The Armed Forces Bill - Armed Forces Committee Contents


Written evidence from the Forces Pension Society

There are thee issues which the Forces Pension Society brings to the Committee's notice. They are not the only occupational pension issues which deserve attention, there are others which are by-products of current policy, such as pension troughs, which will develop from current policies and cause unfairness in years to come. But their resolution can wait. There may be cost questions behind some of these but we remind the Committee that the change in indexation will save the Ministry of Defence over £60 million on its pensions' bill this year and we maintain that, at a time when Service families are having to digest an unprecedented and wholly unexpected number of changes to, and generally diminution of, their terms and conditions of service, something has to be given back.

The three issues are:

  1. ¾  Inequality in the treatment of widows.
  2. ¾  Income tax relief on pension contributions.
  3. ¾  Inflation indices and vulnerable members of the Service community.

1.  WIDOWS PENSIONS FOR LIFE: JUSTICE FOR WIDOWS

This refers to the rules whereby a Service widow who cohabits or remarries loses her pension. There are five distinctions of widows in the Armed Forces community. We have made the case convincingly over the last few years as to why they should all be treated equally. We are not talking about relicts of the past. We are not necessarily talking about older ladies. We are also talking about 30 year olds, some of whom aren't even married yet. And, according to the Government Actuary we are talking about the vast majority, I stress, the vast majority, for the next 40 years; future; to 2050. We remain of the view, and Kevan Jones has the opportunity to confirm this or lay it to rest, that we had, in most carefully chosen words, "a level of agreement" with the last government. Only the MoD has so many classes of widows. We have made the case as to why the Services deserve this change through the demands of their different lifestyles, which often prevent Service spouses from building either a state or occupational pension portfolio. We have agreed the cost at £88 million over 40 years. This is very small to right a wrong once and for all. And I remind you this is an issue going forwards with not just older women, but also those as young as 30, or even younger, affected.

2.  INCOME TAX RELIEF ON PENSION CONTRIBUTIONS

The change in allowances means that any rank above OF3, lieutenant commander, major or squadron leader, especially those who are promoted fairly quickly, will incur an immediate income tax liability. At the OF 5-6, colonel to brigadier level, this will be of the order of £20,000. Discussions continue, but with little prospect of changing the rules, more to see how to mitigate them in application. It looks as if it may be acceptable for the liability to be carried forward and paid later in life by reducing the pension, both of the scheme member and his or her remaining spouse. This debt may grow and accumulate at ever increasing levels from rank to rank. At the moment we believe that the Treasury is demanding an immediate contribution of between £2,000 and £6,000. Our calculations show that a fast promoting officer may face, under current conditions and rules, a total bill of £70,000 as he moves from OF3 (major) to OF 7 (major general). The COS are most alarmed as to how they can explain this to their officers. All have to digest significant impairments of their accepted terms and conditions of service, often also affecting their families. The most able, who will be hit hardest by these new rules, can easily find alternative employment when their promotion prospects are so tarnished. We are also advising one officer who is grappling with an immediate bill for over £150,000. There has been a suggestion that the debt could be paid off by the gratuity. We are adamantly opposed to this since officers give great thought and set great store by the gratuity, often for housing needs.

3.  INDEXATION RPI/CPI

We do not aim for wholesale reversal of government policy, even though the Government has back tracked with the private sector and been attacked by Lord Hutton and others. What we ask for, again, is dialogue and not the pretence that this is all fine. The figures we have given for pension receipts lost are well known. It would not be difficult to relate some compensation pensions to another index but we must also not lose sight of those whose service ceases honourably, through premature death or injury, or predictably, for manning reasons, in their late 30s and early 40s. They are indeed a unique case. Their pension is in large part compensation for forced early cessation of a career. It should not be devalued.

3.1 Turning to the construction of CPI, we are asking for a rapid recasting of it to take in housing costs of all sorts, vehicle excise duty and TV licences so that it is a fair representation of inflation. This work is indeed underway in the ONS, on behalf of the OECD, we believe. But it needs to be acknowledged by the Government and at the same time agreed that the use of CPI is a deficit reduction measure, no more, no less. The Armed Forces can see through it. It is viewed as a mean and underhand trick, a clear breach of trust, and let us also be aware of what one of the principal financial and pension firms have said about private schemes:

"permitting schemes to renege on their explicit promises would amount to a retrospective reduction in the pensions that had been promised".

3.2 For 40 years, all of the information available to those serving in the Armed Forces has promised RPI. Above all, we ask the government to stop trying to explaining the "logic" and "science" of CPI. The Royal Statistical Society says that CPI is not fit for purpose, as does the ONS.

4.  IN CONCLUSION

The Forces Pension Society would like to remind you that the Armed Forces pension community encompasses of the order of a million people, serving and formerly serving. The Society has over 250 engagements with that community in a year and is as conversant with their views as any. We also meet nearly all the most senior officers, personally, to brief them on their complicated pension affairs and bring them up to speed on what they need for their Services and commands. We are genuinely concerned that there are, suddenly, so many points of erosion of morale of individual and family in our area that irreversible damage cannot be ruled out.

4.1 We note the commonly aired reference to the Covenant but we do not see a coherent and comprehensive set of actions which would make the Covenant come alive; it avoids any mention of pensions. All we are asking for (indeed, all that the Covenant demands) is that those who serve their country in the Armed Forces (and their partners and families) are not disadvantaged. At present they are, and if the Government actually believes in what it says about the Covenant it must ensure this is corrected—and certainly not exacerbated. These do not seem to us to be good times for those serving so we need to stress that in all of this something has to be given back on the terms and conditions of service front. Equality in the treatment of widows and indexation both offer that, at modest cost and we are sure, with cross-party political approval.

28 January 2011



 
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