Armed Forces (Pensions and Compensation) Bill

Public Bill Committee, 24 February 2004.

Standing Committee B

New clause 2 - Re-employment of armed forces

Win Griffiths (Labour, Bridgend)

I remind the Committee that with this we are taking the following: New clause 9—Early departure payments—

'A system of Early Departure Payments (EDPs) for those serving 18 years and having reached age 40 (whichever is later) will be payable until the preserved pension comes into payment at age 65.The Secretary of State shall by order set out details of these payments.'.

New clause 26—Early departure payments (No.2)—

'Any Early Departure Payments (EDPs) established under section 1 of this Act as part of the Armed Forces Pension Scheme shall include the following provisions—

(a) there will be a qualifying period of service for the EDP, common for Officers and Other Ranks.

(b) the EDPs will be payable from age 40, but only on completion of 18 years of service (the 40/18 point);

(c) it will be paid to those leaving from that point and, as now, personnel will be eligible whether they leave for Service or personal reasons;

(d) from the 40/18 point, there will be immediate entitlement to a tax-free lump sum equivalent to three times the individual's accrued annual preserved pension value;

(e) in addition, at the 40/18 point, there will be an entitlement to an annual payment of 50% of the individual's accrued preserved pension entitlement. This payment will remain at the same level for those leaving at that point and, between the ages of 40 and 55, will not attract index-linking for inflation;

(f) for each year by which the individual's retirement is deferred after completing the 18 years of qualifying service, the value of the annual payments will increase by 1.66% up to age 55, at which age the annual payment will be 100% of the preserved pension entitlement. Until age 55, this payment will remain unchanged and will not attract index-linking for inflation;

(g) from age 55, the payments will be adjusted to take account of the changes in the Retail Price Index (RPI) since the point at which the EDP was originally taken and thereafter on an annual basis until the preserved pension comes into payment at age 60.

(h) existing policy on abatement will apply to Early Departure Payments if a recipient is subsequently reemployed in the public services.

(i) a preserved pension will be paid from age 60 onwards, with its value adjusted fully in line with RPI from the last day of service. At this point, a pension lump sum of three times the individual's preserved pension entitlement will also be paid.'.

Gerald Howarth (Conservative, Aldershot)

Welcome back to this scintillating Committee of ours, Mr. Griffiths. We assure you of an interesting and enjoyable afternoon.

Shona McIsaac (Labour, Cleethorpes)

Another broken Tory promise.

Gerald Howarth (Conservative, Aldershot)

You will be pleased to know that I did not hear that sedentary intervention, Mr. Griffiths. I am sure that if I had heard it, I would thoroughly disapprove of it.

I was dealing with a key aspect of the early departure payments scheme, known as the EDPS, and want to seize the opportunity to correct the record. I inadvertently misled the Committee over the index linking of payments between the ages of 40 and 55. I suggested that the current immediate pensions scheme provided for inflation adjustment during the period when the immediate pension is taken, up to the age of 55, but it does not. The new scheme is four-square with the existing scheme. I shall return to the re-employment of those who have left the service.

As I said before lunch, we welcome the announcement that the Minister made when he provided us with the papers setting out the details of this exciting scheme, which he gave to us by way of a letter to the Chairman of the Defence Committee on 2 February. It is particularly welcome, given that as recently as last month, the Government responded to the Select Committee's report and said that no decision had yet been taken on the issue. Clearly, a lot of footwork has been done, and it is fair to say that we welcome that announcement. There will be inflation uprating for those who reach pension age at 55. Perhaps the Minister will clarify that they will be in the EDPS until they receive their preserved pension, currently at the age of 60, and at the age of 65 in the future. The difference is that from the age of 55 to 65, it will be uprated annually to take inflation into account. The Minister nods, so I can welcome that, too. This is a very helpful Committee.

Issues of principle flow from the changes. The immediate pension arrangement is subject to the protections that apply to pensions. The Government changed it to prevent the payment of pensions generally before the age of 55 and had to invent a new scheme—the EDPS. The Minister argued that it is

the secondary legislation behind this measure that will give the new scheme the same protection, and that people are therefore protected because the scheme can be altered only by negative procedure. Will he confirm that the EDPS will be protected from internal Ministry of Defence cost-saving exercises and that it will not be possible to raid the pot without the Secretary of State altering the scheme through secondary legislation?

As I said, we are exchanging a pensions scheme, with all the attendant protections arising from pensions legislation, for a new scheme that enjoys no such protection. As a result of parliamentary questions that I tabled, we have been assured that national insurance contributions will not be applied to that income stream. However, we are entering new territory and cannot anticipate how well protected the new scheme will be from attack by the Inland Revenue or elsewhere. What investigations has the Minister undertaken to verify the robustness of his new scheme? Will he assure the Committee that he is confident that it will be secure from attack from elsewhere?

Those are not academic questions. The Government's response to the Select Committee report said that

''divorcing the EDP scheme from the constraints of pension rules allows a more flexible and targeted approach, responsive to manning needs and in particular reflecting the various manning exit points.''

It is important to recognise that the Government accept that the scheme will not come under the constraints of existing pensions rules.

There is also the issue of commutation, which is perhaps not a matter of principle so much as of practicality. The immediate pension, which currently prevails, and the proposed scheme are both designed to provide a pull-through.

Julian Brazier (Conservative, Canterbury)

Before my hon. Friend moves on, it is perhaps worth underlining the fact that the current pension scheme in its entirety is ring-fenced and protected. Indeed, people will have the option of remaining in it rather than entering the new scheme. However, the Government seem to be suggesting that the early departure scheme, far from being a fixed entitlement that people will accrue during their service, will be subject to changes to meet manning and no doubt budgetary requirements.

Gerald Howarth (Conservative, Aldershot)

My hon. Friend makes a good point. The Minister heard it and I hope that he will respond. Perhaps we will move on to that issue when we discuss transitional arrangements and whether the protection will continue and the terms of the old scheme will be available to be applied to the new scheme. I understand that that will not be the case and that the question will be a straightforward either/or.

The immediate pension and the new scheme are both designed to provide a pull-through—an incentive to soldiers, sailors and airmen to stay on rather than quit at an age at which a second career might be easier to come by. As the Minister accepted in earlier discussions, housing is an important issue in that context, and one which exercises my hon. Friend the

Member for Canterbury (Mr. Brazier). Clearly, the lump-sum payment is designed to be available to assist with house purchase. However, if the serviceman is restricted in the amount that he can commute to increase the lump sum available to him, his ability to access the housing market will be similarly constrained. In addition, if he leaves at the age of 40, his early departure payment income will be about half the rate of a counterpart retiring today at the age of 40. He will therefore have a reduced income stream from which to service any debt that he may assume to enter the housing market.

In respect of the commutation, I understand that the Ministry of Defence claims that the new scheme must comply with the Finance Act 1989, which limits the lump sum that is payable. The MOD also points out that the Green Paper proposes limits to the amount that can be commuted—about 25 per cent. of the available pot. It is important that the Government explain to servicemen and women exactly what the new scheme entails and how much they will be able to commute from their pension entitlement to a lump sum.

I understand also that the resettlement commutation is impossible in the new scheme, except at 65, when the second lump sum and the preserved pension come in to issue. That, of course, is quite late in the day. The Ministry has yet to decide whether to offer such a facility, arguing that it will have to wait for the Finance Act, which brings in to being the Green Paper proposals. It also takes the view that the employer has the responsibility to protect servicemen from commuting too much, blowing it and then having to fall back on the charity sector or the state. People are reasonably responsible these days, particularly if they have served in the armed forces: they have a sense of responsibility that is not perhaps shared by everyone. However, we need clarification on that.

Although this is not, strictly speaking, a pension issue, it is none the less an issue that the Ministry of Defence and the Minister himself recognise. I should be grateful if he could address those points. As I said earlier, and as the Government freely acknowledge, the early departure payment scheme is essentially a manning tool for the Ministry of Defence. We cannot at this stage tell what effect it will have on retention, let alone recruitment. We are told that senior military personnel are content to sign up to proposals that they know will provide substantially reduced benefits for their people. We also know that in the consultation document published by the Government in March 2001, the Ministry had concluded that altering the immediate pensions substantially would place manpower planning at risk.

The Minister owes the Committee an explanation as to why ministerial and military minds have been induced to exercise this apparent major U-turn in replacing the immediate pension with the new scheme. It is a gamble: we are looking 20 years ahead, but as I said, it is important for us to challenge Ministers to project themselves forward to consider what conditions are likely to apply in 20 years' time, and how the scheme is going to work. There is an

immediate test available: the test of how many people decide to transfer from the existing scheme to the new scheme. I do not know what consideration the Minister has made of people deciding to stay in the existing scheme rather than move to the new scheme—it may be a large number. That will give us some indication.

Ivor Caplin (Labour, Hove)

That is not the point on which I want to intervene, but I may return to it. I want to address what was said in 2001 and what is now before the Committee. It is important to place on record that a serious consultative process should start with a document on which we consult people at different levels, including the veterans' organisations. It should then come to a conclusion, which is put before us as legislators. That is what we are doing. I do not think that it should be regarded as change, but as part of the natural process of consultation.

Gerald Howarth (Conservative, Aldershot)

I am grateful for that point: there is greater joy in heaven over the one sinner who repenteth. We welcome in the same breath the Government's willingness to consult and listen. This may be a small conversation compared with the big conversation, but the big conversation is going nowhere, while the smaller conversation is clearly going somewhere. We are very appreciative that the small conversation is working. To move from an argument that the immediate pension provision would place manpower planning at risk, to being dissuaded by the veterans' organisations that it would not, is quite interesting.

Ivor Caplin (Labour, Hove)

I do not want to give the impression that the veterans' organisations changed my mind. I made a general point about the process of consultation and the fact that there was wide consultation on the overall pension compensation scheme. I know that the situation is different when we are dealing with one new clause on the early departure scheme, but I was making a general point about consultation.

Gerald Howarth (Conservative, Aldershot)

I think the Committee will appreciate the Minister's clarification .

I said at the outset that I would like to return to new clause 2—I apologise to the Minister for doing so—which is about the re-employment of recipients of armed forces pensions. Some people leave the service and are later re-engaged in Crown employment, which basically means working for the armed forces again. The policy under the new arrangement is that existing policy on abatement will apply to early departure payments if a recipient is subsequently re-employed in the public services. You were not here this morning, Mr. Griffiths, so, for your benefit, that means that where someone is in receipt of a pension, their combined pension and pay in their post-retirement job cannot exceed the pay that they were earning when they left the job.

In the Department for Work and Pensions Green Paper, ''Simplicity, Security and Choice'', to which I have referred, the Government recognise that people increasingly want to work after retirement, often part-

time or in a position of reduced responsibility. The document says that people

''end up retiring when they would have preferred instead to stay in work in a reduced capacity, supported by a combination of earnings and pension. The Government proposes to remove this constraint. As part of the Government's consultation on the simplification of the pensions tax regimes, we are proposing to allow schemes to offer people the opportunity to continue working for the sponsoring employer while drawing their occupational pension.''

People who choose to work after retirement show how they are able to continue contributing in a meaningful way, and the armed forces are no different. This morning I gave the example of the garrison adjutant at Aldershot, Colonel Jack Matthews, who retired from the Army as an officer and was then re-engaged, but who, like his 2,000 or so colleagues, is limited in the amount that he can earn.

Certain ex-service organisations have also suggested to us that there could be a role for blind and limbless ex-service personnel in other parts of the MOD, such as in stores, doing clerical or administrative work. Such men have made great sacrifices; they have put their lives on the line for their country and it seems unfair that they should be penalised for wanting to continue to serve their previous employer, where they have a role to play and can bring some experience to the party. However, the Green Paper says that certain pension schemes will be exempt from those changes, at what seems to be the discretion of those who operate the scheme.

We take it that that will be the case with the forces pension scheme; that it will operate under the existing rules, rather than under the new rules proposed by the Department for Work and Pensions, which is encouraging people to stay on. That change in the overall pensions legislation is making its way through the House of Commons. I should like the Minister to say why it has not been possible to include service personnel in the new overall pensions arrangements. The people in question can make a real contribution, as the Minister surely recognises, having met the same sort of people as I have. If the Government's overarching pensions policy is designed to meet the requirement for greater flexibility and to enable people to continue work in a reduced capacity, the armed forces should be included. There is already the example of the Full Time Reserve Service.

I have met Tornado pilots who are currently defending us at RAF stations. They include full-time reservists, who have left the service and been re-engaged. They have shed many of their former administrative responsibilities and are doing what they want to do, which is to fly aeroplanes. All their flying expertise is preserved. They have not gone off and joined Virgin Atlantic or some other airline. They have stayed in the service, but on new terms.

The Ministry of Defence should look at this more in the round. There ought to be a more flexible way in which we can use this valuable resource, to use the modern jargon. These are people with a lot of experience and a lot of expertise for which the taxpayer has paid. We should be able to take advantage of their services without penalising them and putting substantial constraints on the conditions

of their pension entitlements and their salaries for their new part-time responsibilities.

In conclusion, the general verdict is that if the Government are to be cost neutral, this is the place where savings should be made. That was the view of the Select Committee. The Government have responded to some of the concerns that have been raised. The fundamental issue, the point about which my hon. Friend the Member for Canterbury feels so strongly, is that this is a completely new regime. The payments will no longer be governed by the laws that apply to pensions, but by completely separate laws. We are entering unknown territory. Can the Minister reassure us that he has carried out the investigations and considered all the potential elephant traps? Secondly, is he confident that the scheme will be robust and will not be subject to attack either from the Treasury or any other arm of Government?

Julian Brazier (Conservative, Canterbury)

I shall be brief. The Committee will be relieved to hear that I do not intend to repeat all the points that my hon. Friend made in his excellent speech. I strongly echo his point that this is not only a huge reduction in payments to most service personnel in the long run, but is uncharted territory. I shall pick two small details from my hon. Friend's speech and support him on both. The first concerns commutation.

I was uncertain when I saw how small the early departure payment would be whether commutation was appropriate. However, on reflection, partly as a result of the Minister's comments, I think that there should be a generous arrangement for commutation. The reason is simple. As the Minister has repeatedly said, most members of the armed forces have reasonably transferable skills. They are not terribly disadvantaged in the labour market, although most members of the Army and Navy are still likely to go in at a lower salary than they would have enjoyed if they had built up a civilian career.

The idea that the early departure payment is a safety net is unrealistic for the vast majority of them. Where they are grossly disadvantaged is in the housing market. This is being written from scratch. It is not a pension payment, subject to the 25 per cent. rule, as a pension payment would be. To allow members of the armed forces flexibility so that they can get a worthwhile second sum out of this relatively small payment to put towards the huge cost of buying housing seems very sensible. There should be no advantage or disadvantage either way to the Treasury. It is a matter that should be left to service personnel to decide for themselves. Allowing them to commute a large chunk would be sensible.

Ivor Caplin (Labour, Hove)

I understand what the hon. Gentleman says about commutation, but the other side of the equation is that if EDPS is a safety net, commutation would remove a substantial part of it, especially if there were an annual commutation, which I think is what the hon. Gentleman is suggesting. For example, let us suppose that the veteran put the entire amount into a business, which then failed, what safety and security would that person have?

Julian Brazier (Conservative, Canterbury)

The vast majority of members of the armed forces do not get into the extreme trouble that the Minister mentioned and, at the end of the day, the state would be there, as it is for civilians. Studies show that members of the Army who buy property early in their service are much more likely to leave the service early than those who do not. Unless they buy a house during their last few years of service, almost all members of the Army approaching retirement are at a huge disadvantage in the housing market. The ratio of house prices to incomes is close to an all-time high; there are only two brief periods in history—a matter of a few months—in which it has been as high as it is today, and because of the extreme shortage of house building and continuing pressures it is not likely that that ratio will improve; it may even get worse.

People coming out of the Army in their 40s are hugely disadvantaged as their counterparts in civilian life are on the second, third or even fourth tier of the housing ladder. Service personnel in their 40s do not want a starter home as they probably have children of 11 and 13—I mention those ages because my children are that age and I am 50. They need family homes and a gratuity of between £30,000 and £50,000, depending on their rank, although more than a deposit, will not be nearly enough. The absurdity is that a taxable income will cover only a relatively small proportion of the mortgage, whereas a tax-free lump sum, which would be the effect of commutation, could knock a big chunk off any mortgage that they take out.

I was not at all certain about the matter when the Bill was published. I was horrified at how small the early departure payments were to be—up to the age of 55 they are about half of what they would be now—but on reflection I believe that the housing considerations are more important than those of the safety net, as housing considerations affect the majority of people, whereas those of the safety net apply only to a relatively small minority.

I want to approach my hon. Friend's point about disabled people from a slightly different angle. We rightly take the strong view that there could be no question of the equal rights legislation for disabled people being applied to the armed forces; that would be ridiculous in any capacity. We strongly disagree with those who asked why, if a disabled person can be a cook in civilian life, he cannot be a cook in the Army. The answer is that even the cooks have to fight, and on many historic occasions they have done so, if desperate measures were required. However, that relates to recruitment from civilian life; the other side of the coin is that if someone becomes disabled when they are already in the armed forces, the Ministry of Defence, as a good employer—the Minister has stressed many times that he wants the MOD to be seen as a good employer—should make every effort to make use of their experience and find them, for example, a supporting civilian role.

Ivor Caplin (Labour, Hove)

I am glad to hear that, because that seems to be a slightly different point from that made by the hon. Gentleman and his colleagues about the compensation proposals. During the previous sitting, I made the point that one of the big differences between the compensation scheme today and the one that we

propose from April 2005 is that we would actually be able to support someone who is disabled in service. We cannot do that today; it is a big difference. I am glad of the hon. Gentleman's support.

Julian Brazier (Conservative, Canterbury)

I do not accept that it is a big difference. As I said, in most cases that support would be in a civilian capacity. It is comparatively rare that somebody with a severe disability can continue to serve in uniform, although I welcome any opportunity for them to do so. I echo my hon. Friend's point that it would be unfair if rules about adding up the total were to work against such a disabled person. Whether they are in a military capacity or, as is more common, in a civilian supporting capacity, the equation will apply in exactly the same way. That is why I support my hon. Friend's reservations.

Desmond Swayne (Conservative, New Forest West)

My hon. Friend the Member for Aldershot (Mr. Howarth) has done a great service to the Committee by going through the matter so thoroughly and, in particular, by illustrating the effects of the Government's new scheme with figures and examples. It is undoubtedly a much less eligible scheme than the old one. That prompts an enormous question: what on earth has happened? The principal disadvantage of the current armed forces pension scheme is that it cannot provide a full pension at full retirement age. It cannot reach the figure of 66 per cent., because of the expense of the existing immediate departure point. That relatively fast accrual rate is paid for in effect by the relatively slow accrual rate of those who go for the full career. The argument has always been made that given that the immediate departure point—an expensive feature of the system—is a manpower planning requirement of the Army to draw people on to a particular point in their career, it should be paid for by the Ministry of Defence rather than by the beneficiaries of the scheme who will have a less than two thirds pension when they comes to full retirement age.

We now have a new scheme. The Government have taken the axe—or are going to—

Vernon Coaker (Labour, Gedling)

So are you.

Desmond Swayne (Conservative, New Forest West)

No, the hon. Gentleman is going down the wrong road. We will steer clear of that one.

The figures to which my hon. Friend drew our attention clearly show that a significant saving is now being made on the principal expensive part of the scheme. As a result of making that saving, we ought to be able to deliver the holy grail: the full two thirds pension on retirement. Of course, we are not. The Minister has some explaining to do as to where the savings have gone from the early departure point of his new scheme. It cannot all have gone in to providing additional benefits to unmarried partners or a better death in service benefit. Where has the rest gone?

Ivor Caplin (Labour, Hove)

Welcome back to the Chair, Mr. Griffiths. I am grateful for the debate that we have had on new clauses 2, 9 and 26. It might not surprise the Committee to hear that I hope that when we have finished the debate, the hon. Member for

Aldershot will be able to withdraw the clauses. If he does not, I shall ask the Committee to resist them. We started off the debate with the issue of cost neutrality, which is quite an interesting place to start. I was tempted to talk about cost cutting, which certain Opposition Members will have to consider. It is fair to say that while we are cost neutral, what has been proposed by the official Opposition—although not any Committee members—is different and would have drastic implications for the defence budget.

Gerald Howarth (Conservative, Aldershot)

I am grateful to the Minister for giving me the opportunity to put him right. I know that he does not believe what he said. Indeed, he knows that his Ministry is engaged in a severe cost-cutting exercise at the moment.

The shadow Chancellor has made it clear that we will have priority areas. We do not know what the situation will be when we come into government next year, as the economy is fast running away from this Government and Chancellor. However, the Conservative party regards defence as this country's golden asset, and we are determined to ensure that our armed forces are resourced to meet all the agreed tasks and commitments.

A Government review is taking place under Sir Peter Gershon, and we have a review under David James. We anticipate that the accumulated savings from those two reviews could be deployed to priority areas and, to ensure that the Minister can sleep safely in his bed, I can assure him that defence is a priority area for such redistribution.

Win Griffiths (Labour, Bridgend)

That was a rather long intervention. Moreover, we do not need to go further down that line and should concentrate on the armed forces pension.

Ivor Caplin (Labour, Hove)

I agree with you, Mr. Griffiths, as that intervention made the Conservative party's position as clear as mud.

Cost neutrality is a sensible and reasonable place to start the debate, and it is where we made the basis for the new schemes. One will always consider affordability as part of new pension arrangements or the early departure plan. However, if we consider the value and balance of the overall package, we will see that it is not only an important part of the manning control systems that were referred to. It is primarily an opportunity to ensure that the skills of people in our armed forces are on the increase and transferable and that they utilise those skills in the first instance in our armed forces. I do not believe that Committee members disagree about that.

The issue of second careers is interesting, and I have made my point about the compensation scheme. I hope that when we finish debating the Bill, we will agree that it is a significant change to the compensation proposals.

The Committee will not be surprised to know that if someone leaves our armed forces and becomes a civilian worker in the Ministry of Defence, they become subject to the rules of the MOD civil service. For my sins, I happen also to be responsible for the personnel matters of the MOD civil service, so such people get me twice in that respect. On the civilian

side, we will consider wider Government issues in relation to pensions and employment, as we would be expected to do as a major employer in Whitehall. As someone who has long supported public services and public service delivery, I anticipate doing that for many years to come.

The hon. Member for Aldershot also asked about whether we had checked out the early departure scheme with other organisations, including the Inland Revenue. Everything in the Bill has been thoroughly discussed with the Inland Revenue, and it has given us a big green tick that means that it is happy with the scheme.

That brings me on to the early departure plan scheme changes—even I will start calling it the EDPS if I am not careful. The hon. Member for Canterbury made an interesting point about what happens under the scheme if there are changes. I think that that was also the nub of the point of the hon. Member for Aldershot—how would we deal with changes within the scheme rules and secondary legislation? I hope that I will be able to reassure them both, and the hon. and gallant Member for New Forest, West (Mr. Swayne) and all concerned, on this particular matter.

When an individual signs up for their early departure plan arrangement, that will persist throughout their service until departure. In effect, whatever the rule is on the day they join, that is the early departure plan that they will get. Any change proposed by our Government or by any Government of a different nature in hundreds of years' time would apply only to new entrants. That is the important difference that I am making. There is no detriment to any individual.

Julian Brazier (Conservative, Canterbury)

The Minister is being extremely helpful and what he has just said is very welcome, but can he tell us whether this pledge will be in the Bill or will it be reversible by a single statutory instrument?

Ivor Caplin (Labour, Hove)

It is not going to be in the Bill, or we would not have the hon. Member for Aldershot's new clause. We have dealt with the legislative process in relation to that at some length during our five or six sessions so far. There will not be any detriment to individuals.

I will deal with the issue that the hon. Gentleman the Member for Canterbury has raised a number of times. We are talking about a balance between what is proposed and what others would like, but at the same time a balance within the whole package of pensions and compensation. We have probably got this right. As others have said, it is wait and see to some extent, but we believe that, working with the service chiefs, we have got the early departure plan about right. It delivers what we want and it delivers to members of the armed forces some support that they would otherwise have through the immediate pension proposals that we have today. If they stay in the other scheme, they have a different situation, at which we will have to look.

Housing is an interesting one, which we have talked about a number of times. I intervened on the hon.

Gentleman on the issue of commutation, but I accept what he says: that nine out of 10 veterans are fine when they leave the armed forces—I freely used those figures on Second Reading and elsewhere—but it is the 10 per cent. who offer us many of the issues and challenges. Some veterans find themselves in the House of Commons after they leave the armed forces. Some even get mobilised again, to keep them on their toes. I am not saying that the hon. and gallant Member for New Forest, West is in the 10 per cent.

However, hon. Members also asked me about savings. A major saving in the overall package is achieved by those who leave immediately on reaching the early departure payment points. What they will receive is three times pension entitlement as a lump sum and annual payments set at 50 per cent. of what they would have received as a pension under the current scheme. This will remain, as discussed, at the same level until age 55 when the retail price index factor cuts in. We feel it right to pay the larger sums later rather than earlier, from age 55, when second careers may be more at risk. It comes back to the whole question of balance. What do people do at 40 or 45, what do they do at 55 onwards? The whole package achieves a saving of around 30 per cent. That saving has gone into other parts of the pension and compensation arrangements to achieve cost neutrality, which is the point at which I started this speech.

Gerald Howarth (Conservative, Aldershot)

I was making the point to the Minister this morning that, according to the figures that we have been given from an impeccable source, the Forces Pension Society, the savings are round about 20 per cent., and that includes those retiring at age 40. The later the retirement, the more the new scheme tends to approximate to the existing scheme, but for people retiring earlier there is a pretty substantial cut. Even so, the overall package, assuming someone continues to live to the age of 75, is about 20 per cent., so I am not clear on where the Government get their figure of savings of one third. That figure has been a key component of the Government's scheme, because it is the savings to be made from the ending of the immediate pension scheme and the introduction of this new one that will fund all the other benefits and improvements the Government are so anxious to institute.

Ivor Caplin (Labour, Hove)

I am grateful for the hon. Gentleman's intervention. Of course my protection—which was always my protection throughout my private sector career as well—is to blame the actuaries if there is anything wrong. On this occasion, however, the actuarial advice that I have seen is reasonably accurate.

I have looked at some of the issues raised by the Forces Pension Society, including the 20 per cent. figure. As far as I can see, its figures do not use any discounting factor. In other words, for the Committee's benefit, they take no account of when the savings are made, and that will create a more expensive scheme than our proposed scheme, which produces the 30 per cent. figure. That is the difference.

I want briefly to deal with the three new clauses themselves, having dealt with most of the issues in the debate.

Julian Brazier (Conservative, Canterbury)

We went off commutation rather fast there. Is the Minister really saying that, because there is a danger that some of the 10 per cent. who are unfortunately coming out may ultimately become a burden on the state in another way—if they were given the power to commute which they might use irresponsibly—that then means the other 90 per cent., the majority of whom do not own houses, are denied the opportunity to commute a bit and ensure they can afford a reasonably sized home for their families?

Ivor Caplin (Labour, Hove)

I was not in any way suggesting that about the other 90 per cent., nor was I passing comment. I am prepared to be open-minded and carry on looking at commutation, but I do not find the argument for it pressing or persuasive. That is where I stand today. I hope that I can now deal with the three new clauses before us, Mr. Griffiths. I am sure you will be relieved at that.

The aim of new clause 2 is to establish a more favourable abatement regime for EDP recipients under the new arrangements. I cannot see any reason why payments under the new early departure payment scheme should be treated differently from current arrangements for redundancy payments.

Gerald Howarth (Conservative, Aldershot)

The whole point of what I was saying is that the Government, engaged in a big conversation on pensions, are saying that they want greater flexibility in employment. One arm of the Government is saying that greater flexibility is needed—the Government want people to be re-engaged by what they call the sponsoring employer—yet the Minister of Defence is introducing a completely new scheme to replace the immediate pension scheme and saying, ''Oh, no; in that respect, the new scheme completely replicates the existing scheme in that respect, but not in others.'' It seems that that there is a huge inconsistency in Government policy here—and, much more important, a seriously missed opportunity.

Ivor Caplin (Labour, Hove)

I disagree; there is absolute consistency. What we do today with abatement of the immediate pension of someone who is re-employed is exactly the same as we propose with the early departure plan. The existing policy on abatement will continue to apply to individuals in receipt of the early departure plan income.

The abatement rule will ensure that a service person on re-employment by the MOD, or anyone else, cannot earn more through a combination of pension or redundancy income and salary than what they received in salary on their last day in service. It is a fair system that people would recognise as fair and equitable.

I made sure that the Committee had the necessary paperwork to consider new clauses 9 and 26, and I am grateful for the debate on the early departure plan. I hope that the examples that I was able to send to Committee members have been helpful in drawing together those points. The two notes that I provided

effectively provide the rules of the basic early departure plan scheme. You will be pleased, Mr. Griffiths, to know that they form the basis of the statutory instruments that we shall lay before the House in due course, along with separate instruments for the new pension and compensation schemes. No doubt, we shall all be back in Room 11 to debate them.

In new clause 26, the hon. Member for Aldershot raises a familiar theme on scheme rules in primary legislation. I am not sure whether I need to rehearse all the arguments that we heard in the debate on clause 1. Repetition is usually frowned upon by members of the Chairmen's Panel, but suffice it to say that I believe we have the right level of parliamentary scrutiny and the right system of enabling legislation, and that we are right to take secondary powers through statutory instruments. On that basis, I hope that the hon. Gentleman will withdraw the new clause. If he does not, I shall ask the Committee to resist it.

Gerald Howarth (Conservative, Aldershot)

We are encouraged to hear that the Department has received a green tick from the Inland Revenue. I hope that the Minister's words of assurance do not come back to haunt him.

Ivor Caplin (Labour, Hove)

So do I.

Gerald Howarth (Conservative, Aldershot)

I think we should put that on record—for his own protection.

We clearly have to take the Minister's word for it. He knows that his neck is on the line, but I hope that the clearest message goes out from Committee that Parliament does not approve of the Government's putting a scheme in place and the Minister's giving assurances based on the best available intelligence for them to be undermined by other Departments acting in a rather autocratic and unaccountable manner. Given the importance of the scheme, I hope that it will be pretty fire proof.

The Minister is right about new clauses 9 and 26; the only way that I could proceed was to table the Minister's own proposals—ones that he did not want to table—but it was done to give us something to get our teeth into. I accept that new clause 26 is pretty detailed and that enacting it would lead to a substantial amount of detail in the Bill requiring primary legislation to be amended. When it comes down to details such as an accrual rate of 1.66 per cent., one should not need further primary legislation to adjust it to 1.75 per cent.. I hope that I am reasonable enough to accept that that is not a starter. It was a probing new clause.

New clause 2 is not in the same category. It involves one of the core principles that I would have thought the Government could accept in the Bill. It does not matter what we do here, but the Minister may find that there is concern about the issue in another place. The Lords will consider these debates and see that there is a middle way between encumbering the Government with impossibly detailed legislation in the Bill, and putting some of the core principles in the Bill. I suspect that there is little point in detaining the Committee by pressing the new clauses to a vote, but I want to deal with two other points.

I am sorry that the Minister is not persuaded by our argument on commutation, because again there should be flexibility. We do not know what will happen to the housing market in future. I shall not repeat in great detail the examples that I gave earlier, but let us consider a colonel who retires at the age of 40. At the moment, he gets a lump sum of £55,000 and under the new scheme he gets about £50,000. A staff sergeant who joined at 18 and retires aged 40 today will get £30,000 and pretty much the same under the new arrangements. That is not a huge amount of money, and I am sorry that the Minister will not consider more favourably the ability to commute some of the pension to provide for a property.

Shona McIsaac (Labour, Cleethorpes)

I am listening with care to what the hon. Gentleman is saying about housing and I am curious to know on what he bases his figures. I hope that he agrees that, in many parts of the country, property prices are quite low and that that amount of gratuity lump sum would be very adequate to get a generously sized family home.

Gerald Howarth (Conservative, Aldershot)

The hon. Lady is privileged to represent a beautiful part of the kingdom, which is populated by a plethora of airfields. As an aviator, I love to see airfields wherever I go, so I certainly believe that she is privileged to represent such a constituency. House prices are lower in her part of the world, but she knows full well that in the south-east the average price of a property is about £175,000. Indeed, in my part of the world, that is probably the starting price, but certainly in the south-east as a whole and in other parts of the country—the north-east is catching up—the amount of money that we are discussing is not much for a deposit.

I am not saying to the Minister that there should be a set sum, but there should be more flexibility. Will the Department think about that and ascertain whether a way can be found to provide more flexibility without having people commute their entire income stream in future to fund property acquisition? He should pay a little more heed to that and listen a little more sympathetically to our arguments.

I am sorry that the Minister is not prepared to accept new clause 2 and the abatement issue, for the reason that I gave in my intervention. I can understand the argument that if someone has left the service and is now re-employed in a similar role they should not be entitled to ratchet up a socking great new salary on the back of no longer being employed in the armed forces. However, there may be people with particular skills whose value to a service community increases over a period of time, and in such cases locking them into a capped income is not fair. The Minister should have been more sympathetic to that.

The new clause is essentially probing and we may revisit these matters on Report, in another place or on Third Reading. I beg to ask leave to withdraw the motion.

Motion and clause, by leave, withdrawn.

New clause 5 - Report to Parliament (No.1)

Desmond Swayne (Conservative, New Forest West)

I beg to move, That the clause be read a Second time.

You may recall, Mr. Griffiths, that when I spoke on the sittings motion I said that we should have this debate. During the debate on proposed new clause 1, I asked the Minister why the review body had presented the case that the armed forces pension scheme should remain an unfunded pay-as-you-go scheme. The matter was presented as a fait accompli—there had been no discussion, nor any consideration of the possible alternatives, such as a part-funded or fully-funded scheme. I asked the Minister during that debate whether he could share with us some of the logic that went into reaching that decision, but he did not respond.

I therefore tabled this proposed new clause, entirely with the intention of being helpful to the Government. Labour Members may be surprised to discover that the Government have a target for funded pensions. The target is that 60 per cent. of all pension liabilities should be fully funded by 2050, as opposed to 40 per cent. at present. There is not the slightest chance of the Government achieving that target unless they start taking radical initiatives now. I am providing them with an opportunity to do so, by tabling the proposed new clause.

It may be that it is inappropriate to move the armed forces pension scheme on to a funded basis; there may be perfectly logical and acceptable arguments to be made on the matter. However, we must have that debate. The proposed new clause calls for a report, and provides the Minister with two years to do the research work for that report. Such a report would enable us to have the debate properly, and to reach decisions.

Under a pay-as-you-go system—the existing system—this year's taxes are used to pay for this year's liabilities. Nothing is saved; nothing is invested. Imagine the considerable impetus to economic activity of investment on the scale that we are discussing, if we were to move to a funded scheme. The potential benefits would not just be for members of the armed forces who are the beneficiaries of the scheme, but to the entire economy. Arguably, a funded scheme would also encourage additional voluntary contributions, and that could have a significant impact on the benefits that would be payable.

Historically, it was always thought sensible to handle public service pensions on a pay-as-you-go basis, be they pensions for the military, the police, teachers, the fire service or civil servants. It was thought to be more sensible to pay for them out of current revenue, rather than to hand over money to the private sector, incurring fees and charges, to

generate and manage the funded schemes. However, times have changed, not least because the population has aged significantly. An existing pay-as-you-go scheme is in effect a sophisticated pyramid selling operation, because payouts depend entirely on the expectation of a future continued level of paying in.

In the past, it was always thought entirely sensible to consider that expectation legitimate, but with a much smaller working population in the future having to pay the tax revenues to pay for the liabilities being incurred now, I would suggest that that is no longer a certain equation. Therefore, the pyramid selling aspect is not one that we can look to with as much equanimity.

Pension payments now account for an increasing proportion of the services budget. Fully one quarter of our annual expenditure on the police force is taken up by pensions. It would be interesting if a Minister were able to provide similar figures for the proportion of defence expenditure that is now accounted for by pension payments. Given the amount spent on procurement, perhaps it would be more interesting to examine the total cost of manpower, with the pension cost as a proportion of that. That would be more realistic.

The total liabilities that we have built up with the pay-as-you-go pension schemes that the state now sponsors are truly enormous—probably equivalent to the entire gross domestic product, or about £600 million. It is undeniable that public sector pensions have been denied the stock market growth available to private pensions, which have enabled them to keep up with the market. We have discussed in Committee ways in which we might want to improve the scheme, but the cost of those has to fall entirely on the taxpayer because we have a system that prevents that cost falling on the stock market and on economic growth and other benefits. The asset growth of the funded system would have far outstripped any cost of management fees or any other such fees and made the same benefits much more easily affordable.

There is a counsel of despair that our obligations are so large that they cannot realistically be funded at all. If we struggle to pay the unfunded pensions now, how can we afford in addition to put money aside to fund new entrants at the same time? That is undoubtedly a counsel of despair. There are funding strategies that can be devised to deal with that. That is why the report gives the Minister two years in which to look into this question and to examine funding strategies.

John Cryer (Labour, Hornchurch)

I can recognise one particular funding strategy, which is increasingly taxing the wealthy—a burgeoning proportion of the population—and redistributing that towards pensioners from the armed forces, the police, the fire brigade and the other public services with unfunded pension schemes.

Desmond Swayne (Conservative, New Forest West)

Of course, one way of providing a more generous armed forces pension scheme would undoubtedly be higher taxes, but it is a myth that there are people out there who are sufficiently rich to pay higher taxes. The lesson of history is that whenever we

have sought to soak the rich we have ended up taxing people on ordinary incomes much more heavily. Before the war, one had to earn twice the average income to pay any income tax at all. Now one starts paying income tax at somewhat less than half average income, and that when we have increasingly embraced that notion of progressive taxation, to which the hon. Gentleman referred. I do not detect any enthusiasm for the prescription that he offers. No one writes to me to offer to pay higher taxes.

Win Griffiths (Labour, Bridgend)

Order. We are wandering from the issue. The hon. Gentleman should return to it.

Desmond Swayne (Conservative, New Forest West)

You are right, Mr. Griffiths. I was tempted down that path.

One way of devising a strategy to generate the resources for a funded scheme would be to move to a proper contributory scheme and abandon the current fiction in which an abatement of pay is used to take account of the benefits of the scheme. To give members of the armed forces ownership of their scheme through a proper contributory system would not only potentially generate the funding for a fully or partially funded scheme but have significant additional benefits for the scheme's management.

The argument for moving to a fully or partially funded scheme rests principally on the superior growth rate that equities have experienced during recorded history. It would also arguably take advantage of the Government's superior covenant for borrowing. The one thing that the Government can do better than anything else is borrow. They can do it more efficiently, more effectively and at lower cost, which is why I have always been somewhat suspicious of the private finance initiative and thought that it had more to do with the Maastricht convergence criteria than principles of sound public finance. However, I shall not go any further down that road.

A significant benefit can be drawn by separating out pension obligations from the balance sheet rather than confusing them with the current expenditure on the armed forces. It would also provide us with an opportunity to create a funded scheme for new service entrants, which, like our own scheme, might be significantly more generous at an affordable rate in the future. There are significant arguments against that, and with the greater potential growth in equities comes a significantly greater risk attached to the scheme. The Minister will have to examine those consequences in his report.

Equally, however, there are ways of offsetting that risk. I was interested to hear about a recent meeting sponsored by the Centre for Economic Policy Research and the Royal Economic Society on 3 February, entitled ''Defusing the Pensions Timebomb: What are the Policy Options?'' Professor David Miles of Imperial college fell somewhere in the middle of the arguments. On one side are those people whom I would describe as the counsellors of despair. They say that the system is far too expensive and that we cannot pay for it. Certainly, one problem is that people are trying to pay in one generation for two schemes, as they have to meet their existing obligations while starting to fund for the future. The argument

runs that given that the existing generation are voters, none of them will stand for it.

One the other side are the evangelists of the Adam Smith Institute, who say that the growth in equities is so great that it will more than pay the costs of the entire transition in one generation. Professor David Miles is sceptical about some projections of the benefits of swiftly moving to a fully funded scheme, although he accepts the long-term benefits of funded schemes.

When the Minister is compiling his report during the next two years, he should read the report of the recent meeting. In it, Professor David Miles considers the possibility of an insurance scheme that would run alongside the funded scheme, and its affordability, which would take much of the risk out of the equation.

The Minister will have to consider a number of possibilities when compiling his report. One is that the Government could reduce the burden of liability that they have built up by issuing Government stock and investing the proceeds in equities. The difference between the interest payable on Government stock and the equity returns would reduce the scale of the problem. Equally, they could borrow to purchase annuities or corporate debt and use the interest rate difference to reduce the cost of current pension benefits. A number of questions arise as a consequence of any thinking along those lines. Could the Government realistically borrow so much, and how much are we talking about? Would that have an impact on the markets—perhaps driving up interest rates and making the whole scheme unaffordable? What would be the impact on the financial markets? Could we devise ways of making such a change more manageable, perhaps taking it in stages? Would the markets simply take it as a one-off and absorb it accordingly, as a restructuring exercise?

All those big issues must be dealt with, but they are part of a current debate. The Adam Smith Institute is working on it now. Policy institutes and think-tanks are working on it, so it is part of a current and important debate. I return to where I began: if the Government are serious about their targets for 2050, they must go through the process of evaluating the measure. It is important to have answers to my questions. For that reason, we have given a reasonable amount of time in the new clause—two years—for the Government to go away, reconsider and report. This important issue must be fully examined if we are to come anywhere near the very desirable target that the Government have set themselves.

Gerald Howarth (Conservative, Aldershot)

I was not going to speak in this short debate, but my hon. Friend raises some interesting issues, especially those to do with the contributory scheme. There are more difficulties for funded schemes and he referred to a large amount of money that would be necessary to fund such a scheme, pointing to the advantages that would accrue to those anxious to access pension funds for investment purposes. We

know that investment funds are the source of a lot of new businesses: they certainly lubricate the wheels of enterprise in this country. I shall not go down the road of why they have lately got into some difficulty. However, there are more difficulties with a funded scheme. It would have to have a board of trustees. That would not necessarily be representative, but it would have to be in place by law. If that board, which would be responsible for administering the fund, got it wrong—as pension fund managers and trustees do occasionally—and there was insufficient money to pay pensioners, the burden of funding those affected by a shortfall resulting from such mismanagement would undoubtedly fall back on the Government of the day. They would effectively underwrite the scheme because the public would not countenance our armed forces or veterans being treated in any other way.

The point about a contributory scheme has real resonance. Again, the Government ought to consider carefully how to deal with that issue before the Bill goes to the other place. There is widespread resentment among members of the armed forces about the notion that they get a good pension scheme but that they do not pay for it. We can argue about whether the scheme is good, but we cannot argue that people in the armed forces do not pay for it. Of course they pay for it, even though that is not obvious, through the abatement arrangement. In other words, the income of members of the armed forces is currently reduced by 7 per cent. per annum, which is the Armed Forces Pay Review Body's recommendation. Members of the armed forces pay for their pensions, but they do not have the appearance of ownership. That ought to be considered.

I am not going to be unreasonable and I accept that there is a downside, which is that the pay of servicemen would probably have to be reduced to take into account the extra payments that they would make. At present, the pension is based on the abated salary. A serviceman such as the hon. Member for Falkirk, West (Mr. Joyce) receives a pension on the basis of 93 per cent. of the salary that had been due to him. However, if the system was made transparent and ownership of it was given to servicemen and women, one would have to pay them more and deduct a sum from the pension, which would be seen on their payslips. The pension bill that would accrue as a result would be greater because the Government's pension bill would be based on 100 per cent. rather than 93 per cent. The only way to pay for that in a cost-neutral straitjacket is through reduced pay.

I accept that there is a downside, but there is a debate worth having and the Government should encourage it. The Minister has responsibility for the armed forces, so when he goes around the country, in the consultative mood on which he is so keen, he ought to take the opportunity to ask people what they think. Pensions are probably not an immediate concern to most of them, although with the new changes the issue will be more apparent on their radar screens. It would be interesting to know whether people would be prepared to accept a small reduction in their salaries, with a transparent deduction on their payslips for their

pensions. I do not know what the outcome of such a debate would be, but it would certainly be interesting to determine whether there was sufficient resentment, as I have suggested, to encourage them to favour a scheme that would result in a slightly reduced salary.

Syd Rapson (Labour, Portsmouth North)

I do not necessarily accept that there is widespread resentment about paying for the scheme, but I recognise that there is widespread resentment about the perception that those concerned do not pay towards their pensions. I was an industrial civil servant for 39 years and was lucky to be in a non-contributory scheme similar to the scheme that covers servicemen and women, inasmuch as I did not contribute but my wages were deducted in the same way. Throughout those years, the members were pleased with the system. They were annoyed at the perception that they were not paying towards the pension scheme, but the nub of the members' pleasure was that the scheme was not funded as such. The money was not in a fund but in the Government's coffers, which gave them security when they became pensioners.

I am worried that if the fund is managed and controlled in the way you propose, many servicemen and women will consider themselves at risk because the pension fund could be at the vagaries of the market instead of them being afforded the protection, which we always accepted in the civil service, that the Government will pay the pensions. I accept that there is widespread resentment at the wrong perception that members do not pay towards a pension when they do so by abatement, but not that they are resentful of the type of scheme that they are in.

Mr. Howarth rose—

Win Griffiths (Labour, Bridgend)

Order. I remind hon. Members to keep interventions brief and that I am not responsible for proposing anything in the Committee.

Gerald Howarth (Conservative, Aldershot)

More is the pity, Mr. Griffiths, sucking up to you as I am.

I agree with the hon. Gentleman's basic thesis, but he is slightly mixing up two ideas. He implies that a contributory scheme would necessarily be a funded scheme, but I am not suggesting that. In fact, I am making the opposite assertion that the scheme should be contributory and that contributions go into the Government coffers rather than a specific fund. He is right that I was referring to the wrong perception that exists and causes resentment.

I am not minded to take the view that a fully fledged funded scheme, as set out by my hon. Friend the Member for New Forest, West, is the best way to proceed. However, as the whole pensions issue for the armed forces is under review, it is worth considering.

Ivor Caplin (Labour, Hove)

I always appreciate the opportunity to have a short debate on such matters and I thank the hon. Member for New Forest, West for tabling the new clause so that we can do so. He asked how much of the defence budget is spent on pensions. The cost of accruing liability for pensions of those currently serving is between 3 and 4 per cent. of the defence budget. If we set up a funded scheme, which I think he

suggested—I shall come to the contribution of the hon. Member for Aldershot in a moment—one of the biggest issues would be the historic liabilities for which the Government would be responsible. I cannot put a figure on that, but I guess that it would run into billions of pounds.

The hon. Members for New Forest, West and for Aldershot raised several questions about the figure of 7 per cent. The last quinquennial report of the Armed Forces Pay Review Body, which was, if my memory serves me right, in 2001, contained an annexe outlining the thought processes on the armed forces pension scheme. A 7 per cent. abatement is not the cost of the pension but the extent to which it is regarded as better than comparable schemes. That is how the pay review body considers the matter. Indeed, if we examine the value of the abatement, which, as I said, does not relate to the value of the pension scheme, we come to the conclusion that the pension scheme is worth, as I said, something in the region of 22 per cent. of pensionable pay, not 7 per cent. So there are significant differences in the figures.

I want to comment on what would happen if we accepted the idea of the hon. Member for New Forest, West—apart from the fact that he has given me two years to produce a plan. I can understand why a pension fund that is partly funded by contributions from scheme members might be superficially attractive to hon. Members, but I can see no advantages in that to our service personnel. My first consideration is always, as many Committee members constantly remind me, to put the armed forces personnel first. Indeed the switch to contributions would be the corollary of moving to a funded scheme. In my view, it would lead to lower take-home pay and would therefore be unattractive to the armed forces.

What purpose would the fund serve? There is an argument about greater transparency, but our current arrangements are sufficiently transparency. We have internal Government accounting, which requires the Department's budget to include a pension contribution known, to use the jargon, as the annual superannuation liability charge. It is currently 22 per cent. of pensionable pay, and we publish a pension scheme statement along with the account. In the private sector, where I was fortunate to be a pension trustee of a scheme for three or four years, funds are seen as protecting members from the scheme's bankruptcy. It is hard—in fact, it is unthinkable—to imagine circumstances in which the Government would not meet their financial obligations to our armed forces and the veterans.

Funds also attract substantial management overheads, including the cost of running an investment portfolio, which would cost the scheme but bring no clear benefit to the members. Funds also carry substantial risks for scheme members if investments do not perform, as hon. Members said. The idea of a funded scheme would go hand in hand with the introduction of member contributions. The Defence Committee asked the Government to consider the matter carefully in its report on the Ministry of Defence's initial consultation proposals, at

paragraph 37 of the third report of Session 2001–2002. The Government replied to the Select Committee in two memorandums published in July 2002 in the fifth special report, and on 12 September 2002, ahead of the oral evidence given by the my hon. Friend the Member for Kirkcaldy (Dr. Moonie).

The Government actuary considered the case for a funded scheme and looked at the advantages and disadvantages of a contributory scheme compared with a non-contributory scheme. Specifically, the Government Actuary's Department considered an idea raised by the Forces Pension Society of turning the abatement of comparative pay made by the Armed Forces Pay Review Body, which is set at 7 per cent., into a 7 per cent. contribution by scheme members.

The pros and cons of an arrangement along those lines are not straightforward. When is any pension scheme straightforward? However, I assure the Committee that it would lead to lower take-home pay for members of the armed forces in the order of 1.5 per cent. The benefit of higher gross pay and the subsequent increased pension benefits is more than offset by additional income tax and national insurance contributions and an increased abatement from the Armed Forces Pay Review Body, which would be expected to take into account the improved pension scheme benefits.

I have no reason to believe that our armed forces would want to give up pay today for future pension benefits. It would be out of line with our assessment that take-home pay is a key driver for recruitment and retention. On that basis, I welcome the opportunity to have this debate with the hon. Member for New Forest, West, but I hope that he will withdraw the motion and new clause. If not, there will have to be a Division, and I hope my hon. Friends will resist the temptation that he places before them.

Desmond Swayne (Conservative, New Forest West)

I am not sure that we have had the right debate. The Minister argues that we should not move to a funded scheme and gave plausible reasons to support that. My purpose in tabling the new clause was merely to ask him to consider the feasibility of providing such a scheme. He mentioned the work by the Government Actuary. That suggests that part of the work that the new clause would require of him has been done and, therefore, that it would not be the huge undertaking that it might otherwise have been.

It is undeniable that the issue is important. The Government's total liabilities are a like a time bomb ticking away, and the willingness of the taxpayer to continue to fund them in future cannot be taken for granted. The requirement to meet those liabilities will inevitably mean that expenditure will not be available to maintain the capability of many of the services in the way in which we have before. The Government have recognised that problem and, consequently, have set themselves a target. I am asking them to consider whether the armed forces are an appropriate mechanism with which to reach their target, and to consider the issues that the Minister and other hon. Members have drawn attention to—principally, the question of risk. Those important issues are part of the

current debate and we will probably have to return to them. However, I tabled the new clause to probe the matter and I do not see any value in pressing it now. I beg to ask leave to withdraw the motion.

Motion and clause, by leave, withdrawn.

New clause 8 - Transition arrangements

Gerald Howarth (Conservative, Aldershot)

I beg to move, That the clause be read a Second time.

Win Griffiths (Labour, Bridgend)

With this it will be convenient to discuss the following: New clause 12—Assumptions—

'Before introducing any new scheme the Secretary of State shall set out the mortality and longevity assumptions upon which such scheme is based.'.

New clause 13—Comparative benefit statements—

'The Secretary of State shall provide individual comparative benefit statements for each serviceman and woman eligible to elect whether to remain within the scheme in force on the proposed transfer date or transfer to a new scheme promulgated by the Secretary of State.'.

New clause 22—Information to beneficiaries—

'(1) The Secretary of State shall ensure that information about changes to existing schemes and information about new schemes reaches all levels of all units. All relevant information shall be made available to all serving personnel.

(2) The rules relating to compensation for injuries and illnesses shall be made readily available to all serving personnel.

(3) The Secretary of State shall make provision for service personnel to receive access to independent financial advice when making decisions relating to proposed changes to the scheme.

(4) The Secretary of State shall set out at the beginning of future consultation processes a timetable for the completion of that process.

(5) Future changes to the schemes will be possibly by secondary legislation, but the basic principles of the scheme shall be set out in primary legislation and the introduction of a new scheme shall only be possible through primary legislation. Any major changes to the schemes in the future should be by statutory instrument subject to super-affirmative procedure, allowing for consultation both with interested groups and with Parliament, before final secondary legislation is presented to Parliament for approval.'.

Gerald Howarth (Conservative, Aldershot)

The new clauses relate to transition arrangements. We briefly touched on those this morning when we discussed the Bill's commencement date, which the Minister said would be 6 April 2005. The new clauses invite the Government to set out what they propose to do about the transition arrangements.

The Minister said that when he visited a unit in the west country, he was pleased to see leaflets on desks. I find it slightly discourteous that we, who are discussing these matters in Committee in a way in which the House has been unable to discuss them—it certainly has not had all the information before it—have not seen some of the material that has been circulated to members of the armed forces.

Ivor Caplin (Labour, Hove)

I am open to correction, but I think that the leaflets have been distributed, certainly to members of this Committee and of the Select Committee. If not, then I am more than happy to ensure that they are distributed and can be seen. I

think they were available on Second Reading. The leaflet is not new: it has been out since the September launch of the scheme.

Gerald Howarth (Conservative, Aldershot)

I shall not make a big song and dance about it, but the looks on the faces of one or two Government Members show that I may not be alone in not receiving the leaflets. I think that I would have known if I had. We all get far too much correspondence and sometimes throw out things that we did not mean to, but I do not believe that I have seen the literature. It might be helpful if the Minister could bring a limited supply to our next sitting.

Ivor Caplin (Labour, Hove)

I shall undertake to have a supply of those leaflets available for every Committee member on Thursday morning. I apologise that the hon. Gentleman did not receive a copy. Perhaps my ministerial statement, which contained the details of the scheme, may have been regarded as identical to the information in the leaflet. I will have sent a copy of my statement to the hon. Member for Mid-Sussex (Mr. Soames).

Gerald Howarth (Conservative, Aldershot)

Indeed, the Minister sent details of the early departure scheme and other issues to me. If that is the misunderstanding, I am grateful to the Minister for putting it right. Most of us represent areas where there is military activity, although hon. Members like me obviously have a disproportionate number of servicemen and women in our constituencies. We are, of course, extremely proud of that; we are not complaining. The issue affects most constituencies up and down the country and it would be sensible if the Minister could let us have sight of what is being circulated.

In my discussions with people on the issue, it is clear that they are not aware of the detail of what is proposed. They are aware that something is happening, but they are certainly not clear about the likely choices that will face them. The Government have said that they are offering people a choice and a decision has to be taken. It would help if we could see the information available.

New clause 12 refers to assumptions about the longevity on which a scheme is based. I may say something about that later if there is time; otherwise, I will have to leave it until consideration on Report.

New clause 13 states:

''The Secretary of State shall provide individual comparative benefit statements for each serviceman and woman eligible to elect whether to remain within the scheme in force on the proposed transfer date or transfer to a new scheme promulgated by the Secretary of State.''

Again, I quote the speech made by the hon. Member for Dunfermline, West (Rachel Squire) on Second Reading, speaking on behalf of the Defence Committee:

''We hope that the Government will produce individual benefit statements to enable service personnel to make that choice, but at the moment they do not seem to have the computer systems that can produce such statements, nor do they know when they will have such systems.''—[Official Report, 22 January 2004; Vol. 416, c. 1511.]

That is another issue to which I wish to return. It is all very well sending leaflets to people, but they must have a clear understanding of what it is they are being offered when they are presented with the important

choice that they must make. New clause 22 would enact the call of the hon. Member for Dunfermline, West to have statements made available to individuals so that they can clearly see what they are being offered.

Overall, the new clauses are designed to require the Government to set out their proposals. There is huge uncertainty about what exactly is proposed for the transition arrangements. Neither the Select Committee nor members of this Committee have been given any details by the Minister on precisely how he proposes to implement the arrangements and what conditions will apply to those faced with the choice of transferring.

For those who start on the new scheme and join the services from 6 April next year, the situation is clear. It is a new scheme. For those who seek compensation, whether they are serving now or joined on or after 6 April, the new compensation arrangements will apply. What will happen to the 200,000 people currently on the payroll of Her Majesty's armed forces, a large proportion of whom will stay on after April next year? How will the Government handle that?

It is understood that the transfer from the old scheme to the new scheme will not involve the transfer of the value of accrued rights. A service person who elects to transfer will have his pension benefits calculated as if he had been in the new scheme since joining. That has yet to be explicitly stated. Is there to be a project manager? Is someone in the MOD charged with drawing up the plans that set out the details of each of the schemes and circulating them? How many people will be employed in that project management team? It will clearly take quite a lot of doing to address the concerns of up to 200,000 people.

The Department has yet to make it clear when the service of transferees will be calculated from. Will it be from the date of joining, or at 18 or 21 as in the old scheme? It is not clear whether members of the old scheme who bought additional voluntary contributions will lose that money should they transfer. What will be the value of their AVCs? I understand that under the civil service scheme, which the Minister has described as analogous to the proposal and a kind of template in a number of other respects, different values are allocated to different schemes. If a new scheme each year had a value of 1, the old scheme had a value of 0.9. What will be the method of calculation for someone serving today who has built up an entitlement and wishes to opt into the new scheme? Obviously the existing arrangements will apply for someone staying in the existing scheme.

We also need answers to the question of windfall gains. We understand that the MOD is concerned that certain members of the old scheme will not be allowed to transfer because they might be entitled to windfall gains. I am told that the Department has said that it will seek to prevent transferees who are close to the end of their service from making what it calls unreasonable windfall gains—in other words being able to gain all the benefits of the scheme without risking losing the benefits attributable to the

immediate pension scheme. That seems, on the face of it, unreasonable.

The new scheme will be introduced on a future date. Those who have already retired will not be allowed to opt in and those serving should not be restrained artificially. The Government do not hesitate to make windfall gains when it suits them. An example with which the Minister will be familiar is the pension trough, which was caused by the pay restraint policy. In the 1970s there was a period of high inflation and the Government imposed pay restraint. Some of those who retired in the early 1970s were substantially worse off than those who retired a couple of years later and those who had retired a couple of years earlier. They would be caught in that bind. We need to know what the Government propose to do on that issue.

It is not yet clear whether the new pension will accrue from the date of joining or the date of joining the trained strength. Is the date of entry the same as the date of enlistment? These are fundamental questions that must be answered. In the current scheme, pensions start to accrue from the age of 18 for other ranks and from the age of 21 for officers, but in the new scheme it appears that pensions will start to accrue for all ranks from the date of entry. That is a good idea, for which some, including the Forces Pensions Society, have campaigned for a long time. However, it is not clear how those who transfer into the new scheme will be treated vis-à-vis their previous years' service, especially those years before 18 or 21.

There is an extreme example of a 16-year-old recruit who gains a commission after a period of service in the other ranks. His pension service currently accrues from age 21. Can the Government confirm that under the new rules such an individual will be able to count all his service—an additional five years—for pension purposes, and if not, why not? Logic dictates that he should be able to do so.

It is not clear whether there will be a vesting period. At present, those who leave the services within two years of joining will not get an pension entitlement, but a gratuity, a lump-sum payment or a pay-off, whatever one likes to call it, but they do not become part of the pension scheme. They have no preserved pension rights if they leave within the first two years. Will there be a similar vesting period in the new scheme? It is not clear whether commutation will be allowed in the early departure payments scheme at the age of 65, because that is when another lump-sum payment becomes due.

The introduction of the scheme for new joiners on 6 April 2005 will lead to anomalies because those serving will not be given the choice of transfer until an unspecified later date. The families of two servicemen killed in the same incident could receive widely different benefits, and the Minister knows what the tabloid press would make of that. Not only will it lead to disaffection, it could lead to more wretched recourse to law and the courts, which we want to avoid if possible.

What do the Government have in mind? They must draw up new rules for considering these matters in respect of individual servicemen. Do they have an IT system that will be able to draw up comparative pension entitlements under the existing scheme and the new scheme for individuals who are currently serving? What happens to those who do not respond? What will their default position be? It is a realistic issue, because the Government want the new scheme to start operating from next April and it will not be in their interests to delay implementation of the switch-over for those who wish to do so because of the likely anomalies that will be created.

The Minister said that he has seen leaflets in the units that he has visited in the west country but he knows that a large proportion of the armed forces are not at their home base, but throughout the world. There are people in the mountains of Afghanistan, and 10,000 in Iraq, of whom 7,500 are regulars and 2,500 are reservists, like my hon. Friend the Member for New Forest, West. There are people on ships and submarines who are not in the swim of what is going on. The serious issue of education has to be considered, but there is no sign that the Government have addressed it in detail.

I know that the Minister, who speaks on behalf of the entire chain of command, regards his duty as an employer as important. He has a duty to those people, but how will they work out which scheme is best for them? I assume that they will have their individual comparative benefits tables, and will be able to see that table A gives them the current benefits if they stay in the armed forces for a certain number of years. It will have to include different points of departure, so it will be a complicated calculation. One calculation will have to be made under table A, on what happens if one stays in the existing scheme, and another complex calculation will have to be undertaken under table B for those who join the new scheme.

I hope that the Minister will say what work is hurriedly being put in hand to arrange the requisite IT in order to produce the information that will be required. However, what will happen once the tables are available? The squaddie will say to the corporal, ''I've got all this stuff, but I don't understand a word of it. What do I do now?'' The corporal will not know either, and suggest that the squaddie has a word with the sergeant—but the sergeant says, ''I don't know; have a word with the major.'' The serious question will be where to go for advice.

Risk aversity is creeping into our armed forces at a rate of knots, and fear of the increasing role of litigation has inhibited their decision-making capability. Those are all measures that I regret; that is a political criticism, as they are the result of the Government subjecting our armed forces to the European Court of Human Rights. The court is interfering in the proper administration of our armed forces. That should be a matter for the Minister and his colleagues, not a matter for judges from Albania or Lithuania and other sundry countries that have made such a contribution to the security of these islands. [Interruption.] I wanted to give Labour Members

something to enjoy, and to ensure that they are all awake.

The Minister is not hearing anything from me that he has not heard from senior officers, who give him advice all the time. The process of risk aversity is inhibiting decision making. Those who take men out on exercise or on a run must first do a health-and-safety check to ensure that they have complied with the health- and-safety rules. That sounds wonderful, but those fighting in Iraq were unlikely to check on health and safety, unlike those running factories in Preston, or in Hove.

Ivor Caplin (Labour, Hove)

Perhaps I might help the hon. Gentleman as he meanders through the last part of our deliberations.

Gerald Howarth (Conservative, Aldershot)

It is important stuff.

Ivor Caplin (Labour, Hove)

It is. Indeed, the hon. Gentleman will know, because we have discussed it before, that I regard my duty as an employer seriously. When our troops are on exercise or in training, we take health and safety seriously. However, Conservative Members will be aware that different rules and different risks apply when they are in combat or on operations, as we debated in the previous sitting.

Gerald Howarth (Conservative, Aldershot)

I do not want to detain the Committee too long on this issue, but our armed forces, especially those in command, are concerned about how far they can give orders. The Government will have to address that issue, as we will when we return to Government next year. In the meantime, we must deal with what we have. I remind the Committee that in the summer of 2002 the Minister gave the House of Commons an undertaking that comparative statements would be provided, although the hon. Gentleman may have tried to distance himself from such a commitment at the Defence Committee's last sitting. We need to know about those comparative statements, assuming that they will be given. What does the squaddie do then? If the buck stops with, say, the major, the major will say, ''Look, I am not an independent financial adviser. I can't give you advice.''

The consequences are twofold. First, where should the squaddie go to obtain advice? Who will point him in the right direction? Secondly, his respect for his superior officer will be diminished if that officer cannot give him any advice on this important matter of his welfare. Those in the chain of command are never short of giving advice to those in their charge. Sometimes, that advice is given abruptly. At other times, the relationship will be cosier. In this case, however, any officer who holds himself out as an adviser to a squaddie may find himself in great difficulty. I suspect that he will be deeply reluctant to tell someone what they should do.

So what do the Government propose to do about the providing of advice? Do they, for example, propose to set up a panel of approved independent financial advisers, on whom service personnel can call? Will they have surgeries at fixed bases? Will they send people on to ships, to RAF stations and into barracks, to brief people on the implications of this measure? If they are proposing to do that, whom will they authorise to give this advice? Will they have a

bidding process, and invite the IFAs to nominate themselves as suitably qualified to give this advice to members of Her Majesty's armed forces? The Government appear to have given scant attention to these issues, unless they are simply keeping us in the dark. The Ministry might consider drawing up a list of approved financial advisers who could help. If the Government did that, they would go some way to meeting their duty of care, and they would be facilitating rather than giving advice. At the end of the day, if those in the chain of command hold themselves out as being in a position to give advice and things go wrong, the Minister knows where the buck will stop: it will stop with him.

Eric Joyce (Labour, Falkirk West)

The hon. Gentleman is making rather a meal of this. We are talking about a simple calculation of comparative benefit, which any regimental administration officer in a major unit could make, as the hon. Gentleman knows. Any future member of the pension scheme can go to his regimental administration officer, certainly at major unit level or above, and be told what benefits he will receive from a particular pension scheme. This is simply a comparison between two different schemes. I am sure that the hon. Gentleman recognises that that would be entirely feasible in a comparative situation such as this.

Gerald Howarth (Conservative, Aldershot)

We do not even know yet whether we will get comparative tables. The hon. Gentleman blindly assumes that we will get comparative statements.

Eric Joyce (Labour, Falkirk West)

They are simple to produce.

Gerald Howarth (Conservative, Aldershot)

The hon. Gentleman says from a sedentary position that such statements are simple to produce, but I suspect that some quite important IT may be required to deliver up to 200,000 sets of individual comparative tables. I may be wrong and he may be right, but I think that the situation will be more complicated than he suggests, and we have a duty to ask questions. I would be happy if the comparative tables given to people were of good quality, clear and straightforward. In such circumstances, I would be inclined to feel that the chain of command could handle the issue, but I do not think that the hon. Gentleman realises the extent to which it will now feel inhibited and nervous about giving advice on a matter of this complexity, particularly when there are issues in the public domain about pensions mis-selling and so on. It is an extremely serious issue.

There are many unanswered questions about the transitional arrangements that the Government intend to introduce. I hope that the Minister will now share with the Committee exactly what he proposes to do. The hon. Member for Falkirk, West has served in Her Majesty's armed forces and may be able to give him some advice. My hon. Friend the Member for New Forest, West may be able to give him advice. The Minister should take advantage of the wisdom in the Committee and tap into it to test what he proposes to do. Time is galloping on, however, and if he wants to have things in place by April 2005 he must crack on, get the systems in place and tell us what the systems are.

Ivor Caplin (Labour, Hove)

I shall consider new clauses 8, 12, 13 and 22 in some detail in a few moments. I shall start where the speech by the hon. Member for Aldershot ended: what arrangements have we put in place? Of course, if my hon. Friend the Member for Falkirk, West has any ideas, we will be more than willing to hear them. I shall reserve judgment on the hon. Member for New Forest, West just in case he returns to new clause 5 too quickly.

A full project team is at work at the Ministry of Defence. It is managing the overall project on the armed forces' pension and compensation schemes. We also have teams working in the agencies, such as the Veterans Agency. They are preparing for the role that they will play in delivering the new services. A substantial number of staff are considering communications. That is important and I shall say more about it as we continue. We intend to build up the number of such staff in the coming weeks and months as we head towards April 2005.

The hon. Member for Aldershot made a point about advice for the squaddie, as he calls it. I am sure, although I have not been able to find this in the three Hansard reports of our proceedings, that I dealt with that issue. I probably did so when we debated clause 1. I have been clear about the role that will be played: we at the Ministry of Defence are not licensed, nor are commanding officers, but we are going to look at how advice is provided. That is clearly our responsibility within the confines of the Financial Services and Markets Act 2000.

Of course, the ultimate decision will be down to the individual members of the forces. They will be given an offer to transfer with the relevant form. Yes, we have to have a computer system and we have to get the right information out to them, even those who are on service overseas—I will deal with that in a moment. We are looking at the possibility of setting up helplines, and, as I have said before, at a range of independent financial providers and associates who might be able to assist.

Current service personnel will have a choice about which scheme they belong to—I have been very clear about that from the moment I announced it on 15 September. As I indicated, transfer arrangements are developing, which is a phrase I would like to use today. Such arrangements will include consideration of the transfer value of service under the current arrangement, and I can assure the Committee that all this information will be available in good time for current members of the armed forces to make a properly thought-through decision.

The hon. Gentleman asked me a couple of other questions. The first was about the date of joining the scheme. We have concluded that, to be fair and equitable, the date of joining the pension scheme will be the date of joining our armed forces, which is not the current situation.

Gerald Howarth (Conservative, Aldershot)

So the day that someone joins up at age 16 or the day that someone enters Sandhurst will be when they join the scheme. That is very helpful.

Ivor Caplin (Labour, Hove)

That is the case. The hon. Gentleman raised an interesting issue about these windfall examples. I have not previously had sight of those cases, so I am grateful to him for raising the issue. Perhaps he will forgive me for saying that I want to go away and have a look at it in more detail.

I shall deal with the four proposed new clauses. The purpose of the first new clause is to require details of the transfer arrangements of the new pension scheme for current service personnel to be set out in a statutory instrument, as well as to allow the Committee the opportunity to discuss that aspect of the new arrangements. The statutory instrument for the new armed forces pension scheme, in line with normal practice, will set out the transfer arrangements applying to those currently serving members of the armed forces who choose to join the new scheme. Therefore, I can give the hon. Gentleman a categoric assurance that when we come to the secondary legislative aspects, we will set out the issues in relation to transfer in a statutory instrument. In my view, there is no need for them to be specified in primary legislation.

New clause 12 concerns the mortality-longevity assumptions used to cost the new pensions scheme in the public domain. Here I have good news for the Committee: I have already made those assumptions available to the House. The Defence Committee had them, and they were published in the second volume of the Committee's first report of the 2003–04 session, which covered oral and written evidence in relation to armed forces pension and compensation. If my memory serves me correctly, it was tagged to the debate on Second Reading on 22 January. I intend for that information to continue to be provided to the House whenever the scheme is re-costed, but I do not see any need to make that the subject of primary legislation. I hope that that is a suitable explanation for the Committee.

New clause 13 would require the Ministry of Defence to provide each service person eligible to transfer with a comparative pension benefit statement. I have already indicated that we intend to do that, and I recognise the importance of ensuring that our current service personnel have the information they need to make an informed decision on which pension scheme will meet their personal needs.

We will provide a range of material to assist members of our armed forces to make that decision, including individual statements of the benefits under the old and new schemes as well as information about the key features of the two schemes. That information will be fully compliant with the requirements of the Occupational Pension Schemes (Disclosure of Information) Regulations 1996. There is therefore no need for the requirement in new clause 13 to be set out in the Bill.

I was asked about personnel on operations overseas. We recognise the challenges involved in ensuring that all our armed forces personnel receive the information they need. We plan to allow a longer decision period for those on operations. For example,

the civil service had a three-month decision period, and although we have not reached a conclusion, I can comfortably say that ours will be longer. If members of our armed forces fail to respond, we will try to get a response. I can give clarification, however, in that the default position is that they will remain within the current pension scheme arrangements. That approach was also adopted by the civil service scheme, and it is right to follow it until the individuals make the decision to transfer to the new scheme. There should be no confusion about that.

The largest of the new clauses is new clause 22, which runs to five subsections. Someone was clearly working overtime at Conservative central office to produce it. I am sure that those people are now obsessed by the Bill rather than the shadow Chancellor's strange speech, to which we will return at a later date, when you are not in the Chair, Mr. Griffiths.

The Committee has already discussed in detail the majority of issues raised by new clause 22. My right hon. Friend the Secretary of State gave an excellent and eloquent explanation on Second Reading of why enabling legislation is the most sensible way to make the schemes work. As I said this morning, our approach gives Parliament more involvement in the new scheme than it has in the current scheme. That is also in line with what is happening to other public service schemes.

I do not need to go through each subsection in detail, as enough has been said about all the points in our last few sittings.

Gerald Howarth (Conservative, Aldershot)

Before the Minister sits down, I have one more question to ask. I am grateful for some of his comments, but there has been an awful lot of, ''We're going to'', and, ''We've got in hand'', which I do not find hugely reassuring. For example, will he say categorically whether a computer system for the comparative individual statements is up and running? Is there a programme for it and are people operating it? I am confident his reply will be helpful.

Ivor Caplin (Labour, Hove)

The answer on whether there is a computer system today is no. Is someone working on a programme to produce the relevant statements? Yes. That is why I made the opening statement on the various project teams, including a communications team, working in the Ministry of Defence, which will deliver such changes.

Gerald Howarth (Conservative, Aldershot)

So there is no computer system working yet, although there are people working on it. I return to my point about the 2005 implementation date: when does the Minister expect to be able to report to Parliament that the system is up and running, including a date on which our constituents may expect to receive the product of the system—namely, their individual comparative benefit statements?

Ivor Caplin (Labour, Hove)

I know that this is difficult for members of the Committee to believe, given how IT systems develop, but I said that we have people working on a programme, not working on a system. I make that distinction for the record. The work to identify the appropriate system is in hand, and there are people working on it. This is a huge issue.

There are other, similar systems; we are not trying to re-invent the wheel. We have obviously considered the civil service scheme, which went before us, so we are not re-inventing the processes. I believe that that is acceptable.

The hon. Gentleman will forgive me if I do not commit myself to a date on which to report to Parliament on an IT system. I recall that Ministers over the years, going back over successive Governments, have fallen foul of that, so I shall learn the lessons of my predecessors, not just at the Ministry of Defence, but at other Departments. My hon. Friends are clear about the fact that we do not need these four new clauses and I shall ask them to resist the proposals if the hon. Gentleman does not see fit to withdraw them.

I want to clarify for the Committee a point that was raised in an earlier sitting. I can confirm that all changes to the pension scheme rules will be made by statutory instrument and will therefore be subject to the negative resolution procedure, which we discussed on the last full day on which we sat a couple of weeks ago. On that basis, I invite my hon. Friends to resist the new clauses if they are pressed to a Division.

Gerald Howarth (Conservative, Aldershot)

I am bound to say that the Minister is sensible not to commit himself to a date, much as I was intrigued to get one out of him. If I were in his shoes, given Governments' experience and their apparent inability to wrestle with the world of IT—this is a universal point—I would think it wise not to give a date. However, if the computer programme is not yet developed, and given that this is an important item, I would like to feel that the Minister has it in his mind's eye that he will be able to report back to Parliament at least by the end of the Easter recess to give us some indication of how progress is being made. These measures will affect virtually every Member of the House, because we all have constituents who will be affected.

On the example of the civil service, which is clearly the template that the Government are considering in respect of this new scheme, I suggest that the Minister might add to his little package of goodies, which he will bring before us on Thursday, an example of what went out to civil servants. Obviously, we do not want individual names. Given that the Government have adopted that template, it might assist the Committee if the Minister gave examples to show how the civil service made the change. The hon. Member for Falkirk, West thinks it is all frightfully simple, which may be so, but it would be helpful to have illustrations to see what we can make of them. The Minister is nodding, and I thank him on behalf of the Committee.

As to financial advice, the Government appear to be taking a futuristic approach, saying that they are ''going to'' look at how financial advice is dispensed. That matter has been discussed for some time, so either I am exceptionally thick or there has not been much progress in working out a clear line on dispensing financial advice and deciding who will give it. The Minister said that we must get the information to servicemen and that he is working on it. Attempts are being made to deal with those who are in far-flung corners of the globe and the possibility was

raised of having helplines. It seems that everything is still up in the air and that there is no clear framework for the transition.

I am grateful to the Minister for undertaking to provide us with more information on the windfall issue and I am happy to let him have my documents on the subject if they would be of help.

The Minister rejects the new clauses on the basis that what they propose is already covered. I welcome the fact that the details of the transition will proceed under the statutory instrument procedure—an affirmative resolution that must be debated. However, there is no date for the statutory instrument to be presented to the House for our consideration and it is disappointing to hear that that matter is also still out in the long grass.

We welcome the longer decision-making period for those overseas. Presumably, it is envisaged that there will be a consultation period that will expire at a certain point. Meanwhile, people will be making and reporting their individual decisions at different times. I assume that at some point everyone who wishes to switch will do so on a specific date, not on different dates chosen by individuals. Has the Minister a clear idea of when in the two-year period the decision might be taken? It would be helpful to have that information, even if he cannot provide it now.

The default position—if someone does not decide to do otherwise, they stay in the existing system—seems to be a sensible way to proceed, and I am grateful to the Minister for that.

The Committee will be relieved to know that time does not permit me to mention the longevity assumptions in new clause 12. As the Minister rightly said, they have been provided for this scheme, and that should also be done in future. That is one of the key points that we believe should be in the Bill. I do not deny that this is dry stuff, but, among the key components of how the Government make up their mind on a new scheme, longevity is an important factor to take into account. I therefore feel that this is a legitimate point to include, in respect of any future scheme that the Secretary of State might devise. As we know, clause 1 gives the Secretary of State unlimited powers to produce a new scheme to present to Parliament, providing an open-ended opportunity.

We have had an extensive, albeit not entirely satisfactory, debate. The Minister has offered us some help, but a lot of issues are still outstanding and much uncertainty remains. It would be helpful to him if he were able regularly to report to Parliament on how progress is being made. We want to help; we do not want him to be caught in the mangle of another ministerial, departmental and IT disaster, because such a disaster would affect not only him, but those whom we in the Committee value above ourselves—the members of Her Majesty's armed forces. I beg to ask leave to withdraw the motion.

Motion and clause, by leave, withdrawn.

Further consideration adjourned.—[Vernon Coaker.]

Adjourned accordingly at one minute past Five o'clock till Thursday 26 February at five minutes to Nine o'clock.