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New AFPS & Compensation Schemes

MoD Response to the Defence Committee Report on The Armed Forces Pensions and Compensation Schemes

 

Issue

1. Key points of House of Commons Defence Committee (HCDC) report published 16 December on new Armed Forces Pensions and Compensation schemes, and MOD position on issues raised.

Report in summary

2. The HCDC report welcomes elements of the proposed changes, including improved widows’ and dependants’ benefits, the inclusion of unmarried partners and changes to the compensation scheme. It also supports paying for these improvements through the lower value Immediate Pension replacement. However the HCDC report is critical of a number of aspects of the schemes, notably the decision to work on the basis of cost neutrality.

3. The Report also presses for some key details to be included in a schedule attached to the Bill. The Committee is concerned to ensure that full and proper consultation should take place with the Armed Forces, with other stakeholders and with Parliament.

MOD position – Key points

  • Welcome HCDC report as a serious contribution to the debate; dismayed to see largely negative media reporting of this important issue. Will consider HCDC comments carefully as detailed arrangements are developed;

  • New pension scheme (to be introduced for new entrants from April 2005) has different balance of benefits from current scheme, but better recognises special status of military service (better focus of resources on widows and more severely disabled);

  • There are major improvements to dependants’ benefits, including a 25% increase in widows’ benefits and a lump sum death in service payment worth 4 times pensionable pay (compared with up to 1½ times at present);

  • Accusation in the media that pensions have been slashed is misleading - retirement pensions have retained their value (but in some cases paid 5 years later). It is just the early benefits paid to people serving to 40 that have been reduced (until their pension comes into payment at age 65).

  • Change in preserved pension age from 60 to 65 for personnel remaining in existing scheme will affect benefits earned only for future service (from a date yet to be announced). Benefits earned up to the time of change will be fully protected and available from age 60. This change responds to Government’s wider pensions agenda, as part of policy on longer working lives, and affects all public service schemes. Also reflects moves in private sector.

  • Nevertheless, have retained a lump sum and income stream for those leaving after 18 years’ service (and at least age 40) before a preserved pension is paid at age 65. We know of no other employer that offers this level of benefit.

  • New pension scheme is indeed broadly cost-neutral compared with the current scheme, taking account of longevity. MOD considers it has achieved a reasonable rebalancing of benefits that will support better retention. Thus, substantial improvements to widows’ and other dependants’ benefits and introduction of benefits for substantial unmarried partners, which were strongly supported during consultation, have been paid for by offsetting reductions elsewhere. In an outside scheme, increasing costs would have to be paid for by increased contributions, later retirement or reduction in benefits.

  • MOD consulted interested parties initially in 2001 on basis of clear set of principles. Have since developed these in the light of the DWP and Inland Revenue papers that have described the Government’s pensions agenda. HCDC was given quite detailed documents setting out framework for new schemes and Parliament will receive further details of all major aspects of new arrangements by Committee Stage of Bill (broadly Feb 04). Perfectly normal approach for such legislation.

The overall reception to the new schemes has generally been positive. Current Service personnel were consulted on the detail of the new schemes, and their views are reflected in the final decisions. The ex-Service organisations generally view the significant improvements to dependants’ benefits, among other things, as a positive and welcome development.

Last Updated: 20 Apr 04