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Armed Forces (Pensions and Compensation) Bill

The Parliamentary Under-Secretary of State, Ministry of Defence (Lord Bach): My Lords, I beg to move that this Bill be now read a second time. I declare an interest as an associate member of the Royal British Legion for the Lutterworth and District branch.

This small, but important Bill provides the essential legislative underpinning to allow the introduction of new pensions and compensation schemes for the Armed Forces. We need to modernise current arrangements to meet the evolving recruitment and retention needs of the Armed Forces and to respond to the concerns of existing personnel and of ex-service organisations.

As your Lordships will know, the new schemes have been developed after extensive consultation with serving personnel and with ex-service organisations.
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We have listened and responded positively to criticisms from the House of Commons Defence Select Committee. Framework documents setting out the detail of both schemes have been published and placed in the Libraries of both Houses, along with documents explaining the new early departure payments scheme. We have, in short, provided a substantial amount of supporting and background material.

I recognise at once that it has taken a long time to develop these new arrangements. However, I consider the time has been well used. It has allowed us to explore and address the concerns of ex-service groups. It has ensured that the outcome properly responds to the views of service personnel and the needs of the Armed Forces. It has been necessary to address recent developments in the Government's wider agenda for pensions, which meant that the MoD's original pension proposals had to be substantially re-thought.

The new pension scheme comes in for new entrants from April 2005. It embraces the Government's wider pensions agenda in three respects.

First, it responds to the Government's move not to allow the payment of pension benefits before the age of 55 by replacing the immediate pension, paid currently at around the age of 40, with a system of compensation payments—the early departure payments scheme.

Secondly, we will defer the payment of preserved pensions from age 60 to 65 in both the new and current schemes, while protecting benefits already earned for those who choose to remain on the current scheme. This responds to the increased cost of people living longer, which all pension schemes are having to address. Scheme members elsewhere in the public and private sectors are contributing to meeting that cost and it is right that members of the Armed Forces should also do so.

Thirdly, by providing benefits for unmarried partners who can demonstrate that they are in a substantial relationship, the pension scheme recognises the wider changes in society and the lifestyle preferences of those who serve already and those we seek to recruit. This will include same-sex partners.

There was some criticism in the other place of the fact that the Bill gives the Secretary of State enabling powers to introduce the new schemes, but that there are no details of the two schemes included in it. I hope that I can reassure the House that this is the normal approach in these matters, consistent with that used for other public sector schemes, such as the police, fire and NHS schemes. In that respect, we see no reason to treat the Armed Forces any differently. Current arrangements have no formal parliamentary scrutiny. By contrast, under the new arrangements described in the Bill, the full scheme rules will be laid before both Houses in statutory instruments and be subject to the negative resolution procedure, giving Parliament the freedom to choose whether it wishes to debate the issues. Future changes will be dealt with in the same way.

We have responded positively to the real concerns that have been expressed by the Commons Defence Select Committee and by members of the Standing
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Committee that Armed Forces personnel have no representative body to speak for their pension interests.

My honourable friend the Parliamentary Under-Secretary of State, Minister for Veterans, Mr Caplin, announced on 30 April that the Armed Forces Pay Review Body has agreed to provide external validation of the pensions scheme. The AFPRB will compare benefits offered by the Armed Forces Pension Scheme with those offered elsewhere and will consider the extent to which these arrangements meet the recruitment and retention needs of the Armed Forces. We believe that this work fits well within the AFPRB's existing remit to consider aspects of the remuneration package, of which pensions are clearly a significant element. The very high regard in which the AFPRB is held by all its stakeholders should give confidence to service personnel that their pension scheme provisions will continue to measure up to wider good practice.

I turn now, briefly, to the new schemes themselves, which are contained in Clause 1 of the Bill. The new pension scheme remains a defined benefit pension scheme, giving a high level of assurance to our personnel in their retirement or in the event of injury, ill health or death. It will be fairer than the current scheme, with benefits based on final pensionable pay and with common terms for officers and other ranks. Those are two important differences from the present position.

We believe that there are significant improvements to dependants' benefits: first, the death-in-service lump sum benefit is increased from up to one-and-a-half times pensionable pay to four times pensionable pay; secondly, full-career widows' and widowers' pensions are increased by 25 per cent, reflecting the particular demands of service life and their impact on a spouse's ability to earn a pension; thirdly, and I suggest significantly, widows will in future be able to keep their pensions for life on remarriage, whether or not the death is due to service; and, lastly, there is an extension of dependants' benefits to unmarried partners, including same-sex partners, where there is a substantial relationship.

Those changes reflect key concerns raised during consultation and address the need to make proper provision for those who are left behind when personnel die or are killed in service. I have already mentioned the new Early Departure Payments scheme, which replaces the immediate pension in the current scheme. The EDP is a unique and generous mid-career leaver's compensation scheme and will be paid to personnel aged 40 and above when they leave after at least 18 years' service with their excellent transferable skills. A minority of Armed Forces personnel leave at this stage, and, historically, the Immediate Pension has been an extremely expensive benefit for the relatively small numbers who receive it.

I can assure the House that the Armed Forces Chiefs of Staff are content that, although reduced in value, these payments will continue to support effectively their manning needs. Indeed, there is a concern that
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the present arrangements lead too many people to leave at the mid-career point in a number of key skill areas.

Overall, the cost of the new pension scheme will be broadly the same as that of the current scheme, with the costs of better dependants' benefits and pensioners living longer broadly offset by a reduction in the value of payments for those leaving in mid-career and the delay of five years in the preserved pension age.

The pension scheme will be introduced for new entrants to the Armed Forces on 6 April 2005. Current members of the Armed Forces will be given the opportunity to transfer to the new scheme as soon as possible thereafter but by no later than 6 April 2007. That does not mean that they will be given up to two years to decide; in most cases, they should need no more than three months. If personnel were to be given much longer, it is possible that many would put the decision to one side and lose sight of the timescale.

Our current thinking—of course, we should be interested to hear what noble Lords have to say on this matter—is that the timetable will set a window for decisions of around nine months so that those who are on standard six-month operational deployments have at least three months on their return in which to take the decision, including time, of course, to discuss the issues with their family and, if necessary, with a financial adviser.

The decision to transfer will of course be entirely voluntary for each individual member. The Ministry of Defence will give individuals all the information necessary to allow them to make an informed choice. They will also be given sufficient time to allow them to discuss their decision with their families and, if they choose, with a financial adviser.

I turn briefly to the subject of the new compensation scheme, which will also be introduced from 6 April 2005, for death, ill health or injury resulting from service from that date. The arrangements will replace provisions under the war pensions scheme and benefits under the current pension scheme. I should make clear that the existing arrangements will continue for disablements or deaths due to service where the cause pre-dates 6 April 2005.

The existing war pension arrangements have their origins in the two world wars and are now, frankly, outdated and complex. The current standard of proof used in the war pensions scheme, "beyond reasonable doubt", was introduced in 1943. In fact, for World War I and for the first four years of the Second World War the scheme used tests based on "balance of probabilities", the standard of proof we propose to use in the new scheme. The standard was changed to the current "beyond reasonable doubt" because of the extreme circumstances of the time when it was considered important to be able to deal quickly with the very large numbers of casualties.

The social and medical environments are very different today. The proposed balance of probabilities standard of proof is widely accepted for other occupational schemes and, as noble Lords know, is
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used in our civil courts. In my view, it is no longer possible to justify the current approach. In combination with the absence of any time limit for claiming, it does not allow evidence-based decision making, properly reflecting the circumstances of an illness, injury or death. The way in which disablement is assessed means that provision is not properly focused; specifically, there is inadequate provision for those who are more seriously disabled. We would be doing service personnel a disservice by perpetuating the current outdated arrangements.

The new scheme reflects modern medical understanding and current practice and thinking on disability. We believe that it is fair, transparent, simple to understand and offers consistent outcomes, with a better focus on the more severely disabled. Importantly, the scheme is evidence-based, with a proper requirement on the department to make available medical and other records that it holds which are relevant to a claim. The MoD accepts that it has an important responsibility in this area and that the burden of providing the evidence for a claim does not fall wholly on the individual. We are confident that no claim would fail where there was reasonable evidence that disablement was due to service. And, for those claimants who feel that they have not been dealt with fairly by the department, all this will be underwritten by an independent appeal process.

Unlike the current arrangements, there will be in-service lump sum awards for pain and suffering where a significant injury does not lead to invaliding from the Armed Forces. Benefits will be provided for dependants where deaths result from service and—as with the new pension scheme—these will be extended to include unmarried partners where there is a substantial relationship. There will be a normal time limit to claim of five years, with discretion to consider claims delayed by ill-health, and an exception for late-onset conditions.

The modernisation of the appeal process for compensation arrangements is the second major element of the Bill. In line with the recommendations of the Leggatt review, the Department for Constitutional Affairs proposes to change the path of appeals from decisions of the Pensions Appeal Tribunal to include a new level of appeal on points of law to a social security commissioner, with a further right of appeal to the Court of Appeal.

Social security commissioners provide a simple and accessible system of justice. It is non-confrontational, low-cost and user-friendly. Individuals could represent themselves, if they chose to do so, but commissioners deal with most cases without the need for an oral hearing. I should also make it clear to the House that commissioners will be known as pensions appeal commissioners when hearing cases from service personnel which are appealed from the Pensions Appeal Tribunal. That will recognise the special status of Armed Forces personnel and distinguish their appeals from general matters of social security.

There is one final aspect of the Bill which I will mention briefly. The Royal Patriotic Fund Corporation, a small charity which helps service
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personnel and their dependants, needs to modernise its constitution and therefore simplify and reduce its administrative burden. We have agreed that the Bill can make provision for the legislative changes required. The Explanatory Notes give more background to that.

In conclusion, the new schemes are designed to be fairer, to reflect modern good practice and to meet the needs of our Armed Forces in this century. Those schemes were born out of a wide-ranging consultation exercise that included existing personnel, ex-service organisations and last, but certainly not least, the House of Commons Defence Select Committee.

Their comments and concerns are reflected in substantial changes to the final schemes. The proposals have the confidence of the service chiefs and their staffs, with whom they have been closely developed, and the reactions of individual service personnel have so far generally been positive.

At a time when pension schemes are under great pressure more widely in the economy, we have retained a defined benefits structure and we have made major improvements to widows' and dependants' benefits. I make no apology for going against the trend seen more widely in pension provision; that is, towards placing the ultimate risk on the individual through defined contribution schemes. Service personnel can be assured that they are getting a very good package and, specifically and most importantly, that if the worst happens there will be generous financial support for their families. The level of provision is high, but we believe that such treatment in those circumstances is fully justified. I commend the Bill to the House.

Moved, That the Bill be now read a second time.—(Lord Bach.)

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