documents already provided to us. (Paragraph 119)

45.  If the detail of the scheme rules is not available before second reading of the bill, this makes it all the more important that Parliament should have the chance to examine and question Ministers on the detail of these rules when secondary legislation is made. (Paragraph 120)

Legacy issues

46.  The MoD should look carefully and with a fresh eye at the suggestions put forward by the Forces' Pension Society as possible solutions to a number of 'legacy issues', and should establish whether any of them can be implemented, and at what cost. Former Armed Forces personnel and their dependants deserve no less. The Government risks giving the impression that it has forgotten or is ignoring these people, and that it fails to appreciate the fundamental validity of many of their concerns. (Paragraph 127)

47.  The Government needs to ensure that the important effects of these kinds of choice are properly conveyed to personnel, and that the transition to the new schemes is smoothly handled, if future 'legacy' grievances are not to arise. The Government should examine, for example, whether it would be possible to ensure that dependants of existing personnel do not lose out if their partner in the Armed Forces should die between the new pension scheme coming into effect for new entrants, and their partner being given the opportunity to choose between the schemes. (Paragraph 128)

48.  We agree that former personnel whose pensions have been improperly taxed, and their dependants, should be compensated at a rate which ensures they are no worse off than they would have been if they had lent their money to Government through National Savings plus an element for damages. This was the Government's mistake, and veterans and their families have already suffered enough for it. They deserve proper recompense. (Paragraph 131)

49.  We expect a package of compensation to be announced by 18 December, as promised, to be implemented promptly and to include compensation along the lines of that recommended by the Forces' Pension Society. (Paragraph 134)

Conclusion: Parliament's role

50.  The overall annual value of the new schemes has been diminished to account for new estimates of increased longevity, in a way which seems to us to be arbitrary and unfair. The MoD refuses to increase the value of the schemes because it is supposedly committed to cost neutrality. This decrease in the cost of the schemes should also have been resisted on the same grounds. (Paragraph 139)

51.  In 2002, we stated our belief that the proposed pension scheme needed to take best practice as its starting point, rather than 'cost neutrality'; and our conviction that the proposed compensation scheme sacrificed fairness and justice for simplicity. At the same time neither scheme did justice to Armed Forces personnel. (Paragraph 140)

52.  The schemes remain hamstrung by 'cost neutrality', and therefore fail to recognise the unique commitment that the Armed Forces make to their country. There have been some welcome changes to elements of the schemes, but these are, and can be, little more than tinkering in the absence of a broader outlook. We are also unhappy that important aspects of the schemes have yet to be finalised. (Paragraph 141)

53.  When it comes to negotiating pension and compensation entitlements, it seems to us that the Armed Forces are disadvantaged, because they have no-one to negotiate on their behalf as employees. Parliament therefore has a vital role to play in ensuring that the Armed Forces get the pension and compensation schemes that they deserve. (Paragraph 142)



 
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