Defence CommitteeFurther written evidence from the Ministry of Defence
ARMED FORCES PENSION AND COMPENSATION SCHEMES
2013–14 MAIN ESTIMATES
1. Introduction
1.1 This Memorandum covers the Estimate for the Armed Forces Pension and Compensation Schemes (AFPS) for 2013–14. The Schemes’ spending plans for this financial year are based on the expected take up of pensions of retired Service personnel and the expected claims under the Compensation Scheme, less anticipated mortality within the existing pensioner population. The Estimate covers only the payment of pensions and compensation. The costs of administering the Schemes fall to the MOD Main Estimate.
1.2 The employer’s charge to the pension scheme is met by payment of a Superannuation Contribution Adjusted for Past Experience (SCAPE), calculated as a percentage of military pay based on rank. The SCAPE contribution made by the MOD partially funds the payments made by AFPS in year. Funding from the Consolidated Fund is required to meet the difference between the payments to pensioners and the amounts receivable from MOD. In addition, funding is required to finance movements in working capital including increases or decreases in bank balances.
1.3 The AFPS is a demand-led service and is therefore Annually Managed Expenditure (AME); as a result there is no Spending Review settlement to base the Estimate upon.
1.4 This Estimates Memorandum should be read in conjunction with the Main Estimates.
2. Summary of Resources Sought in the Estimate
2.1 The AFPS Main Estimate requests provision of:
|
a. |
Net resources within Request for Resources |
£5,679 M |
|
b. |
Net Cash Requirement |
£2,372 M |
3. Detail of Changes to previous forecast and revised Estimate
3.1 These are summarised in Table 1 below.
Table 1
REVISED 2013–14 MAIN ESTIMATE
|
Changes |
Total AME £M |
|
Previous Forecast |
5,442.0 |
|
Increase in current service cost |
488.3 |
|
Decrease in interest on scheme liability |
(305.3) |
|
Other changes |
54.4 |
|
Revised 2013/14 Estimate |
5,679.4 |
4. Detailed explanation of the changes
4.1 The calculation of current service cost and interest on scheme liability is affected by:
|
a. |
The discount rate—this has changed from 2.8% real to 2.35% real effective from 31 March 2013. |
|
b. |
Interest rate of scheme liabilities has fallen from 4.85% to 4.10%. |
The overall affect of these adjustments results in a decrease in the pension scheme interest charge and an increase in the current service cost (payments from the scheme).
4.2 An increase of £488 Million in current service cost is due to both the discount rate change, combined with the associated change to the factor agreed by the Government Actuary’s Department (GAD), and an increase in the Armed Forces Compensation Scheme (AFCS) liability. The AFCS liability has increased due to legislative changes to the scheme under the Boyce review.
4.3 A reduction of £305 Million in interest is due to the reduction of the interest rate from 4.85% to 4.10%. This is a non-cash charge.
4.4 Other changes have increased the resource requirement by net £54 Million. This is mainly due to lower SCAPE receipts than previously anticipated, which is a consequence of the continuing reduction in Armed Forces personnel.
Table 2
COMPARISONS WITH PREVIOUS YEARS
|
Estimate & Outturn |
2012–13 £M |
2011–12 £M |
2010–11 £M |
2009–10 £M |
|
Supplementary Estimate |
5,666.9 |
5,750.0 |
6,792.5 |
5,700.3 |
|
Outturn |
n/a |
7,071.7 |
(8,766.0)* |
5,599.3 |
|
Difference |
1,321.7 |
15,558.5 |
101.0 |
Table 3
NUMBER OF PENSIONERS IN SCHEME
|
Year |
Number of Benefits in payment as at 1st April 2013 |
|
2012 |
406,264 |
|
2011 |
400,742 |
|
2010 |
398,840 |
|
2009 |
396,511 |
5. PUS Sign Off
5.1 The information in this memorandum has been approved by David Williams, Finance Director, on behalf of Jonathan Thompson, Permanent Head of Department and Accounting Officer of the Ministry of Defence.
June 2013