Letter from the Forces Pension Society
to the Chairman (18 November 2003)
1. I thought it might be helpful if I let
you have sight of this Society's views on the evidence presented
to your Committee by Mr Ivor Caplin MP on the subject of the new
Armed Forces Pension Scheme on 5 November. I am sorry that you
were unable to be present but you will no doubt have received
a debrief on how the session went. From my point of view, I found
it a somewhat disjointed affair predominantly because the Minister
seemed reluctant to answer some of the main questions put to him
by members of your committee.
2. You will be aware that the Society is
generally pleased to see that improvements to the scheme have
been aimed at the benefits earned by long servers and dependants.
The losers are those forced to leave the service because of employer
manpower structure considerations before they can accrue full
career benefits and I will return to this later. Two of the three
major weaknesses inherent in the original proposals have been
addressed. These are:
(a) The uplifting of spouses pensions on
death in retirement (non-attributable). The final outcome is 31.25%
This is still worse than the Private Sector norm of 33.33% and
many Public Sector schemes but is a signficant improvement.
(b) The increase of Death-in-Service Benefit.
The final outcome of negotiations is an increase to four times
salary. This places 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.
3. Other improvements that have met our
aspirations are the protection of preserved rights, the introduction
of mechanisms to mitigate against the trough phenomena, the rationalisation
of officer and other ranks terms, the abolition of a vesting period
and accrual to start from date of enlistment.
STRUCTURAL FLAW
4. There is however one fundamental weakness
with the new scheme and this is the failure to provide a genuine
full career pension plus lump sum at Inland Revenue limits of
66.67%. Under these proposals the best that can be achieved by
a very small minority is 62.5% which remains at the bottom of
the Public Sector League table. The unusually low normal retirement
age (NRA) of 55, which is imposed by the MoD for its benefit as
a personnel management tool and not as a perk of the job, willl
seriously inhibit the opportunities for actually earning the full
career pension through service. Very few Service people join young
enough or serve long enough to earn full career benefits and extending
service length within a low NRA will excerbate this. It is disingenuous
at best, to structure a scheme in wich well over 90% of the members
are debarred from earning a full career pension without buying
AVCs.Throughout the consultation period MoD have been urged to
introduce shared cost AVCs to ameliorate the worst effects of
this fundamental weakness. Other options offered to resolve this
problem have been a change in NRA or a change in the accrual rate.
All these suggestions have been steadfastly ignored and as a result
the new scheme remains well behind modern good practice.
5. At Question 20 in the transcript of evidence
Rachel Squire attempted to elicit an explanation from the Minister
by asking "On the new scheme. . . . very
few will have the chance to accrue the full career pension. Will
that be the case?" The Minister responded with a statement
about modelling of the Early Departure Scheme which had nothing
to do with the question. This issue is a major failing in the
new scheme and it is essential that MoD produce a coherent reason
why they are introducing a scheme which is fundamentally flawed
in the single most important benefit in any pension scheme.
WIDOWS PENSIONS
FOR LIFE
6. The second outstanding issue that was
not satisfactorily addressed is to do with non-attributable widows.
Under the current scheme non-attributable widow(er)s who chooses
to remarry or cohabit lose their pension. The Government have
accepted the principle that this is illogical and that attributable
and non-attributable widow(er)s should retain their pensions for
life. The Government announced on 31 October 2003 that from that
date both existing and newly created attributable widow(er)s would
retain their pensions for life and the same applies for attributable
unmarried partners from 15 September 2003. The new scheme will
extend these provisions to non-attributable widow(er)s and partners
but only from implementation thus leaving out existing widows.
This Society has pressed MoD to implement this measure immediately
to provide pensions for life for all widow(er)s and partners in
order to avoid creating a new group of disadvantaged beneficiaries.
In the ultimate case the widow of a non-attributable serviceman
who opts to remain in the old scheme (for well founded financial
reasons) will lose her pension should she decide to remarry or
co-habit. The unmarried partner (possibly of the same sex) in
the new scheme will retain their pension for life regardless of
how many subsequent partnerships they may care to form. This is
clearly bizarre and is a case of reverse discrimination.
7. On being questioned by Mr Crausby (Question
42 and 43) on this issue the Minister fell back on the line that
he was here to discuss the new scheme and this restriction would
not apply in the new scheme. This is indeed true but nevertheless
the situation could very easily be rectified by taking the rules
from the new scheme and applying them now to all members of the
current scheme as has been done for attributable widows and unmarried
partners. This would not breach policy on retrospection and would
be comparatively cheap. MoD have yet to produce any sort of explanation
why such a move is impossible.
COMPENSATION FOR
VICTIMS OF
ILLEGAL TAXATION
8. I would also like to draw your attention
to Rachel Squire's questioning of the Minister (Question 100)
on the subject of the improper taxation of invaliding pensions.
To date no compensation plan has been announced for the 1,300
odd victims who had their invaliding pensions improperly taxed
as a result of MoD maladministration. These men have suffered
severe financial pain over many years having been defrauded of
their entitlement. The then Minister promised that he would announce
a compensation package "by Easter 2003" and subsequently
amended this to "by the summer recess". No announcement
has yet been made. This is extremely shabby treatment of a significant
number of servicemen who were disabled in the service of their
country. Many are very old and some have died since the blunder
was originally admitted by the Government. In his answer the Minister
stated that "we are still considering whether to pay compensation
in addition to the repayment supplement that has already been
provided under the Inland Revenue legislation. . . . we are going
to confirm our decision no later than 18 December, before Christmas,
in Parliamentary time." This raises two important issues.
Firstly it would be a complete abrogation of the Government's
moral responsibility if at this late stage they were to announce
that they would not pay compensation. Secondly, an announcement
that they will pay compensation but the details of the scheme
will be announced at a later stage would be totally unacceptable
to the victims. Nothing short of a package whith ensures that
they are no worse off than they would be if they had lent their
money to the Government through National Savings plus an element
for damages will satisfy these men who have already waited five
years for resulution, or be morally defensible.
LEGACY ISSUES
9. On winding up this part of the session
referring to the legacy issues Rachel Squire said: "I think
there are issues here that the Committee may well be looking to
raise again." I recall that the genesis of your committee's
interest in the pension scheme was the subject of the so-called
legacy issues. After the session in December 2002 in which the
then Minister gave evidence on these matters we expressed our
concern that MoD had made no effort to find solutions to these
problems hiding behind a policy of no retrospection. I am firmly
of the opinion that solutions can be found to these problems which
do not breach government policy and have repeatedly suggested
remedies to MoD. Our earlier input to your Committee dated 17
October 2003 covers all this ground in some detail. To date MoD
have staunchly ignored these suggestions and have shown no appetite
for innovative thinking in this area. I trust that your committee
will see fit to demand an explanation from them in your report.
As always we would very much like to give oral evidence at the
next relevant hearing and stand ready to provide assistance in
this matter.
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