Select Committee on Defence Memoranda

Memorandum from the Ministry of Defence

What further progress has been made with the review processes, on both pensions and compensation, since the Minister for the Armed Forces wrote to the Chairman of the Committee on 5 November 2001? Is it still anticipated that final proposals will be submitted to the Cabinet at the end of May and that the new schemes will be implemented in 2004-05?

  The public consultation on the Department's proposals for new Armed Forces Pension and Compensation Schemes concluded on 31 July 2001, though late comments were accepted for several months after this. The Department has since been analysing the responses and considering those areas where substantial further work is required. In parallel with this, the Department has been in regular and intensive dialogue with the Forces Pension Society, a group whose aim is to represent the pension interests of ex-Service Personnel. The Department has begun further work on a number of specific issues including, for example, unmarried partners benefits and bonus alternatives to the early Immediate Pension. The Department has, however, made less progress than it had hoped. One factor has been public campaigns on "legacy" issues (that is, relating to benefits already paid under the existing schemes), such as the effects of wage restraint and pre-1975 pension entitlement rules. The recent renewed interest in taxation errors affecting attributable Army Invaliding Pensions has also affected progress. The effect of these campaigns and the complexity of some of the issues raised in the consultation phase mean that the Department will not meet the May target it set itself for circulating revised recommendations to Cabinet. This is not now expected to take place until the autumn. However, the Department's current assessment is that this should not affect the timescale for implementation. The timescale for implementation is, however, expected to be determined by factors such as the introduction of a new Joint Personnel Administration System which would provide the IT framework for the pension scheme and for the closely associated systems for personnel data. This system is scheduled for introduction from late 2004 onwards.

Are you considering amending any of the key proposals made in the review documents in the light of responses received? If so, please provide details.

  A number of points made in response to public consultation have given the Department reason to look again at the recommendations. In some cases, significant change seems unlikely but in others the Department expects to make substantial changes to the original proposals. However, it is too early to say where and how far-reaching these will be. Major areas that the Department is re-examining are:


    —  the precise point for the Immediate Pension (IP) in order to meet the Department's recruitment and retention needs;

    —  the scope for avoiding recurrence of legacy issues, such as pensions troughs;

    —  the pensionability of specialist pay;

    —  benefits for unmarried partners;

    —  the nature of a bonus scheme that might be offered to some in return for a later pension;

    —  the possibility of introducing a "contributory" element to the scheme;

    —  the scope for improving benefits to those serving a full career;

    —  the independence of the scheme's appeals process.


    —  time limits for making claims;

    —  the basis and level of pain and suffering awards;

    —  the arrangements for handling deterioration;

    —  the balance between lump sum and income stream payments;

    —  scheme administration;

    —  the independence of the scheme and, in particular, of its appeals process.

The Minister's letter raises the issue of unmarried partners. No change was proposed in this respect in either the pensions or the compensation review document. Is consideration now being given to extending pension and compensation benefits to unmarried partners?

  The Department is looking again at the issue of pension and compensation benefits for unmarried partners, both because it was raised in consultation and because the Department has concluded that it would be timely to review more generally its policy on benefits for unmarried partners. The pension and compensation review team are setting up focus groups across the Services to obtain views on unmarried partners' pension and compensation benefits. The Government's policy is that such pensions change would need to be cost-neutral and therefore covered either by a contribution from employees or by a compensating change elsewhere in the scheme. It is too early to say what the result of this work will be.


The Minister's letter to the Chairman of 5 November refers to the need for consistency "with wider public sector pensions policy". We would be grateful for a note setting out what the government's policy on public sector pensions is.

  The Government's policy on public service pensions is designed to provide a broad policy framework in which individual schemes operate. This framework in many respects simply provides the broad context of the review, but in other cases, design of the Department's proposals would need to have specific regard to the overall policy principles. A particular case, would be the policy conditions set for introduction of unmarried partner benefits.

  At a fundamental level, it is the Government's policy to encourage the provision of second tier occupational pensions on top of the first tier provision provided by the State Retirement Pension. The pension should be aimed at providing support for individuals after working age and for their dependants. Where Government is the employer, it aims to provide a remuneration package that includes access to an occupational pension and employer financing towards the accruing costs of those pensions. This has generally involved providing defined benefit occupational schemes but defined contribution (money purchase) arrangements may be provided alongside or instead where this is considered to represent value for money.

  The pension arrangements would normally be designed taking account of likely full working lifetimes of the membership. For example, when determining the level of provision for retirement it is necessary to take account of opportunities for pension provision before and after the particular employment as well as during it. It should provide an income, after the normal retirement age for the scheme, that relates to the length of service given by the individual and provides incapacity benefits and protection for dependants.

  The pension arrangements should also be designed to provide benefits valued by employees and the incentives should be geared towards the recruitment, retention and motivation needs of the particular employment. Scheme design should aim at providing the most cost-effective mechanisms for supporting the public services career structures. Pensions should therefore encourage desirable behaviours, such as retaining people while they are particularly needed by that employment. Likewise, the Government wishes to remove unnecessary and undesirable incentives for individuals to leave public service employment early, including inappropriate use of ill health retirement. Pensions also need to be linked to levels of pensionable remuneration to maintain the link between the pensions element of the remuneration package and pay for responsibility and performance.

  In order to obtain the best possible value for money, pension options should be compared with other incentives, such as pay, when considering changes in the remuneration package and assessing the relative recruitment, retention and motivation benefits. Like the rest of the remuneration package, pensions also have to be affordable by the taxpayer. In determining what is cost effective and affordable for recruitment, retention and motivation purposes, it is necessary to look across the public services in general as well as at what private sector employers provide. The cost of the pension liabilities needs to be properly taken into account in terms of the accruing as well as immediate cash costs to the employer. The actuarially assessed cost to the employer over the employees' lifetimes should be taken into account when determining the appropriate level of the overall remuneration package and the contribution made by the employer and employee. The full accruing cost of providing for pensions should be made explicit in the accounts of those controlling the pension arrangements and in employer's budgets.

  Where benefits are guaranteed by statute and funded by the taxpayer, and there is an adequate budgetary regime that makes clear the full accruing cost, it is unnecessary to set up an alienated pension fund to provide an adequate financing regime for pension benefits.

  Public service schemes' rules should conform to UK and European law, including legislation on pensions and equal treatment. Changes to pension provisions should similarly accord with Inland Revenue tax rules. Pension provisions should also be consistent with a range of other policies, for example on labour market participation and mobility.

  In some contexts, such as the provision of benefits to unmarried partners, the Government has made it clear that it is prepared to consider changes in pension scheme rules to provide for benefit improvements if the members want such changes and are prepared to meet the full cost of the improvement.

  Public service occupational pension entitlements are essentially determined by the terms of the remuneration package during the individual's employment. Reopening those arrangements after the person leaves employment is generally very complex, does not offer benefits in terms of recruitment, retention and motivation of employees and can be prohibitively expensive. The presumption is therefore against making retrospective improvements, particularly to preserved pensions or pensions in payment.

We would be grateful for worked examples showing the effects at different pay levels and different lengths of service, and for the full range of benefits, of implementation of the new scheme compared with the current arrangements.

  Details provided at Annex A.

Why was cost-neutrality taken as a fundamental basis for review? What is meant by cost-neutrality in the context? Is the starting point the current gross cost of benefits being paid now, or the actuarial cost of benefits currently accruing to service personnel?

  Initially, cost-effectiveness and affordability were specified rather than cost neutrality. The aim was that the new scheme should be well balanced to meet the evolving recruitment and retention needs of the Armed Forces and that, both in terms of individual measures and as a whole, the scheme should represent value for money. The review team considered whether improved pension benefits would assist recruitment and retention. It was recognised that the quality of the current scheme was a factor in recruitment, but the scope for improvement was not seen as a driver for recruitment for the Services as a whole. In specific areas where recruitment and retention has been an issue, pension changes have sometimes been a component of a wider solution but non-pension approaches have in most cases been seen as more appropriate to the problem. Pension design was seen as more relevant to retention but the evidence from continuous attitude surveys was that there were not major issues here affecting the Services as a whole. The conclusion that the review should work within broadly cost-neutral terms was therefore reached at a relatively early stage, reflecting a judgement that a scheme that met the manning needs of the Forces could be delivered within that parameter, and at the same time recognising the high cost and value of the current scheme.

  The costs for both current and proposed schemes have been assessed using actuarial assumptions for factors such as the costs to the employer of funding public sector arrangements, longevity and career patterns. The assessments look at the cost/value for "typical" employees over their lifetimes. The same actuarial assumptions have been used to calculate the costs of the existing and proposed schemes, except that under the proposed arrangements allowance was made for the expected changes to exit rates close to the Immediate Pension point. When assessing the proposed scheme, the long-term cost of current members who might transfer to the new scheme was taken into account as well as the cost of new entrants. Cost neutrality is therefore understood in value per capita terms, rather than related to any specific force levels and their changes over time.

We would be grateful for a detailed breakdown of the Government Actuary's costings between the different benefits, both for the current scheme and for the proposed new scheme.

  The details are shown at Annex B.

What are the demographic assumptions used by the Government Actuary in assessing costs, eg numbers and longevity of pensioners and dependants, numbers of new entrants to the scheme and their ages?

  The assumptions for assessing the costs of the existing and proposed schemes have been set independently by the Government Actuary's Department. These assumptions involve both financial and demographic assumptions. The demographic assumptions have been set as the expected long-term stable personnel career structure. Details of the assumptions are shown at Annex C.

What impact is the reduction in Service numbers, from around 330,000 in 1975 to about 200,000 now, expected to have on the pattern of expenditure on Service pensions in the longer term, say beyond 2025?

  The review has been primarily concerned with looking at the arrangements for current active personnel and so previous reductions in personnel numbers have no material effect . However, the reduction in service personnel numbers over the last 20 to 30 years will have an impact on the emerging gross benefit costs of the existing Armed Forces Pension Scheme. In broad terms, the Department expects an increase in costs in the short to medium term (for example, as deferred benefits come into payment) and a reduction in benefits costs in 30 to 40 years time reflecting a smaller workforce.

What use was made of comparisons with other public sector and private sector pension schemes in devising the new pension scheme to ensure that the Armed Forces scheme incorporated current best practice?

  It is a fundamental principle of the Armed Forces remuneration package that the Armed Forces Pay Review Body sets rates on a comparable basis. This includes a comparison with pensions available to the relevant comparators. The AFPRB currently apply an abatement of 7 per cent to comparator earnings to account for the greater value of the scheme and in particular the early and fast accrual of benefits under the Armed Forces Pension Scheme compared with those available in the civilian sector.

  The pensions review, however, specifically examined the benefits offered under other public service pension schemes, in terms of the value and nature of benefits that would be paid in certain typical circumstances. It also looked at the National Association of Pensions Funds survey of private sector schemes. These comparisons were used to highlight areas where the benefits are better than those provided elsewhere, where they were less generous, and where there were areas in which there might be scope to rebalance benefits. However, such comparators were designed against different career patterns and different recruitment and retention priorities, for example, in terms of the length of service sought and the retention pressures at particular stages of the career, and it was recognised that it was neither sensible nor affordable to "cherry pick" the most generous features of other pension schemes.

  As part of a remuneration package designed to recruit and retain, the proposals had specifically to be compared with the evolving position among "competitor" employers. Many are changing either to defined contributions schemes, with fixed limits to employer contributions and benefits dependent on performance of the employee's fund, or average salary rather than final salary arrangements. The Department concluded that these approaches were not appropriate for Service personnel given the particular demands attached to a career in the Armed Forces. The Department believes that the current package of proposals broadly represents a sensible balance of benefits given the pattern of Service careers. However, the Department recognises that it would be desirable to respond to some of the points made in consultation about "best practice", providing that further changes can be shown to represent value for money.

The review document acknowledges that Immediate Pensions are an expensive part of the Scheme. What proportion of the cost of the AFPS do Immediate Pensions represent?

  The Government Actuary's Department have carried out calculations on the basis that benefits after the Immediate Pension point would instead be based on preserved pension benefits payable from age 60 without affecting withdrawal or exit rates. These calculations indicate that the cost of the scheme would be reduced by about one third. However, the Department considers that, in practice, this would result in major increases in premature exit rates requiring costly alternative manning measures that would offset any saving.

The document suggests that 'more flexible tools' than IP might be worth pursuing as a retention incentive (para 3.4) and that the review team considered a number of alternatives (para 4.7). Could full details be provided of the various options, which were explored, with costings, and an assessment given in each case of their likely impact on retention across the three Services?

  This response covers both this question and question 14 below. The Department recognises that payment of an Immediate Pension (IP) at around the age of 40 meets a major requirement in the Services to pull personnel through to this age, against pressures with regard to stability of family and children's education when people are in their thirties and are looking for a more geographically settled career. An IP at around 40 also allows the Department to provide a reasonable level of security to those to whom the Department does not offer extended careers due to continued fitness and other requirements; the Immediate Pension recognises the fact that in a number of cases these personnel are likely to have limited career prospects. Nonetheless, the Department recognises that the IP can also mean that the Department loses some skilled or experienced personnel who it wishes to retain for a longer career. The Department is, therefore, considering alternatives to the early IP for those it wishes to retain for longer.

  Alternatives currently being considered would involve retaining the early IP but offering bonuses before the age 40 IP point to individuals in return for their acceptance of a later pension. This might be a single payment or series of payments to draw people through to 45, 50 or 55.

  The Department's work on such bonus options is still being developed and there are no detailed descriptions of options, costings or estimates of the different impacts on retention. The Department recognises that there are substantial challenges in developing a workable and affordable scheme which would be focused on retaining additional personnel rather than spending more on those who already stay through to a full career. The choices in designing such an alternative and deciding what is necessary and affordable will revolve around when the bonuses might be offered, how much they might be and when the pension might be paid. Without necessarily providing exactly the equivalent value, decisions on the amounts payable will take account of the fact that, whereas the "lump sum" gratuity paid at the IP point is tax-free, a bonus would not be. This bonus coupled with the security and opportunities of an extended career, will need to be sufficiently attractive against the value of IP and associated gratuity to represent a credible alternative.

  As regards the more detailed aspects of a bonus scheme, any individual who opted for such a bonus would, on current thinking, accept a later pension payment date. If he were then to choose to retire prematurely, he would not be able to revert to the earlier IP but would preserve all accrued pension benefits, probably to the age of 60. However, because the pension would not be in payment, he would retain the right to transfer his accrued cash equivalent transfer value into another occupational pension scheme, without abatement.

Of the total number of personnel leaving the Services each year, how many (a) leave before reaching their Immediate Pension point and (b) leave at their Immediate Pension point?

  The figures requested are at Annex D. The Government Actuary's Department has adopted the following long term assumptions, based on historical data and future projections:

    —  52 per cent of initial entrant Officers will stay in to the 16 year point or beyond.

    —  13 per cent of initial entrant Other Ranks will stay in service to the 22 year point or beyond.

    —  Of those who reach the Officers 16 year and Other Ranks 22 year points, 12 per cent and 50 per cent of the remaining personnel are assumed to retire immediately.

It would be helpful if further details could be given of the system of bonuses as an alternative to the IP proposed in para 4.9. Would the individual who opts for a bonus retain full preserved pension rights, without abatement, which could be transferred to another occupational scheme? What is the size of bonuses envisaged? What estimate has been made of the likely take-up rate?

  These points are addressed in response in answer to the question above.


The new scheme reduces access to compensation in comparison with the current arrangements by fixing shorter time periods in which claims can be made and shifting the burden of proof on to the claimant. What is the justification for this?

  At present, AFPS attributable benefits for injury, disease or death due to service are paid at date of death-in-service or at medical discharge, although benefits can also be paid for death-in-retirement where it is due to an injury or disease for which the person was attributably invalided. A claim for a War Pension, however, can be made at any time from service release. For War Pension claims made seven or more years after service termination, the burden of proof changes from the Department to the claimant.

  Neither approach is entirely satisfactory. If claims can be made only in service or at service release, then those disorders which take time to emerge, for example asbestos-related conditions, or which are not documented at discharge will be excluded. On the other hand, an open-ended system which permits claims to be made late in life for conditions which may have little to do with service, for example age or life-style related diseases, creates administrative complexity and is not cost-effective.

  The Department proposes that claims would be excluded where disablement developed only beyond a qualifying period, when, given the current state of medical knowledge, the interval since service would make service-causation unlikely. The Department would allow exceptions for a list of conditions which, in line with contemporary medical understanding, could be attributable even if they appeared after the qualifying period, for example certain cancers, psychiatric and asbestos-related disorders.

  The Department proposes three years as the normal qualifying period as it would generally be reasonable to expect disablement resulting from an attributable injury or disease to emerge within that period, which is in line with that used for civil claims for personal injury. The Department would keep under review medical thinking on those disorders that cannot be expected to emerge within this timescale and revise the list of exceptions accordingly.

  The Department also proposes a time limit to claim after the disorder has been confirmed. This approach is common in insurance Schemes and social security benefits, and would support efficient evidence gathering and assessment. Claims outside that period would be considered only where a person was genuinely unable to claim because of mental or physical impairment or where the Department judged that a breach of natural justice would otherwise result.

  In developing proposals for the new scheme it was thought appropriate to use the rules applicable to civil claims for personal injury as a model. Under civil claims, the general rule is that (negligence) claims for personal injury must be made within three years of act or event giving rise to the injury or the date-of-knowledge (if later) of the injured person and the burden of proof is on the claimant. The principles for such claims are set out in the Limitation Act 1980 (Section 11). Although this approach has been used as a model, as explained above the Department's proposals do not exactly mirror the provisions relating to personal injury claims as the scheme is not compensating for negligence, but rather injury or ill-health as a result of service.

  While this approach does not offer the open ended opportunity to claim afforded by the War Pension scheme, it does allow claims to be made after leaving service unlike the current Armed Forces Pension scheme. The burden of proof chosen (the balance of probabilities) is already a feature of the AFPS attributable benefits and reflects modern practices in the civil courts. The burden of proof which operates for the War Pension scheme was devised at a time when there was no developed social welfare system on which soldiers returning from the First World War could depend on for medical or financial support. In addition, the medical understanding of the causes and course of illness or injuries was much more limited than now. Hence the burden of "disproof " was placed on the Government rather than the individual. In introducing a new scheme it seems right to adopt modern practice and require a burden of proof based on "a balance of probabilities".

The Guaranteed Income Stream is intended to compensate individuals for loss of earnings. Paragraph 6.7 of the review document states that a formula has been designed to calculate lifetime earnings. Please provide details of this formula.

  An explanation of how this formula works is attached at Annex E.

Please provide worked examples, covering a range of individual cases, demonstrating amounts which would be payable in the form of GIS under the new scheme, compared with what is currently available.

  The information requested is at Annex F.

What is the taxation basis of the proposed GIS?

  The Department has already established with the Inland Revenue and HM Treasury that the tax position for the new compensation scheme for the Armed Forces will remain unchanged from that prevailing in the existing Armed Forces Pension Scheme for attributable benefits. This means that the lump sum award for pain and suffering and Guaranteed Income Stream will not be subject to tax.

  As with the current AFPS scheme, the tax free status would not apply to dependents benefits, which remain taxable. The levels of benefits proposed have taken this into account.

How will abatement work under the new arrangements? Please provide examples.

  As a matter of principle, the Department believes that individuals should not be compensated twice for the same injury or illness and it intends to maintain arrangements to ensure, where appropriate, that either any civil claim settlement takes account of any awards from the proposed new scheme, or that there is provision to abate the scheme award to take account of any award made by the Courts.

  With respect to the calculation of the Guaranteed Income Stream there will also be a requirement to take account of any pension or other income replacement benefits that have been paid in respect of the disability, to avoid the individual being compensated twice for the same loss of earnings. The Guaranteed Income Stream is designed to compensate for loss of earnings and, if a pension is in payment, then some of these lost earnings will already be covered. The example shown in the GIS formula provided for Question 16 above demonstrates how the calculation works.

How was the figure of £20,000 for the flat-rate payment to attributable widow(er)s decided upon? On what basis will it be uprated?

  The additional lump sum payment to a widow or widower whose spouse died in circumstances attributable to service in the Armed Forces reflects a number of factors in the new scheme including greater emphasis on up front lump sum support and replacement of War Pensions and attributable benefits under the Armed Forces Pension Scheme by the new Armed Forces Compensation arrangements and social security benefits. The Department recognises that this sum cannot remain static over time and will be considering what uprating mechanism might be used.

The review document's proposals for a tariff-based system for compensation for pain and suffering are modelled on the Criminal Injuries Compensation Scheme. But the CIC scheme has itself been widely criticised. Why was the CIC scheme chosen as a model? What consideration was given to using the Judicial Studies Guidelines in drawing up the tariff system? How will the tariff levels be uprated over time?

  A key aim of the review was to devise a system which was simple for claimants to understand, consistent in awards paid, and quick to administer. A tariff with published injury descriptors linked to fixed award levels seemed appropriate. The CIC Scheme which has existed since 1964, based first on common law damages, and since 1996, on a tariff base, presented a useful template in respect of its overall approach to offering a tiered system of lump sum payments for pain and suffering and, where appropriate, a regular payment for loss of earnings. It was not the model for specific levels of payment. As was explained in the consultative document, although it was felt the tariff approach for the lump sum payments would be well suited to the type of disablements likely to be suffered by the majority of claimants from the Armed Forces, it was not thought appropriate to adopt the specific range used by the CIC Scheme which is designed to deal with injury arising from criminal assault among the civilian population.

  The Department is aware of the criticisms of the CIC Scheme, including the levels of awards. However, as explained above, the tariff chosen for the proposed Armed Forces compensation scheme is not the specific model for levels set. The Committee asks specifically whether consideration was given to using the Judicial Studies Guidelines. In fact, the proposed scheme's tariff was devised from information and categories of injury contained in the Judicial Studies Board Guidelines for the Assessment of General Damages in Personal Injury Cases. But, it should also be noted that the tariffs for the CIC Scheme are derived in a similar manner.

  The published tariff relates only to pain and suffering. Both the CIC and the Department's compensation proposals also address "loss of earnings". The CIC has a ceiling for net loss of earnings or earning capacity (prior to any abatement) set at 1.5 times the gross average industrial earnings at the time of the accident and in line with Office of National Statistics figures. This constraint does not apply to the proposed Armed Forces compensation scheme and loss of earnings are based on the individuals own salary.

  Since the exemplary tariff was produced, both the CIC tariff and the Judicial Studies Board Guidelines have been revised. These changes, which cover both award levels and spectrum of disorders, will be taken into account in our final proposals. The published tariff will be kept under regular review. The scheme is intended to focus on those most seriously disabled, and tariff levels 1-11 will be accompanied by a GIS which will be automatically be uprated due to the direct link to salaries.

Why was the decision taken to include in the tariff system compensation for minor injuries, from which full recovery is expected, and which do not affect military careers? What assessment has been made of the possible scope for abuse of this facility? Does this provision not conflict with the overall intention of the scheme to target assistance to those with greatest need and to focus resources on 'those who are clearly disabled on account of their service' [para4.4]?

  The need to provide adequately for those most seriously disabled was, as noted, a key objective of the review. Nonetheless, the Department recognised that the new scheme should reflect wider practice in the UK on compensation of lesser injuries. Indeed, the position of such individuals was a key concern of many of those responding to the consultation, some of whom suggested that the focus on the most severely disabled due to service should not be to the detriment of those with lesser injuries.

  A decision to include minor injuries in the JCR was made on the basis that it would be reasonable to do so and would replicate what would be available to a claimant pursuing a claim under common law. Although a claimant may have suffered a minor injury and would probably fully recover, there would have been an element of pain, suffering and loss of amenity. Some of the injuries, such as those involving disfigurement, may involve no loss of earning capacity, but may lead to appreciable suffering and "loss of amenity".

  The published Tariff is exemplary and for discussion. The definitive list of disorders/injuries covered, award levels and relative positions on the Tariff will be informed by further discussion with experts and responses to the consultation document.

  The Department does not believe that compensation for minor injuries runs counter to our objective of targeting those with the greatest need. The structure of the Scheme is such that those in most need are targeted with not only a lump sum compensation payment but also compensation for loss of earnings through a Guaranteed Income Stream. For more minor conditions, below Tariff level 11, there is only a lump sum payment for pain and suffering in recognition of the fact that earning capacity should not be affected. The range between the top and bottom of the Tariff (currently £250,000-£1,000) also demonstrates the differentiation made by the Scheme for those severely disabled compared to those suffering minor injuries. The current War Pensions Scheme includes specified minor injuries in the schedule of statutory assessments. Such injuries are also included in the various Criminal Injuries Schemes and there would be inequity if access to compensation for the same injury were dependent on whether it occurred by criminal or war-like activity.

  The Department recognises that there is always a risk of abuse of any compensation Scheme, and have some experience of dealing with this through our current administration of the Criminal Injuries Compensation Overseas Scheme. The Department believes that the opportunities for abusing the new compensation Scheme for minor injuries while still in service would be limited. This is because the individual will still be under Service scrutiny and rules and thus subject to Service discipline. Claims for minor injuries after leaving Service will have the same requirement of proof based on the balance of probabilities based on evidence provided. However, the Department is not complacent about the risk of abuse and when the detailed work on the administration of the Scheme is begun it will give careful consideration to what mechanisms might be required to minimise the risk of abuse whilst bearing in mind the need to avoid making it difficult for those with genuine cases to qualify.

Who will carry out the medical assessments on Armed Forces personnel who wish to make a claim under the new tariff-based system?

  The administrative details of the proposed Scheme are not yet developed. However, it is proposed that decision-making will be for administrative officials with access to legal and medical advice. This reflects the approach common in modern schemes such as the Criminal Injuries Compensation (CIC) scheme.

  Decisions in the Scheme will be evidence-based and suitable training, published guidance and definitions will be required. In some cases, administrative decision-makers will need help in interpretation of the medical evidence. The medical advice to the decision-makers will be dedicated, impartial, and provided by a doctor trained in occupational medicine or disability assessment medicine.

4As in all disability Schemes, medical evidence will be key. In devising the proposals the Department was conscious of the delays in claims-determination that can arise where medical examinations are used to inform decisions. In addition, evidence generated at the time of the incident or event rather than that generated in the context of compensation is likely to be more robust.

  The eligibility rules of the new Scheme—including the opportunity to claim while still in service—mean that special medical assessments are unlikely to be routinely required for the new arrangements. Decisions on claims will in the main be informed by existing medical evidence, particularly the service medical records. The current work in the Surgeon General's Department on new systems of record keeping, health and environmental monitoring will be supportive of this. It will, nonetheless, be open to the claimant to submit independent medical opinion where he or she considers this appropriate.

  For claims at service medical discharge, and perhaps for in-service claims, papers will be automatically forwarded to the Scheme administration. For post-service claims the service medical documents will again be important. However, the claim form will record details of the claimant's own clinicians and any treatment for claimed disorders in the post-service period. It may also request permission to obtain medical details to inform case adjudication. Dependent on the case-specific facts, further medical evidence in the form of factual reports from GP, hospital clinicians or other health practitioner, or examination by medical board or accredited specialists may be obtained. Fees for such commissioned evidence will be for the Department. As indicated above, claimants will, however, be free to submit their own medical evidence.

The review document states that "decisions on claims should in most cases be taken within a few weeks of their submission" (para 2.1.2). What evaluation has been undertaken to assess the time, which the claims process, including medical assessment will take? Can we see the results of any such evaluation?

  The Department's intention is to introduce arrangements that are simpler to apply and to administer and easier for claimants to understand. The Department recognises that delays in claims being dealt with can be frustrating, and cause uncertainty and temporary hardship. As the scheme has not been finalised, no detailed work on administrative arrangements has been undertaken but some informal work between MOD and the then DSS concluded that this timeframe seemed a reasonable assumption. It was, therefore, thought reasonable to set an objective of processing the majority of claims "within a few weeks of their submission". The Department also took account of the fact, noted above, that under the proposed scheme, decisions will be taken by non-medical specialists and the medical information on which the decision is taken will generally be available at the time the submission is made. It is, of course, recognised that where cases are more complex or where further medical evidence is required claims may take longer to settle. When the new compensation scheme is approved for introduction, the Department would expect to conduct a detailed evaluation of how claims will be processed. The need for an expeditious but fair process will be a key objective in this work.

Please provide figures showing the total paid to Service personnel in compensation in each of the last five years, as a result of employer liability and negligence claims; and the legal and other administrative costs to the MoD of dealing with such claims.

  The total paid by the Department to Service personnel in compensation, including adverse costs (the Claimants' legal costs), in each of the last 5 years as a result of employer's liability claims is as follows:

Financial Year


* First 9 months only

  The Department does not record separately legal costs incurred as a result of dealing with claims brought against the Department by Service personnel, and those received from civilian personnel and third parties. The information requested could only be provided at disproportionate cost.

  The administrative costs to the Department of dealing with employer's liability compensation claims received from Service personnel in each of the last 5 years is as follows:

Financial Year


* First 9 months only

Please provide details of the role of the MoD's claims handling agents (AXA and Royal Sun and Alliance) in the present compensation claims arrangements.

  The Department employs commercial claims handlers to deal with certain types of claims for compensation for acts of negligence allegedly committed by the Department or its employees. These arrangements cover the handling of the legal and administrative aspects of settling claims only. No insurance cover is provided. The funding of compensation payments is made directly from the Department's current expenditure.

  AXA Corporate Solutions Services Ltd handle claims against the Department in respect of Employer's Liability for civilian members of staff and claims from third parties for personal injury or damage to property arising out of motor vehicle accidents. They have held this contract since 1981.

  Royal & Sun Alliance plc (RSA) handle claims against the Department in respect of Employer's Liability for Service personnel. They have held this contract since 1996, the first time this work was put out to contract.

  AXA and RSA provide a complete claims handling service including receipt of a claim, investigation, gathering of evidence, assessment of liability, negotiations with a claimant's solicitor, conduct of cases in Court, settlement and award of compensation. They normally deal directly with the relevant Units of the Armed Forces and the Department.

  Both contracts are due to expire on 31 April 2002. New contracts to continue the work from 1 May 2002 until 31 April 2007 have been awarded as a result of a competitive tender exercise which was evaluated on the basis of providing the most cost-effective service for the Department. Under the new contracts, AXA will handle claims from third parties arising out of motor vehicle accidents and RSA will handle all claims in respect of Employer's Liability for both civilian staff and Service personnel.

The review document asserts that civil negligence claims can be 'confrontational and protracted, cause distress to claimants, and result in disparate awards for the same disablement'. On what evidence is this statement based?

  The Department recognises that the handling of civil negligence claims has changed significantly since the time when the review of compensation for the Armed Forces was being considered. In introducing his reforms on the Civil Procedure Rules, which were introduced on 26 April 1999, Lord Woolf stated the intention that "litigation will be less adversarial and more co-operative" and that "people will be encouraged to start court proceedings to resolve disputes only as a last resort, and after using other more appropriate means when these are available". These reforms had not had a chance to have much impact on the perception that civil negligence claims could be protracted and difficult at the time of the review and the consultation document was written reflecting the unreformed civil litigation process.

  In handling civil negligence claims today, the Department takes due account of the Woolf Reforms. The Department fully complies with the civil procedures rules and less than 3% of the Department's cases now go to Court Wherever liability is not an issue, the Department tries to settle claims in Counsel-to-Counsel discussions to avoid the cost and personal stress of extended court cases. This method of negotiated settlement has had a significant effect on the way claims are handled due to the claimant and defendant showing an element of goodwill combined with a realistic approach. This has demonstrated that it is possible to agree a settlement without recourse to the courts. As the Committee will be aware, if a person or organisation fails to comply with the Woolf rules, sanctions can be applied. To date no sanctions have been taken against the Department.

  While the Woolf reforms have done much to simplify the claims process, it is still true that there are disparate awards made for similar disablements in civil litigation. This will always be the case, as in settling the claim such issues as the value of lost earnings, age of the claimant and their expectations will all have an impact on the assessment as well as other factors unique to the case and the judgement of the Court. The variation in these settlements is most clearly demonstrated in the Judicial Studies Guidelines which give an indication of the range of payments made against particular conditions.

The review document says that "the structure of the new compensation package should be not too far out of line with awards available in civil negligence claims". In coming to this viewpoint, what assumptions have been made about levels of awards in legal cases and the methods use in calculating them?

  The proposed compensation schemes structure reflects two of the key elements of awards made in civil negligence claims. It provides, firstly, compensation for pain and suffering and secondly, where appropriate, compensation for loss of earnings. The payment of a lump sum for pain and suffering is in accord with the majority of civil settlements, and, while the approach varies in civil settlements, loss of earnings are often awarded as an income stream. The courts would seem to prefer future settlements of loss of earnings claims to go down the route of income streams, in preference to lump sums. There is also understood to be discussion within the judiciary on whether a Judge should be able to make an "income stream" a condition of settlement rather than, as currently, where both parties in the claim have to agree the terms of payment. Regular income streams are a common feature of public service compensation schemes.

  With regard to the levels of awards, the civil and proposed Armed Forces schemes are not directly comparable. Proven negligence is always an issue in civil damages, while that is not so in the proposed scheme. The proposed scheme does not, therefore, make specific provision for medical or nursing care. In considering provision for care, the Department was satisfied that appropriate medical management, care and rehabilitation for the overwhelming majority of disorders that will be seen in the new scheme is available under UK statute (for example National Health and social services), and that this should be the usual delivery route under the scheme. Where a claimant believes that negligence is involved and that such compensation as has been offered is not sufficient, it remains their right to make a civil claim against the Department for care costs, even if they have already applied for or received compensation from the proposed scheme.

  As was explained in answer to question 21, the values of the tariff for compensation for pain and suffering were devised reflecting information from the Judicial Studies Guidelines. The Department's understanding on how the levels of awards are made in legal cases is as follows:

    First, an amount of damages for pain, suffering and loss of amenity is taken from the Guidelines for the Assessment of General Damages in personal Injuries produced by the Judicial Studies Board. This is normally non-controversial and ensures parity in awards to Claimants suffering very similar injuries.

    In estimating the financial or pecuniary loss, an opinion is formed, from the evidence and probabilities in the case, about the nature and extent of the loss. In the case of loss of earnings, a view must be taken to decide what the Claimant would have been earning if the accident had not happened, allowing for any future increase or decrease in earning power. Then it is necessary to assess how long the loss will continue—whether there is incapacity for life, or for a shorter period. Finally, an estimate must be made of the amount (if any) which the Claimant can still earn in the future, notwithstanding his disability.

    Similarly, if medical and nursing expenses are claimed, it would be a matter of fact what expenses have already been paid and an estimate be made for those not yet incurred.

    Lastly, due account is given to damages awarded in similar cases and publicised in law reports and journals.

Is there a technical difference between being 'invalided out' of the Services (para 9.2) and "medically discharged" (para 9.3).

  No. Both terms describe a Service person being discharged from service due to injury or ill health. In using both terms the Department was not trying to draw a distinction between the circumstances described. The Department recognises that for consistency it would have been preferable to have used the same term throughout, and medical discharge perhaps offers a clearer description of the situation.

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