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Lord Bach: My Lords, we have had a very good debate. As other noble Lords have mentioned, it has been extremely well timed, occurring in the week of the celebration of the 60th anniversary of D-Day. That event should quite rightly affect us all in what we have had to say.
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These are proposals of very major importance to the Armed Forces and to the country which they serve. I should like to start by saying how grateful I am for the contributions from all noble Lords. The noble Lord, Lord Redesdale, talked about flags being raised. Certainly, a number of them have been raised on a rather wide range of topics, some of which are perhaps more relevant to the Bill than others. However, I look forward to seeing how they develop in the weeks ahead.

The debate demonstrated very well the knowledge and concern that this House traditionally has to uphold the interests of the Armed Services. I do not believe there is fundamental disagreement about the basic objects of the Bill. The arrangements that we put in place for pensions and compensation should be fairer and more responsive to the concerns of serving personnel and should be properly in line with wider good practice. My view is that the plans that we have debated today will achieve that.

I shall try to address as many of the points that have been raised in the debate as I can. Some I shall deliberately not reply to because of time constraints and because I believe they concerned topics that will emerge when amendments are tabled. The noble Earl, Lord Attlee, made a number of very interesting points from his great experience as someone who serves in the Armed Forces as a reserve. I believe—I think that he said this in effect—that many of his points may be dealt with at a later stage.

In the same spirit I shall not deal tonight with the points that my noble friend Lady Dean made about transitional issues, if she will forgive me. It would take too much time and I am sure that they will emerge at a later stage. However, I should like to try to get some points out of the way, if I may. The first is one that was made by my noble friend Lady Dean and the noble Lord, Lord Redesdale, regarding what assurance I can give that the scheme will remain a defined benefit scheme. Of course, I welcome the recognition from around the House of the value of a defined benefit scheme. As Ministers we were aware of the broader trends in the economy when we decided that we should go down that route. We are confident that that was the right decision and noble Lords' comments backed us up in that. The scheme provides the high level of assurance that Armed Forces personnel deserve. Of course, we cannot guarantee that future generations will maintain that position for all time. What government can ever do that? A government cannot bind their successors. However, we do not consider that a defined contribution scheme would be the right course for the new scheme. I think that we have made that clear.

I turn to a smaller but important point made by the noble Lord, Lord Astor. He wanted to know about the guaranteed income stream in the Armed Forces scheme. That income stream will be uprated by the retail prices index.

The noble Baroness, Lady Park of Monmouth, asked me a direct question about the incorrect taxation of ex-service personnel. We recognise the error, which
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dated back to before World War II. We have received all the files at risk and identified all those affected. Refunds have been made, including simple interest. At the end of last year, we announced a generous compensation package to cover the effects of inflation on the refunds, and the first payments have now been made. The process should be completed before the end of the year. I am sure that the noble Baroness will check with me to see that it has.

Some issues were raised that go under the heading of "legacy issues". The siren calls for dealing with legacy issues were made with incredible skill and persuasiveness today. Of course, those who make them have lots of experience in making them. Any government must be prepared to listen carefully and consider such calls, but they must also sometimes steel themselves against giving way too easily to what, on the face of it, sound like extraordinarily attractive arguments. One overrides the principle of retrospection only in very extreme cases, if at all. The noble Lord, Lord Astor of Hever, would say that, if he were standing here, as would the noble Lord, Lord Redesdale. Governments of all parties and shades have stuck with the view that to change the law retrospectively is, for the most part, an error.

I have no doubt that some of the issues will arise again at later stages, and I hope to deal with them as sympathetically as I can. However, I do not want to give the House any impression that I am in a position to offer any alleviation of the real issues that have been raised.

My noble friend Lord Morris of Manchester made a point about non-attributable widow's pensions for life. I must point again that one of the great benefits of the Bill is the fact that we have taken forward what the noble Baroness, Lady Strange, succeeded in doing in what I can only describe as a tour de force a few years ago, effectively changing the position for widows. Under the Bill, widows will be able to keep their pension for life on remarriage, whether or not death is due to service. I am not sure that that change has got the praise that it deserves.

The rules on remarriage were common across public service pension schemes. The changes made in 2000 were exceptional, for a special group of war widows. To grant pensions for life in the current pension scheme to existing non-attributable widows is not affordable and would be in breach of the policy of successive governments on retrospection.

Lord Craig of Radley: My Lords, the Minister says that it is not affordable. Can he give the House any indication of the sums involved?

Lord Bach: My Lords, I am about to do so, in general terms. The Government believe that it is not possible to distinguish between the widows of doctors, policemen or firemen whose spouse dies from natural causes not due to their employment. The financial implications of making a change throughout the whole public service would be very high, running, we believe, to several billion pounds. I mention the figure of £3 billion—in very broad terms.
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A plea was made for the pre-1973 widows, who receive a one third-rate pension. Effective pleas were made by my noble friend Lord Morris of Manchester and the noble Viscount, Lord Slim. Half-rate widows' pensions were introduced without retrospection to most public sector pension schemes in 1973. To uprate the provisions of this group of widows would be unaffordable and in breach of the policy of successive governments that there should not be retrospection.

Those serving in the Armed Forces when half-rate widows' pensions were introduced were given an option then to buy back the extra pension provision to increase their widows' pension to half-rate. I do not know how easy that was for them to do. In the gloom of what I have had to say, perhaps I may cast a little light: we are currently investigating whether it might be possible to offer a buy-in option for those now retired to improve widows' benefits from one third to a half rate. No doubt, we will discuss that again.

On legacy issues generally, I fully accept that former service personnel and their families feel aggrieved that they have not always benefited from subsequent improvements to pension provisions, but that must not delay or deter us from bringing about improvements for future pensioners. I have taken on board the points made by the noble Lord, Lord Freyberg, and others about post-retirement widows' pensions. I have no doubt that we will return to the issue.

Perhaps I may make a couple of remarks on what the noble Lord, Lord Hodgson, and others have said on a number of issues. Like the noble Lord, Lord Astor, I congratulate the noble Lord, Lord Hodgson, and my noble friend Lady Dean on having the perseverance—I know that the noble Lord, Lord Astor, meant to do that—to spend a whole day on pensions in this House. It is beyond the call of duty. I recognise their expertise in this sometimes arcane field.

The noble Lord, Lord Hodgson, asked about those leaving mid-career and having to accept lower salaries with lower pensions. I recognise that there can still be career penalties for those leaving the Armed Forces before a full career. Obviously, that can affect later pension earning capacity. However, our resettlement work shows that the majority of servicemen and servicewomen leaving the Army mid-career get good, sustainable jobs, not least because of the skills training that they have had, most importantly the skill of having been a successful member of the Armed Forces. In many cases they choose to leave earlier than we in the Ministry of Defence would wish, but we are confident that the new early departure scheme, which gets more generous the later the departure, provides security for those entering a second career.

The noble Lord, Lord Hodgson, and others made the point about communication. We do not underestimate the challenge that we face in ensuring that all servicemen and servicewomen, wherever they are serving are sufficiently informed about their options. As my noble friend Lady Dean mentioned, we have begun work on our communications exercise. We will build on the experience of those who introduced
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the new Civil Service pension scheme and our own exercises in relation to ethnic monitoring in the Armed Forces and pay legislation of 2000.

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