INTRODUCTION

  The Committee asked for a memorandum on a range of veterans issues ahead of its session with Dr Lewis Moonie, Parliamentary Under-Secretary of State for Defence and Minister for Veterans.

THE VETERANS' INITIATIVE

General

  The Veterans' Initiative arose from one of the wider themes of this Government-public sector reform aimed at achieving a "joined-up" approach providing integrated policy and service delivery across Government. Before the initiative, veterans' concerns had tended to be dealt with on a "single issue" basis by the responsible department or within local government.

  To provide a co-ordinated Government focus for the concerns of veterans, the Prime Minister announced on 14 March 2001, that Dr Lewis Moonie had been appointed Minister for Veterans Affairs. His principal task was to ensure that veterans' issues were properly understood, appropriately prioritised and effectively addressed across Government.

  The three main priorities identified for the Initiative were:

—  to pull together the Government's response to issues that cut across Government Departments, such as veterans' homelessness or ill-health;

—  to ensure that lessons learned were absorbed into MOD's policies for Service personnel;

—  to improve communication by publicising the assistance offered to veterans by central, devolved and local government, and by giving veterans' organisations the opportunity to represent their collective and individual concerns to Government at Ministerial level.

  Dr Moonie established two new cross-Government groups to help him deliver his responsibilities as champion for veterans' concerns: the Veterans' Task Force and Veterans' Forum. The Ministerial Task Force, which is responsible for veterans' issues within Government, has approved a strategic action plan for addressing veterans' concerns. This has been developed in partnership with representatives of the veterans' community through the Veterans' Forum, which is chaired by the Minister for Veterans Affairs and is attended by representatives from both Government and the veterans' organisations. The Action Plan is being taken forward by a number of working groups made up of government officials and experts from the veterans' organisations.

  Although the working groups have not yet completed their work, progress has been made in a number of areas. An example is the agreement to a £100,000 research programme—funded by Departments from across Government—to understand better the nature of the problems facing veterans and how they arose. A contract was placed with King's College London in the middle of the year and the final report is due in March 2003. A second example is the trial that began in March 2002 to provide an enhanced package of resettlement advice for those who leave the service on medical or disciplinary discharge who are judged to be at greatest risk of unemployment or homelessness. A third is the work under the chairmanship of Imperial War Museum to provide improved educational material on veterans' achievements for the citizenship module of Key Stages 1 to 4 of the National Curriculum. A new portal for teachers to find National Curriculum based resources for learning about veterans was launched in October 2002. The Veterans Agency has a key role in a various aspects of the Veterans Initiative. It has, for example, been central to work to develop and improve information systems for veterans so that they are aware of the range of services available from both Government and the voluntary sector.

  One of the other successes of the Veterans' Initiative so far has been the establishment of a genuine and pragmatic partnership between Government and the veterans' organisations. The intention is to sustain and develop that partnership.

Organisational review of veterans work in MOD

  The establishment of the Veterans Agency with a remit to provide advice and information to all veterans was a first step in a continuing MOD review of the way in which the Department is organised to deliver policy and services to the veterans' community. Veterans' issues are dealt with at present by a range of areas and organisations within the MOD and this can lead to duplication and inefficiencies. We aim to produce a better-integrated approach that would deliver a more coherent policy programme for veterans. Emerging conclusions suggest that the best way to do this would be to rationalise the present spread of policy responsibilities concerning veterans, bringing them together as far as possible into one organisation with a single programme manager. Delivery of services to veterans would continue to be carried out primarily by the Veterans Agency and the Armed Forces Personnel Administration Agency.

Development of a strategy for veterans

  We are also currently developing an overarching strategy for veterans which will set out our overall aims and objectives for the Veterans' Initiative and provide the framework for policies and activities designed to achieve these aims. The policy is still evolving and the views of representatives from the ex-service community will be taken into account in its development. Once the views of all the key stakeholders have been sought and received, we plan to publish our high level strategy for veterans.

REVIEWS OF THE ARMED FORCES PENSION SCHEME AND COMPENSATION ARRANGEMENTS FOR THE ARMED FORCES

General

  Since the Department gave evidence to the Committee earlier this year, the review team has given careful consideration to the responses to the consultation process, and the comments and recommendations made by the Committee. As part of this process, the Department has maintained a close dialogue with the ex-Service community, working to understand their concerns and priorities, and to explain better the detail of its own position. When finalised, it is expected the Department's proposals will address many of their key concerns.

  Proposals are being revised and it is hoped to seek approval by Departmental and other interested Ministers early next year. This work has been taken forward in close consultation with the single Services and the [revised proposals being considered] have the full support of the Chiefs of Staff. The Department has also taken account of a broad spectrum of Service personnel views through focus groups and in response to the consultation process. Once the approvals process is complete, the Department will write to the Committee setting out the new arrangements.

Armed Forces Pension Scheme (AFPS)

  Since the start of the AFPS review the trend in pension schemes in the UK has shown a continued move away from defined-benefit final-salary schemes and a move by employers towards greater control of costs and minimising or removing risk on pension liabilities. A recent report by the Association of Consulting Actuaries found that 56 per cent of final-salary schemes are now closed either to new entrants or to future accruals and that contributions into occupational money purchase schemes generally are not increasing to offset the effect of deteriorating investment returns and are generally less than required to match the defined-benefits arrangements. Against this background and the expected future trends, the Department would expect that its plans for a new defined-benefits final-salary scheme should be seen as increasingly valuable. The Department considers that making a high level of investment in pension benefits is fully justifiable given the importance of providing a high level of assurance to those who serve in our Armed Forces.

  In developing the final package of pension benefits, the Department is still aiming for new pension arrangements which are appropriate, effective, fair and affordable and which support Armed Forces career structures by contributing to recruitment, retention and morale.

  The review team has been working closely with the Forces Pension Society (FPS) throughout the development of the final proposals. The Department is aware of the FPS's key concerns and has endeavoured to address these wherever practicable, exploring with them their ideas and suggestions for improvements. Although the Department will not be able to meet all the aspirations of the FPS, it is hopeful that the final package will be well received and that the FPS will be able to give qualified support to the way ahead. The Department recognises the valuable support that the FPS can offer in introducing the new arrangements in the future and will continue to work with them.

  The Committee, in its Third Report of Session 2001-02, made recommendations on a number of issues relating to the new AFPS, and the Department has already responded to these. Within the constraint that proposals have still to be finalised and approved by Departmental and other interested Ministers, the following offers an update to the Committee on its recommendations.

  On the issue of making the AFPS a contributory scheme, the Department has already explained the difficulties involved in such a proposal. However, the Department has looked again at this issue and, with the advice of the Government Actuary's Department, has considered the advantages and disadvantages of such an approach, and, specifically, the FPS's proposal to turn the abatement of comparator pay, currently set at 7 per cent, into a 7 per cent contribution by scheme members. Our studies and those of the GAD indicate that, within a framework of comparative pay, this approach would lead to higher gross pay but lower take home pay. The Department considers that this would be unwelcome to the majority of serving personnel, and that it would also be out of line with our assessment that it is take-home pay that is the key driver for recruitment and retention.

  The Committee raised the issue of the generosity of the new AFPS against other public service schemes. The Department has already provided details of the pensions package compared with other public service schemes. They demonstrate that the benefits offered by the AFPS are better than the average and in a number of respects the most generous. The Department hopes that the revised proposals will address a number of the areas where comparisons have been criticised as unfavourable for the Armed Forces. Once proposals have been approved, a revised comparison will be provided for the Committee.

  The Department agreed to look again at the issue of commutation. There is no evidence to suggest that gross accrual with voluntary commutation would, in itself, be an attractive option to Service personnel. As was explained in the earlier response, Service personnel have tended to maximise the value of their lump sums, and the design of the scheme reflects this preference on the part of scheme members. The Department recognises that commutation offers flexibility but the inverse commutation offered under our proposals would also provide this.

  The Services have confirmed the importance of retaining the early Immediate Pension Point as a retention measure. The Immediate Pension is therefore likely to remain part of the benefit structure of the new AFPS. The Department is committed to considering a bonus option as an alternative to the Immediate Pension and has undertaken to develop proposals for a trial bonus option scheme under the current AFPS. This development work will take place in 2003.

  Ideas that will be put forward within the forthcoming Green Paper on pensions may have implications for the design of the new scheme, although the Department is not in a position to comment on the content of the Green Paper. The specific needs and interests of the Armed Forces will of course be taken into account in the Government's final decisions on such matters.

Joint Compensation Review

  The Committee, in its Third Report of Session 2001-02, made recommendations on a number of issues relating to the new compensation arrangements, and the Department has already responded to these. Within the constraint that revised proposals still have to be finalised and approved by Ministers, the following offers an update to the Committee on its recommendations.

  The review team has worked closely with the ex-Service community in developing final proposals for the new compensation arrangements. The key organisation engaged in this work has been the Royal British Legion (RBL), although the British Limbless Ex-Service Men's Association (BLESMA), Combat Stress and the War Widows Association (WWA) have also been involved. The RBL has raised its concerns with the Department, and the Department has endeavoured to address these concerns through further explanation of its thinking and by looking at the scope for amending the proposals to address specific concerns. The dialogue has been constructive and a clear understanding of the issues exists on both sides. While the Department will not be able to change some of the fundamental aspects of its proposals, such as the standard of proof, nonetheless it is hopeful that, with the further explanations and safeguards, and with some changes, the ex-Service community will be reassured that the new proposals will ensure that awards are made whenever there is disablement causally linked to service.

  The ex-Service organisations have been concerned to ensure that the proposals properly reflected the special status of the Armed Forces. The Department agrees that the scheme should be designed to reflect the particular commitments and hazards attached to military service and should provide a high level of assurance for those affected by attributable injury and death. Improved levels of benefit for death and serious injury will be a key aspect of our final proposals.

  The Department has considered carefully the issue of time limits, following the recommendations made by the Committee and the concerns raised by the RBL in its oral evidence to the Committee earlier this year. The Department remains of the view that the concept of a time limit should be maintained for the majority of conditions, which DWP/MOD modelling shows are likely to be claimed. The evidence also shows these can be expected to emerge and stabilise soon after the incident or exposure from which they resulted. Reflecting wider good practice, the Department considers that, for such conditions, it is best to consider claims when the evidence relating to the claim, whether diagnostic or circumstantial, is fresh and easier to establish. The time limits must also be seen in the context of a clear communications strategy of the new scheme and the Surgeon General's Initiative on Service medical documentation. While no final decisions have been taken, the Department has discussed with the RBL the possibility of extending the time limit to meet its concern that a three-year limit allows insufficient time for individuals to identify and submit their claims. Whatever the final time limit, the Department intends that it will apply from the date of injury or from the date of discharge where there is no specific event, as set out in the original consultation document. In addition, we now plan that the review and appeal process, explained in more detail below, should include provision which should ensure that, if there are exceptional circumstances giving rise to late presentations or diagnosis, the scheme administrators would have the discretion to consider a claim outside the time limit. Decisions by scheme administrators would remain subject to appeal to an independent appeal tribunal.

  The Department remains of the view that the "balance of probabilities" standard of proof is appropriate for the new compensation arrangements, underwritten as this would be by provision to deal with exceptional cases and independent tribunal referred to above. It is widely recognised that in compensation schemes based on establishing a causal link, such a standard of proof is not an obstacle to those properly entitled to compensation. It also produces entitlement outcomes in line with contemporary medical understanding on causation of disorders. The Department would expect the medical discharge procedure to identify the majority of conditions attributable to service—the exception being late onset conditions for which a separate process is proposed. Standard of proof remains an area of concern to the RBL, particularly with respect to times of a major conflict when, it is argued, medical discharge arrangements may fail under the pressure of a large scale demobilisation. The approach to medical discharge has been subject to development in the light of past experience, and the Department considers that, for foreseeable operations, existing arrangements could handle the scale of the task. However, should the pre-discharge medical have been unsatisfactory in some way, for fairness and equity the case would be reviewed to see whether a claim should be considered on a discretionary basis. Decisions by scheme administrators would again be subject to appeal to an independent tribunal.

  The Committee expressed concerns regarding proposals for review, appeal and deterioration. The Department has been developing further its proposals on these issues in discussion with the ex-Service community and, in particular, the RBL and BLESMA. Informed by expert medical opinion, tariff levels aim to reflect and cover the normal range of variation in the natural history of a condition. We are confident that this will apply to the majority of claims. However, it is recognised that that may not be appropriate for all cases. In some cases, it may not be possible at the time of claim to predict the final prognosis of a disablement and it might therefore be appropriate to give an interim award with a set time for review. The type of conditions where such an award might arise would include both physical and psychological disorders where substantial improvement or deterioration may arise. A second situation is where, against the normal course, the accepted disorder leads at some time in the future to a further condition; one example would be certain types of head injury leading to epilepsy. Scheme administrators will also have discretion to allow exceptional review in the small number of cases where there is exceptional and substantial deterioration outwith the generally predicted course of a condition.

  The compensation scheme will have an internal disputes resolution procedure to allow claimants to appeal at administrative and policy levels against a range of issues such as non-award, the level of award and the right, exceptionally, to claim outside the time limit. The Department would expect there to be time limits for raising an internal dispute resolution procedure or appeal but again there would be discretion to allow exceptions where exceptional circumstances justified this. As was set out in the consultative document, the scheme will also have an independent appeals process as the final level of appeal, which will be compliant with the European Court of Human Rights. The details of this appeals tribunal have not yet been agreed, but the Department is in discussion with the Lord Chancellor's Department on the requirement and how this might best be met.

Unmarried partners

  The Committee recommended that we consider extending benefits for unmarried partners in the new pension and compensation arrangements for the Armed Forces. The Department has been looking at the wider issue of unmarried partner benefits and a domestic trends survey has been conducted among unmarried Service personnel. This survey is being used to inform a way ahead on wider issues of entitlement, and recommendations will be made next year. The Department will announce the outcome on pensions and compensation once decisions have been taken.

Communications

  The Committee will be aware from the response to its Third Report of Session 2001-02 that the Department plans a substantial communications package to cover the new AFPS and compensation arrangements, using a range of media to ensure maximum coverage. The first stage of our education programme on pension benefits has already been launched, and a copy of a new pensions booklet on the current AFPS has been issued this autumn to all currently serving personnel. In addition, booklets on particular aspects of the current AFPS have been produced covering commutation, increasing benefits, preserved pensions and pensions transfers, internal disputes resolution procedures and pensions on divorce, all of which can be provided on request. Further information booklets are currently in production on family pensions, invaliding and re-employment. This family of booklets has been produced in user-friendly language, tested with a range of Service personnel and the ex-Service community and replaces a single booklet.

INCORRECT TAXATION OF ARMED FORCES INVALIDITY PENSIONS PAYMENTS

  Dr Moonie announced on 25 April 2002 he was setting up an internal review to establish the extent of the taxation errors and expose any related problems. The findings of the review were published on 3 December 2002. Payment errors were caused in many different ways. Some arose from systemic failures connected with the administration processes of the time. Others resulted from human error, although the incidence of this was, at most times, low. Work is in hand to identify and rectify remaining errors affecting the pensions of all three Services. The findings of the review have helped to prioritise resources, so as to concentrate as far as possible on cases where the probability of error is greatest.

  The review has concluded that although most of the recent checks have been done accurately, some were not thorough enough. In particular, some Army pensions adjudged correctly taxable in 1999 are therefore now being revisited and in some instances being reassessed as tax exempt. Sadly, in a few of these cases the pensioner has died within the last three years. In such cases, the refund is paid to the widow or other beneficiary of the estate.

  A comprehensive action plan is being implemented to ensure not only that errors are corrected, but also that the causes of these errors are recognised by all the staff concerned, and procedures changed wherever necessary so as to prevent recurrence of similar mistakes. Urgent actions required to ensure the accurate handling of current business have already been taken.

  The main review findings are:

—  The total number of wrongly taxed pensions so far identified is about 1,200. The final total may be several hundred higher. The amounts of money which have had to be refunded to each pensioner vary widely, but the average payment in respect of mistaken taxation has been around £4,500. This includes the repayment supplement, made by the Inland Revenue on a statutory basis, to compensate for the delay in refunding the tax. The average payment is relatively small because:

—  most of those medically discharged are in the earlier stages of their military service, so their occupational pension entitlement is relatively small; and

—  the majority of errors identified to date have been found within about five years of the pensioner's discharge, thus limiting the number of years for which tax was wrongly paid.

—  It is also expected that a proportion of the wrongly taxed pensions not yet found will also have suffered underpayment of pension scheme benefits. Such underpayments affect only pensions awarded since 1973. The average underpayment has also been about £4,500 in the cases so far identified.

—  A substantial amount of further work is to be carried out by the Armed Forces Personnel Administration Agency, which cannot be completed until summer 2003. It is uncertain how many more affected cases will be found by the further work. The review found that, until recently, errors had also been made resulting in many tax-exempt pensions being wrongly awarded. For this and other reasons the review concluded that there was no deliberate attempt to deny pensioners their due.

—  Other types of pensions for which medically discharged personnel may be eligible, but which are assessed on the basis of degree of disability, such as those paid under the War Pensions Scheme, have at no time been taxed.

—  The total payments to date are some £5 million by the Inland Revenue in respect of the tax error and £1.6 million by MOD for pension benefits. The review has concluded that when all at-risk cases have been reviewed the total cost of refunds could rise to around £10 million.