Defence CommitteeFurther written evidence from the Ministry of Defence
ARMED FORCES RETIRED PAY, PENSIONS, ETC
2012–13 SUPPLEMENTARY ESTIMATES
Request for Resources—Armed Forces Retired Pay, Pensions, etc
1. Summary of Changes sought in the Supplementary Estimate
1.1 The main reason for the Armed Forces Retired Pay and Pensions Supplementary Estimate is to request an additional Resource of £370 million; and to request an increased net Cash requirement of £200 million.
2. Detailed Explanation of the Change and Allocation
2.1 The increase in the net Resource requirement of £370 million is mainly due to an increase in the calculated Armed Forces Compensation Scheme (AFCS) long term liability; a higher Interest on Scheme Liability than estimated; and less Superannuation Contribution Adjusted for Past Experience (SCAPE) income than estimated.
2.2 The AFCS is a relatively new scheme, which has been subject to changes in legislation under the Boyce Review. The lack of Scheme experience on which to base the calculations of future long term liability changes, and the higher than anticipated impact of the enhanced legislative changes, resulted in the 2012–13 Main Estimate being under stated.
2.3 The interest budget was set using a provisional scheme liability, provided by the Government Actuary’s Department (GAD), which was lower than the actual year end scheme liability, thus resulting in an interest overspend.
2.4 The latest SCAPE income forecast is lower than budgeted, which is mainly due to larger than anticipated reductions in the Armed Forces as a result of the MOD’s Strategic Defence & Security Review (SDSR) and consequently reductions in the AFPS Active membership numbers.
2.5 The increase in the net Cash requirement of £200 million arises from higher lump sum payments and Early Departure Payments (EDP) than envisaged; less SCAPE income than estimated; and a change in the process by which MOD pays the SCAPE charge over to AFPS and AFPS repays MOD for payments made on its behalf.
2.6 The higher lump sum payments and EDP’s are as a result of the difference between the estimated profile of redundancies on which the Main Estimate was based and the actual cost of agreed exits.
2.7 The SCAPE income forecast is lower than budgeted, again mainly due to reductions in the Armed Forces and consequently reductions in the AFPS Active membership numbers (see above).
2.8 The SCAPE transfers from MOD are now made one month in arrears. This will result in there being a debtor due to AFPS at the end of each financial year. This will be a one off funding requirement for 2012–13. In future years the opening and closing figures will balance each other out.
3. Changes to Net Cash Requirement Allocation
3.1 There is an increase in the net cash requirement of £200 million as a result of these changes. An advance from the Contingencies Fund of £200 million has been requested before the Supplementary Estimate is voted on.
February 2013