Armed Forces (Pensions and Compensation) Bill

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The Parliamentary Under-Secretary of State for Defence (Mr. Ivor Caplin): I welcome you to the Chair, Mr. Griffiths. As you know from our brief discussion last night, despite my extensive research, I have been unable to find a salient fact relating to your defence interests, except what you have told me about St. Athan, which is either very near to your constituency, or in it.

I concluded our last sitting by saying to the hon. Member for Aldershot (Mr. Howarth) that I hoped we would have time later to discuss further the issue that we were then debating. Unfortunately, we have not been able to do so because of my visit to the west country at the end of last week, but I hope to clarify those issues for the hon. Gentleman and his hon. Friends this morning. We have spent two hours and 10 minutes debating the first group of amendments, and we are still debating them. I am sure that the Committee would like to make some progress, so I intend to move swiftly through my responses.

Mr. Gerald Howarth (Aldershot) (Con): Will the Minister give way?

Mr. Caplin: I have not said very much yet, but of course I will give way.

Mr. Howarth: I am most grateful. I, too, welcome you to the Chair, Mr. Griffiths.

I cannot let the Minister get away with suggesting that progress has been slow. He knows full well that, if my hon. Friends had not tabled amendments, there would have been no opportunity whatever to debate

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the Bill. He should recognise the fact that we have made considerable progress so far. To suggest that we have made poor progress is not accurate.

Mr. Caplin: I was not suggesting that. I was merely pointing out the facts—we have spent two hours and 10 minutes on this group. I was not commenting on progress. As my right hon. Friend the Secretary of State made clear on Second Reading, we are more than happy for amendments to be tabled, so that they can be fully discussed and scrutinised by the Committee. I welcome that, as did our response to the Select Committee report, which I quoted at the last sitting.

At the end of that sitting, we were considering the question raised by the hon. Member for Aldershot as to the widows' group and the issue of non-attributable widows missing out on the new scheme. I think that I can clarify that point. He will be aware that in October 2000 the attributable widows were allowed to keep their pensions for life on remarriage or cohabitation. That group was seen as being exceptional because of the nature of their spouses' deaths.

It is normal policy for public service schemes to cease widows' pensions on remarriage. The improvements that we have been able to make with the new scheme have been paid for by restructuring benefits—the hon. Gentleman knows that from previous exchanges—but there are no compensating offsets in the current armed forces scheme to pay for that improvement. I hope that shows that we recognise the special status of the armed forces and that it is not possible to distinguish between the widow of a serviceperson, policeman or doctor who died off duty or due to natural causes.

The hon. Gentleman also asked me about the War Widows Association of Great Britain. I confirm that we have no intention of replacing the term ''war widows'' in respect of those widows who receive benefits relating to their partner's death due to service.

I am glad to see that the hon. Member for New Forest, West (Mr. Swayne) is here—no doubt after his early morning exercise. Last week, he asked about forfeiture of pay. It is a basic principle of UK defined benefit pension schemes that only periods of paid service are reckonable for pension, so if a serviceman forfeits pay—for example, as a punishment for a disciplinary offence—the period for which pay is forfeited is not reckonable for pension. Such periods, as he will recognise, are generally short, and the effect this would have on the final amount of an individual's pension is very small indeed.

We also heard a number of comments on full career pension after 35 years. I want us to talk briefly about the issue of the Inland Revenue limit of 66 2/3 per cent. That figure is a maximum, not necessarily a target, and under current plans for pension reform this limit will not exist from April 2005. As only about 10 per cent. of officers and just under 2 per cent. of other ranks serve a full career, the matter of what is the level of a full career pension does not affect many people. We have, however, extended the accrual period in the new scheme to allow up to 40 years of reckonable service, which means that those few long-serving members can accrue over 70 per cent. of pensionable pay. It is not

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going to be possible to bring the full career pension for 35 years up to the current Inland Revenue limit within the available funding, so the headroom of up to 40 years means that those who want to increase the value of their pension to 66 2/3 per cent. can make additional voluntary contributions to achieve that. We began to touch on that matter last week.

We also had a brief discussion about the early departure plan and, in particular, its index linking of preserved pensions. I hope all members of the Committee received the notes I sent out last week about that plan. I am sure we will have a long and interesting discussion about it when we debate new clause 9. What the note makes clear, and what I put on record this morning, is that from age 55 the income payments will be adjusted to take account of the changes in the retail prices index since the point at which the early departure payments scheme was originally taken, and thereafter on an annual basis until the preserved pension comes into payment at age 65. That is in line with the treatment of the current immediate pension scheme.

Mr. Julian Brazier (Canterbury) (Con): May I raise a point on that through you, Mr Griffiths? The Minister very courteously issued us—at last—with figures on the early departure scheme, just before the last sitting of the Committee. He refers to the fact that he is looking forward to the debate on the scheme, but that raises a problem for us: new clause 9, which has been selected, simply reflects the Government's view. We had to table that view within an Opposition new clause because the Bill does not refer to the early departure scheme.

We tabled two proposals reflecting the changes to the scheme that we would like to be made—new clauses 10 and 11, neither of which has been selected. Were a fresh wording to be tried to reflect possible changes, could those measures be selected so that we can debate the scheme at a later point?

The Chairman: May I point out the fact that the Opposition have tabled new clause 26, which deals with that matter? As it is a starred new clause, we have not been able to select it as yet. A bit of patience is required, perhaps.

Mr. Brazier: Thank you very much, Mr. Griffiths.

Mr. Caplin: I am glad that we have been able to clear that up for the hon. Member for Canterbury (Mr. Brazier). This is convenient, because I am now on to accrual rates, which he asked me about last Tuesday, although I shall spare the Committee a lengthy lecture on superannuation accrual rates, as last week some of my hon. Friends pleaded with me to do so. They said that they had all read the Select Committee report, which details the rates at length.

Under the current scheme, officers have a much faster accrual rate up to the immediate pension point of 16 years' service. From that point, the rate tapers off as the individual moves towards the usual age of retirement. That does not affect other ranks, who have a broadly even rate of accrual. In the case of a full career up to the age of 55, the accrual rates are broadly

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the same for the two schemes. As I said last Tuesday, all those currently serving can choose whether to transfer to the new scheme. Each individual will need to take account of the various changes proposed under the new scheme.

Last week, the hon. Member for New Forest, West also asked about pension troughs and how much it might cost to revisit the issue. That is a difficult figure to calculate, but we are talking about a group of pensioners affected in the mid-'70s by various decisions taken by the Government of the day. We believe that it would cost about £65 million to correct, including spouses' benefits.

The assessment was made using standard actuarial demographic and investment assumptions, but it did not include the cost of retrospectivity—increasing pension payments that have already been paid. This is only one of several troughs affecting the armed forces. I must say to the hon. Gentleman and to the Committee that there would be real and significant difficulties in retrospectively changing benefits in public sector pension schemes, including with affordability. I cannot see how this Government or any previous Government could think it, or have thought it, right and proper to spend public money on retrospectivity. I have no plans to do so.

A question was also asked about earnings in the last three years of service.

Mr. Brazier: The Minister has raised two points, the second of which relates to retrospectivity. Before he leaves the first point entirely, may I take him back to the beginning of his speech when he said that this is a matter of choice and that no serving personnel had to join the new scheme? For the benefit of the Committee, and in case of any doubt, will he confirm that the accrual rate on all future service will be reduced, whether people transfer to the new scheme or stay in the old one?

Mr. Caplin: I do not believe that that is true, but I will have to come back to the hon. Gentleman as I want to make one or two other points.

Hon. Members asked about earnings in the last three years of service, whether the proposal is fair and what will count. An individual's pensionable pay, not extra pay such as flying pay, counts. That is absolutely consistent with other public sector pension schemes.

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