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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