Select Committee on Defence Minutes of Evidence


Annex A

ARMED FORCES PENSION REVIEW—SUPPLEMENTARY ISSUES

  1.  Reckonable Service and Full Career Pension Value. The potential for fallow years (paragraph 22 of main paper) coupled with the low full career limit of 62.5 per cent (paragraph 19) suggests that MoD should investigate and introduce methods of assisting members to maximise their pension within Inland Revenue limits eg:

    (a)  If the limit of 62.5 per cent is immovable (which we reject) MoD must offer part funded AVCs and encourage take-up.

    (b)  Or MoD could offer an enhanced value buy-in option for the fallow years served beyond 35.

  2.  Life Commutation. Clarity is required on whether members with preserved rights to Life Commutation will be allowed to carry them over to the new scheme.

  3.  Terminal Grant. So-called inverse commutation (ie foregoing terminal grant to generate extra pension) is clumsy. Common practice is to offer full pension benefits as a percentage of final salary with the option to take a proportion as a lump sum. Any such voluntary commutation is commonly disregarded in calculating widows' pensions and this should be included.

  4.  Early Retirement. Clarity is required on whether members who retire voluntarily between age 40 and 55 would suffer a reduced rate pension; ie will officers be brought into line with ORs?

  5.  Lump Sum in Lieu of IP. This proposal is very hazy. Will this entail a reduced eventual terminal grant, or reduced pension, or later pension, or preserved pension?

  6.  Short Term Family Pension. Removal of the short term family pension in order to "offset the cost" of the improved death in service benefit is of concern, and is perverse for those who are widowed in retirement as it would remove a valuable cushion from the majority.

  7.  Preserved Pensions. These should be payable from normal retirement age ie 55, and not age 60.

  8.  Index Linking of Immediate Pensions. There is no logic for delaying uprating of the IP for inflation until age 55. This should occur annually from the IPP in line with full career pensions.

  9.  Promotion from the Ranks. The 1988 block date which prevents Army officers promoted from the ranks from receiving the improved benefits recommended that year should be removed.

  10.  Medical Discharge in Tier 3. Those who have to retire with a serious attributable disability which renders them permanently incapable of any further work should receive a pension based on loss of earnings to the end of a normal working life (65) and not just normal Service retirement age (55) because their incapacity is caused by Service.

  11.  Service Invaliding Pension. Reassurance is sought that these pensions which are deemed attributable will remain free of Income Tax liability as currently. There is no justification for any worsenment of the tax position.

  12.  Refund of Spouses' Pension Provision Contributions. Ministers have acknowledged in the past that the AFPS is de facto contributory through abatement of pay. MoD should consider whether those personnel who have no spouse on retirement should be refunded that portion of their "contributions" made towards survivor benefits, with the option to buy back in if they should subsequently acquire one.

  13.  Contributions for Extra Benefits. The Review proposals exclude any opportunities for members to make additional contributions for extra benefits (eg for survivors). This should be examined within Inland Revenue Limits: by definition such schemes should be cost neutral, and are available in comparator schemes.

  14.  Widows' Pensions for Life. Clarity is required on the "restrictions to prevent abuse" mentioned in paragraph 4.19 of the Consultation document.

  15.  Attributability. There must be a guarantee of independence and of transparency of assessment and subsequent appeals.

  16.  Children's Benefits. All eligible children should be provided for.

  17.  Transition. The transition period from the old to the new schemes will need extremely careful handling (including the old and new Compensation arrangements) otherwise some very messy anomalies are bound to arise.


 
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