Select Committee on Defence Minutes of Evidence

Examination of Witnesses (Questions 127 - 139)




  127. Minister, thank you very much for coming. I understand you would like to make a statement as a preliminary.

  (Mr Ingram) Yes, Chairman. With me I have Barry Miller, who is the Director General of the Service Personnel Policy section. I am grateful for the opportunity to make just a brief statement on this, as I think it is important to set out some of the directions from where we come on this. I really do welcome the opportunity to give evidence to the Committee today on the Armed Forces pensions and compensation arrangements, because I genuinely feel this will help the process. I want to cover, in broad terms, the why and the what. The Armed Forces Pension Scheme review, as the Committee will know, was born of Sir Michael Bett's Review of the Armed Forces Manpower, Career and Remuneration Structures. It was started in late 1998, after other related aspects of the Bett Review, such as career structures, had been resolved. Like other employers, the scheme for us is part of our manning strategy and the review was set up to create a more up-to-date scheme to support recruitment, retention and the motivation of new entrants well into this new century. Above all else let me make clear, it will, as the present scheme does, recognise both the special commitment given by Service men and women and the need to act as a good employer in terms of benefits for retirement and ill-health. It seemed sensible to look at the compensation area at the same time. The current arrangements are complex, confusing and inconsistent with wider current thinking on compensation. For instance, at the moment, there are compensation arrangements associated with both the Armed Forces Pension Scheme and the War Pension Scheme. Because of this, we propose to replace these two schemes with modern, fair and simpler arrangements, focused more effectively on those who are most severely disabled. We have entered into a genuinely open, and far-reaching consultation process. I believe it is an authentic seeking of views, and this session with you today is part of that approach. We are still listening, developing and open to input. Clearly, a framework has been developed against which alternative views can be set. I believe there are few who contest that the current pension and compensation schemes are generous—as indeed they are. The aim of the reviews is to make sure that the money we have available is focused as effectively as possible for Service personnel, consistent with our overall objective of being a responsible employer. Through our memorandum we have already explained to the Committee that cost-neutrality was not originally and necessarily one of the ground rules for the pension review, although cost-effectiveness and affordability were specified. However, we could only justify more money if we could prove that the pensions area caused us real problems in recruitment and retention. Objectively we cannot do that. There are particular small groups of Service personnel for whom pensions are an issue, and we can best deal with these specifically and we will do so. Of course, the ex-Service community seeks to maximise the benefits available—that is well understood—and we value their ideas, but we believe we cannot "cherry-pick" all the best bits from all other schemes and try and make a new whole. It is not a sensible or productive way of handling an issue as complex as this. I am sure I do not need to elaborate on the growing trend in the private sector to move away from final salary schemes. But we remain committed to the final salary approach with no diminution in the overall level of employer contribution. That said, there is a need to examine the best distribution of those contributions to maximise benefits across the board and to remove any glaring inequities within the existing scheme. I want to stress that whatever precise shape the new scheme takes, it will be aimed at new entrants. Serving members will not have to transfer to it, but we hope that many will see the advantage in doing so. It will be their choice, and to help them make them an informed decision we will provide all the information required and in a form that is understandable. This communication challenge is no less important for the proposed new compensation arrangements. All attributable injuries and ill-health occurring after introduction of the new scheme will be covered by it. Conditions that arose before the review will continue to be assessed under the old arrangements. Finally, we do not underestimate veterans' concerns or their apprehension and we will continue to address both as best we can. In conclusion, Chairman, I believe that the timing and constitution of the reviews is logical; I believe that we cannot justify spending more on a new pension scheme; I believe that the new compensation scheme is focused on future needs and should be simpler and more effective in delivery terms; I believe that the present schemes rank high in the public and private sector and that the new scheme will at least match that standard. Let me end where I started: we have entered this process in an open and transparent way. I believe the Committee's inquiry and conclusions will help me in framing the new pensions and compensations arrangements which will add to the overall package of pay and conditions available to the men and women of our Armed Forces.

  128. Thank you very much. Minister, the reviews of both pensions and compensation arrangements—certainly pensions—have a long history. The Bett Inquiry was published in 1995. You are not responsible for a response in 1995, but even when the process began under this Government with the SDR it has been subject to delays. The latest information is that you do not now expect firm proposals to be put to the Cabinet until "the autumn". Is that right? If it is, why as late as "the autumn"? What has caused the delay?
  (Mr Ingram) Let me say that in one sense it can be viewed as a delay but I would hope that the Committee takes on board the way in which I have tried to explain the overall strategy on which we approach this. We are trying to be open and transparent, trying to listen, assimilate and take on board all the different views which are out there, which necessitates an in-depth examination. Over the period of course we have now taken on board the issue relating to unentitled partners, unmarried partners, which is another area we are now looking at. Yet within that time-frame the staff themselves have been engaged in dealing with other issues which have come up unexpectedly in relation to some legacy matters. Those are some of the aspects associated with this. If I was looking at this, as a Minister, thinking there was an undue delay and there was great pressure out there for early implementation and that it was important to the department then, of itself, that would force the pace, but we have also got then to put what we are seeking to do into the context of when will it be implemented. As we build up our new IT systems, the likelihood is it will be not before 2004 and well into 2005 before we begin to see the play-out of this, because we have got to take the legacy systems which are currently in place, marry them into the new IT systems and then implement this. It would be a disaster, I would suggest, if we rushed into this, given the complexity of the issues that we are dealing with. That is just some of the flavour as to why there is the longer time-scale. It had been intended that there would be a report in May of this year but that is now likely to be slightly pushed towards the autumn, and that is now our working time-scale.

  129. You say that a number of "major areas" of the proposals are being re-examined. In retrospect, were the proposals sufficiently thought-through and developed before the consultation documents were published a year ago?
  (Mr Ingram) I would say the answer to that is yes. That then becomes a debatable point, I suppose. My view would be that we have tried to identify as best we could all the areas and the framework within which we were seeking to develop the new structure. Of itself, that then generates the inputs from the concerned organisation and bodies who are out there. If we had answered all the questions then I think, probably, it would have been the first time in pension history that any government department would have got a pension strategy correct from day one; this is a very complex area, no matter which department is dealing with it. It is important that we do get that discourse with the wider community. My view on this would be that the broad reach of what we sought to do identified the issues we were seeking answers on, and was broadly correct—and stimulated and anticipated debate.

  130. Have you pre-empted the process by saying "We cannot justify spending more on a new pension scheme"?
  (Mr Ingram) Not pre-empted—and again you appreciate this pre-dates my involvement—but having looked at it myself I would come to the same conclusion, that if this was a pressing issue, because it was a manning tool, if this was an issue that we believed to be ranking high in terms of recruitment and retention strategies, then a bid would have had to have been made to say "We now need to do something more substantial within the existing scheme and any proposed new scheme". That would have been the imperative in all that. However, that is not what we are finding in terms of our assessment of the market-place—to use that terminology. Therefore, it is a case of we believe it is a very substantial scheme as it stands, we are using the same global sum of money and moving it around to try and make it better focused, as I said, in delivering it in certain key areas where we believe there are significant shortfalls—in areas like dependants' benefits and so on. I do not think it is a pre-emption at all. If we had entered this with a blank cheque then that is not the way in which I would suggest policy should be developed on this or any other area, because it is "Where is the top line in that"? We believe this is a substantial scheme with a substantial sum of public money going into it, it is not one of the high-ranking issues—although it is a manning tool—in terms of retention and recruitment strategies, and we believe that the money is better targeted for those types of issues in specific areas.

  Chairman: I am sure my colleagues will wish to come back to this.

Mr Jones

  131. Just on that, the problem I have with the entire review is that you have just referred to it being used as a manning tool for the Armed Forces, but can I just quote back to you what you said earlier: "Although cost-effectiveness and affordability were specified ... we could only justify more money if we could prove that the pension area caused us real problems in recruitment and retention." Is it a manning tool or is it not?
  (Mr Ingram) It is part of the overall manning strategy, along with all the other pay and condition issues with which it is associated. It is not the key issue. If there was a debate out there that was saying "This is the one, key issue which said that we would join the Armed Forces, or this would ensure that we will stay in some of those key sector areas", then that sets the alarms going and we say "Okay, now there is a real issue out there that has to be addressed by using this mechanism". If you use the analogy, say, with air crew retention, there is a clear analogy where there is an identifiable problem and money is then put in to seek a resolution to that particular problem. Only time will tell whether it solves that or not. That is the way in which we would tackle the manning issue—if it was highlighted as a key issue of concern to the department in terms of its overall recruitment and retention strategy. That is why I say what I say, and I think it can be tested against the analysis which we have done on this.


  132. Thank you. I cannot offer any advice on IT but the record of government in general in implementing its IT strategy is a pretty miserable one, from reading newspapers on this. Can you give us some assurance that we are not going to find, in 2004-05, that whoever contracted to do the work cannot deliver on time? So two questions: can you give, as far as you can, an assurance that the programme is on target? Secondly, are you certain that 2004-05 is the date at which it is operational because it has elongated the process even further?
  (Mr Ingram) I would just say do not believe everything you read in the newspapers about the Ministry of Defence, but I think I would take some of your prejudice—if that is the right word—about the legacy and about the way in which some systems have not been well-implemented, not just—

  133. Across government in general.
  (Mr Ingram) Yes. It is a long time since I worked in the IT industry, but it seems to me that the scale of what is done in government is so huge, so complex that there is always a possibility of weaknesses creeping into complex systems. I think we have decades of bad history in this. It is for that reason, when I was looking at this overarching IT strategy, in terms of the personnel schemes, that I have become personally involved in this and I am asking those very same questions: that we should seek as best we can to ensure there is no repetition of any failings of the past. There is no certainty in life, but there is a lot of effort being put into this. On the time-frame, it is more likely to be in 2005 before we can begin to move forward on this. Barry may want to come in and explain it in greater detail, but with all the legacy systems in the three services, you are trying to marry all of that up and look for every glitch that can appear that does not bring about the implosion of your new system. We will also be running the old legacy system alongside the new pension system. This is a big area of activity. If there is slippage in it I can only say that there would be slippage for a good reason; that is, we have identified problems that need to be resolved. We are pushing on to get this implemented, because it is not just in the pension sectors, of course, it is across a range of other aspects of personnel delivery that we need to get new IT systems in place.

  134. Minister, could you drop us a note on the process? Have you offered the contract? If you could just give us some information.
  (Mr Ingram) I think we can, but Barry may want to comment further on that.
  (Mr Miller) Chairman, we are talking about what we know as the Joint Personnel Administration Project. The aim is to replace the rather more than 200 legacy systems in the field with a single system using off-the-shelf software. The project is at a relatively early stage as yet. We have only just down-selected the particular software that we intend to use and it will come to Main Gate in just under 12 months. It is a bit difficult to be too positive about time-scales until we have completed the Main Gate process. However, at the moment, we are on time and we are reasonably optimistic.

  135. Perhaps we should put it on our "at-risk" list of procurement projects. Last question from me at this stage, Minister: the Civil Service is currently coming to the end of a similar exercise in moving from their existing pension scheme to a new one. How far is the MoD taking account of the practical lessons learned from this exercise?
  (Mr Ingram) I would hope they are taking lessons across the reach in terms of this. Do you mean specifically in terms of benefits, or is it the implementation strategy?

  136. The benefits process and the implementation strategy.
  (Mr Ingram) Barry may want to deal with that because he is dealing with the actual in-depth detail of these matters.
  (Mr Miller) We have been keeping a close eye on the Civil Service proposals and, indeed, on other work that is going on in the public service on pension schemes. In particular, we are watching very closely the way in which the Cabinet Office does its communications in connection with the new Civil Service scheme because that is an area where we think we have got quite a lot to learn.

  Chairman: Thank you.

Mr Cran

  137. Minister, you said in your opening statement, and I quote the words: "I believe there are few who contest that the current pension and compensation schemes are generous—as indeed they are". That may well indeed be your view, but the fact of the matter is there are those who contest that statement, and they would contest it very strongly indeed—just to mention one, the Forces Pension Society. I wonder if you could justify to the Committee that statement, which is, as I say, heavily contested?
  (Mr Ingram) I did say there would be few who would contest it, and that means that I recognise that some would contest it.

  138. That Society represents a lot of people.
  (Mr Ingram) Then you are into, I suppose, a quality against quantity argument as to the direction from which it comes. Also, later in the statement, I refer to the concerns and the apprehension of the ex-Service community. We clearly recognise all this and some of the issues—and we may explore them today—which have been raised with us are taken on board to examine "Is there a way of dealing with the concerns which have been raised?" It would need an actuary, I suppose, to be able to argue convincingly whether and where this particular scheme sits in any right order. Because we are not comparing, in many ways, like with like, it is very hard to take our scheme—existing and proposed—and set it against the wider trend within both the public and private sector, because people retire earlier and there are other matters relating to dependants' benefits and so on, which we have tried to correct. I think it can be tested, but it is only an opinion. It is for that reason that I have asked if there is a way in which this can be examined on an independent basis to make sure that that particular statement stands true examination. I do not have that audit at the present time. Whether we can get that or not will remain to be seen, but if that becomes available then I would make the commitment that we would so advise the Committee on this, because I am fairly sure, in terms of the overall breadth and depth of the existing scheme, that it does rank high. You can take individual elements and say that it is not as good as another public sector scheme, or, indeed, a private sector scheme, but that is why I also say in the statement that it is wrong to cherry-pick and take a very good idea from one scheme and try to implant it into another complex scheme. By taking one concept or one benefit, it then has to be set against what it means elsewhere and against, also, the fact that no new money is going into this particular pot. So, to repeat the point, although I think it is an opinion I think it can be tested, and perhaps one testament to it would be the Pay Review Body's own assessment of this, where they say there is a 7 per cent benefit compared to the comparators they would draw upon. Now, the question of independent audit, I think, could be important in proving that—or not, as the case may be.

  139. I would just like to make my view known that where, in your statement, you said about it being a generous scheme, that is merely an opinion, and you yourself have agreed that it is unsupported by actuarial or other advice.
  (Mr Ingram) No, there is a good basis for saying this, but to take it on an element-by-element basis, as others do, and say "It is not as good in this area as another scheme" is not the way of looking at the totality of a pension entitlement.

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