Armed Forces (Pensions and Compensation) Bill

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The Parliamentary Under-Secretary of State for Defence (Mr. Ivor Caplin): That is not the point on which I want to intervene, but I may return to it. I want to address what was said in 2001 and what is now before the Committee. It is important to place on record that a serious consultative process should start with a document on which we consult people at different levels, including the veterans' organisations. It should then come to a conclusion, which is put before us as legislators. That is what we are doing. I do not think that it should be regarded as change, but as part of the natural process of consultation.

Mr. Howarth: I am grateful for that point: there is greater joy in heaven over the one sinner who repenteth. We welcome in the same breath the Government's willingness to consult and listen. This may be a small conversation compared with the big conversation, but the big conversation is going nowhere, while the smaller conversation is clearly going somewhere. We are very appreciative that the small conversation is working. To move from an argument that the immediate pension provision would place manpower planning at risk, to being dissuaded by the veterans' organisations that it would not, is quite interesting.

Mr. Caplin: I do not want to give the impression that the veterans' organisations changed my mind. I made a general point about the process of consultation and the fact that there was wide consultation on the overall pension compensation scheme. I know that the situation is different when we are dealing with one new clause on the early departure scheme, but I was making a general point about consultation.

2.45 pm

Mr. Howarth: I think the Committee will appreciate the Minister's clarification .

I said at the outset that I would like to return to new clause 2—I apologise to the Minister for doing so—which is about the re-employment of recipients of armed forces pensions. Some people leave the service and are later re-engaged in Crown employment, which basically means working for the armed forces again. The policy under the new arrangement is that existing policy on abatement will apply to early departure payments if a recipient is subsequently re-employed in the public services. You were not here this morning, Mr. Griffiths, so, for your benefit, that means that where someone is in receipt of a pension, their combined pension and pay in their post-retirement job cannot exceed the pay that they were earning when they left the job.

In the Department for Work and Pensions Green Paper, ''Simplicity, Security and Choice'', to which I have referred, the Government recognise that people increasingly want to work after retirement, often part-

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time or in a position of reduced responsibility. The document says that people

    ''end up retiring when they would have preferred instead to stay in work in a reduced capacity, supported by a combination of earnings and pension. The Government proposes to remove this constraint. As part of the Government's consultation on the simplification of the pensions tax regimes, we are proposing to allow schemes to offer people the opportunity to continue working for the sponsoring employer while drawing their occupational pension.''

People who choose to work after retirement show how they are able to continue contributing in a meaningful way, and the armed forces are no different. This morning I gave the example of the garrison adjutant at Aldershot, Colonel Jack Matthews, who retired from the Army as an officer and was then re-engaged, but who, like his 2,000 or so colleagues, is limited in the amount that he can earn.

Certain ex-service organisations have also suggested to us that there could be a role for blind and limbless ex-service personnel in other parts of the MOD, such as in stores, doing clerical or administrative work. Such men have made great sacrifices; they have put their lives on the line for their country and it seems unfair that they should be penalised for wanting to continue to serve their previous employer, where they have a role to play and can bring some experience to the party. However, the Green Paper says that certain pension schemes will be exempt from those changes, at what seems to be the discretion of those who operate the scheme.

We take it that that will be the case with the forces pension scheme; that it will operate under the existing rules, rather than under the new rules proposed by the Department for Work and Pensions, which is encouraging people to stay on. That change in the overall pensions legislation is making its way through the House of Commons. I should like the Minister to say why it has not been possible to include service personnel in the new overall pensions arrangements. The people in question can make a real contribution, as the Minister surely recognises, having met the same sort of people as I have. If the Government's overarching pensions policy is designed to meet the requirement for greater flexibility and to enable people to continue work in a reduced capacity, the armed forces should be included. There is already the example of the Full Time Reserve Service.

I have met Tornado pilots who are currently defending us at RAF stations. They include full-time reservists, who have left the service and been re-engaged. They have shed many of their former administrative responsibilities and are doing what they want to do, which is to fly aeroplanes. All their flying expertise is preserved. They have not gone off and joined Virgin Atlantic or some other airline. They have stayed in the service, but on new terms.

The Ministry of Defence should look at this more in the round. There ought to be a more flexible way in which we can use this valuable resource, to use the modern jargon. These are people with a lot of experience and a lot of expertise for which the taxpayer has paid. We should be able to take advantage of their services without penalising them and putting substantial constraints on the conditions

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of their pension entitlements and their salaries for their new part-time responsibilities.

In conclusion, the general verdict is that if the Government are to be cost neutral, this is the place where savings should be made. That was the view of the Select Committee. The Government have responded to some of the concerns that have been raised. The fundamental issue, the point about which my hon. Friend the Member for Canterbury feels so strongly, is that this is a completely new regime. The payments will no longer be governed by the laws that apply to pensions, but by completely separate laws. We are entering unknown territory. Can the Minister reassure us that he has carried out the investigations and considered all the potential elephant traps? Secondly, is he confident that the scheme will be robust and will not be subject to attack either from the Treasury or any other arm of Government?

Mr. Brazier: I shall be brief. The Committee will be relieved to hear that I do not intend to repeat all the points that my hon. Friend made in his excellent speech. I strongly echo his point that this is not only a huge reduction in payments to most service personnel in the long run, but is uncharted territory. I shall pick two small details from my hon. Friend's speech and support him on both. The first concerns commutation.

I was uncertain when I saw how small the early departure payment would be whether commutation was appropriate. However, on reflection, partly as a result of the Minister's comments, I think that there should be a generous arrangement for commutation. The reason is simple. As the Minister has repeatedly said, most members of the armed forces have reasonably transferable skills. They are not terribly disadvantaged in the labour market, although most members of the Army and Navy are still likely to go in at a lower salary than they would have enjoyed if they had built up a civilian career.

The idea that the early departure payment is a safety net is unrealistic for the vast majority of them. Where they are grossly disadvantaged is in the housing market. This is being written from scratch. It is not a pension payment, subject to the 25 per cent. rule, as a pension payment would be. To allow members of the armed forces flexibility so that they can get a worthwhile second sum out of this relatively small payment to put towards the huge cost of buying housing seems very sensible. There should be no advantage or disadvantage either way to the Treasury. It is a matter that should be left to service personnel to decide for themselves. Allowing them to commute a large chunk would be sensible.

Mr. Caplin: I understand what the hon. Gentleman says about commutation, but the other side of the equation is that if EDPS is a safety net, commutation would remove a substantial part of it, especially if there were an annual commutation, which I think is what the hon. Gentleman is suggesting. For example, let us suppose that the veteran put the entire amount into a business, which then failed, what safety and security would that person have?

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Mr. Brazier: The vast majority of members of the armed forces do not get into the extreme trouble that the Minister mentioned and, at the end of the day, the state would be there, as it is for civilians. Studies show that members of the Army who buy property early in their service are much more likely to leave the service early than those who do not. Unless they buy a house during their last few years of service, almost all members of the Army approaching retirement are at a huge disadvantage in the housing market. The ratio of house prices to incomes is close to an all-time high; there are only two brief periods in history—a matter of a few months—in which it has been as high as it is today, and because of the extreme shortage of house building and continuing pressures it is not likely that that ratio will improve; it may even get worse.

People coming out of the Army in their 40s are hugely disadvantaged as their counterparts in civilian life are on the second, third or even fourth tier of the housing ladder. Service personnel in their 40s do not want a starter home as they probably have children of 11 and 13—I mention those ages because my children are that age and I am 50. They need family homes and a gratuity of between £30,000 and £50,000, depending on their rank, although more than a deposit, will not be nearly enough. The absurdity is that a taxable income will cover only a relatively small proportion of the mortgage, whereas a tax-free lump sum, which would be the effect of commutation, could knock a big chunk off any mortgage that they take out.

I was not at all certain about the matter when the Bill was published. I was horrified at how small the early departure payments were to be—up to the age of 55 they are about half of what they would be now—but on reflection I believe that the housing considerations are more important than those of the safety net, as housing considerations affect the majority of people, whereas those of the safety net apply only to a relatively small minority.

I want to approach my hon. Friend's point about disabled people from a slightly different angle. We rightly take the strong view that there could be no question of the equal rights legislation for disabled people being applied to the armed forces; that would be ridiculous in any capacity. We strongly disagree with those who asked why, if a disabled person can be a cook in civilian life, he cannot be a cook in the Army. The answer is that even the cooks have to fight, and on many historic occasions they have done so, if desperate measures were required. However, that relates to recruitment from civilian life; the other side of the coin is that if someone becomes disabled when they are already in the armed forces, the Ministry of Defence, as a good employer—the Minister has stressed many times that he wants the MOD to be seen as a good employer—should make every effort to make use of their experience and find them, for example, a supporting civilian role.

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