Select Committee on Defence Written Evidence


Memorandum from the Ministry of Defence

ESTIMATES MEMORANDUM 2006-07: ARMED FORCES RETIRED PAY AND PENSIONS

SUMMARY OF CHANGES SOUGHT IN THE ESTIMATE

  1.  The Armed Forces Pension Scheme Main Estimate requests provision of:

    (a)  Net resources within Request for Resources 1: £4,588.662 million.

    (b)  Net Cash Requirement: £1,584.369 million.

  2.  This Memorandum covers the Estimate for the Armed Forces Retired Pay and Pensions for 2006-07. The Scheme's spending plans for this financial year are based on the expected take up of pensions of retired personnel. The Estimate covers only the payment of pensions. The costs of administering the Scheme fall to the MOD Main Estimate. The Armed Forces Pension Scheme is a demand led service and is therefore AME; as a result there is no Spending Review settlement against which to compare it. The costs of the scheme are forecast every six months for both the current year and future years. As a result we have compared the Estimate with the latest forecast submitted to Treasury.

DETAILED EXPLANATION OF THE CHANGES

  3.  The Estimate for 2005-06 included non-budget expenditure of £9.93 billion relating to the increase in the value of provisions held on the Balance Sheet as a result of the change in discount rate from 3.5% to 2.8%. There will be no change in the discount rate for 2006-07. The non-budget element of the estimate is therefore not applicable to this financial year.

  4.  An increase of £67.956 million in receipts due to higher than anticipated SCAPE (Superannuation Contributions Adjusted for Past Experience) receipts has been included due to the introduction of revised rates of SCAPE from 1 April 2005. This change is shown as a reduction in the resources required in the table below. SCAPE replaced the old ASLC (Accrued Superannuation in Lieu of Contributions) as the basis of contributions to the scheme.

  5.  An increase of £85.369 million in Current Service Costs has been calculated on the level of SCAPE costs which has then been multiplied by an agreed Government Actuary Department factor, which is 1.29.

  6.  An increase of £23.102 million for interest on Scheme Liability has been applied due to higher than forecast Service provisions liabilities.

ANALYSIS OF CHANGES BETWEEN LATEST FORECAST AND ESTIMATE
Total AME £m
Previous Forecast4,548.147
Higher than anticipated SCAPE receipts -67.956
Increase in Current Service Costs and change in multiplication factor +85.369
Increase for interest on Scheme Liability +23.102
Revised Estimate4,588.662

2 May 2006





 
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Prepared 29 June 2006