Armed Forces Pensions

Jim Shannon Excerpts

Tuesday 16th October 2012 Commons Chamber

[The Minister of State, Ministry of Defence (Mr Mark Francois)]

I congratulate my hon. Friend the Member for Salisbury (John Glen) on securing this important debate. I acknowledge his genuine concern for the individual cases he has mentioned—several members of his own constituency and one other represented by my hon. Friend the Member for South Norfolk (Mr Bacon). I am aware of the particular circumstances of the individual case on which my hon. Friend the Member for Salisbury has focused, and I would like to explain the error in pensions policy interpretation that has led to this situation and what has been done to support individuals who might have encountered financial and other difficulties as a result.

For the benefit of the House, I will set out a little of the background, but may I start by saying that when a service person divorces or dissolves a civil partnership, we acknowledge that it can be a difficult and stressful time for both parties? I fully recognise, especially in the current climate, that to have received the news that the amount of pension that was already in payment would reduce, or in the case of deferred pensions would be less than expected, would have been a great cause for concern. If any additional upset or distress has been caused as a result of errors made by the Department, I offer my own very sincere apology to those affected.

By way of introduction to this subject, pension credit members are former spouses or civil partners of members of our armed forces pension schemes who have been awarded a pension sharing order on divorce or on the dissolution of a civil partnership. They are a special category member of the pension scheme to which their former spouse or partner belongs. So while they are members in their own right, the terms of their membership do not directly mirror the pension entitlement of their former spouse or partner.

As I think my hon. Friend the Member for Salisbury well understands, the legislation in this area is complex. Occupational pensions would normally become payable from age 65. New legislation was introduced in 2009 that allowed pensions to be brought into payment from the age of 55. The Ministry of Defence’s pensions policy staff wrongly interpreted this legislation as allowing payment from the age of 55 without any reduction for early payment. However, my Department’s reading of the law was mistaken.

The legislation was intended to make early payment an option, but if the pension was to be paid early, a corresponding reduction was also required. The error was first identified in the latter part of 2010 during an exercise to review the regulations for the armed forces pension scheme. As soon as it was identified, work began to amend the regulations of all of the pension schemes affected. My Department’s pensions policy staff instructed the Service Personnel and Veterans Agency to apply the correct policy to new cases from March 2011.

[Jim Shannon (Strangford) (DUP)]

I am grateful to the hon. Member for Salisbury (John Glen) for bringing this matter to our attention. He said in his introduction that life circumstances have been substantially affected, so I ask the Minister whether, in the review, he would be prepared to look at those who have been awarded compensation, as it has affected their benefits? Will he consider them as well as the wives and family members as part of the review that the Minister hopes to undertake?

[Mr Francois]

I hope that, by the time I get to the end of my speech, the hon. Gentleman will agree that we are doing our best to look at this issue and try to put it right. He will be able to make that judgment afterwards, but I hope that what I say will address the spirit of what he has asked.

The effect of misinterpreting the legislation was that 127 pensions already in payment to pension credit members required an adjustment to be made—in the majority of cases, this would result in a reduction. In March 2012, the Department notified all those members affected and advised that the changes would come into effect from June this year. The average annual reduction to pensions in payment was approximately £783, although in some cases this will have been significantly higher.

During business questions in April 2012, my hon. Friend the Member for Salisbury asked the Leader of the House to seek an apology from the Ministry of Defence and to take corrective action that would, in effect, restore the pensions to the original amount. The Leader of the House asked for urgent inquiries to be made to establish whether any injustice had occurred. My predecessor, the Minister for the Armed Forces, my right hon. Friend the Member for South Leicestershire (Mr Robathan) wrote to my hon. Friend on 10 May, confirming that while an error had occurred in allowing the pensions to be paid on the wrong basis, legally there was no provision to continue paying the pensions knowingly at the incorrect rate.

My predecessor also confirmed that when the pensions were being adjusted to the correct rate, a calculation error was made by the Department. That further mistake was identified quickly, and revised calculations were issued to those affected as soon as was practicable. When the correct methodology was applied, the reductions in pension amounts in all those cases proved to be less than had previously been indicated. In a few cases pensions actually increased, as did the lump sums received by some pension credit members as part of divorce settlements.

As I am sure the House will agree, when there is no legal entitlement for a pension to continue to be paid at an incorrect rate, the payment must be put right without undue delay. Regrettably, in this instance the matter was not addressed as quickly as it ought to have been, and the payments were allowed to continue. Again, I apologise for that.

In the spring of 2012, when the extent of both errors had been recognised, the Ministry of Defence did its best to put things right. As a first step, approval having been sought from Her Majesty’s Treasury, overpayments to 127 pension credit members totalling more than £176,000 were waived, and no recovery action was pursued. In addition, in recognition of the need for those affected to adjust to a reduced income in future, a period of three months’ grace was given to those whose pensions were already being paid.

For the sake of completeness, the House should know that the same errors also affected 417 deferred pension credit members. Deferred members are those whose pensions have not yet been paid. Those members were also written to in March 2012, and were told that the amount of pension they were expecting to receive at the age of 55 was incorrect. They could still choose to take their pensions early at 55 or they could wait until they were 65, but the amount would need to be recalculated. Once deferred members' pensions had also been calculated on the correct basis, the vast majority of deferred members saw their annual pensions actually increase above the original estimated value.

All those affected were offered an opportunity to discuss their situation with the Service Personnel and Veterans Agency’s welfare service. In March 2012, when the original pension recalculations were completed and the reductions in pension were known, the agency identified those with the most significant reductions and those who might be particularly vulnerable, and arranged for a welfare manager to visit them personally. The visits were completed, whenever possible, throughout March, and ensured that that group of individuals could be in direct contact with a welfare manager should they require further or ongoing support. In each case involving welfare contact, a full case assessment was carried out. It examined individual circumstances, and included potential entitlement to other benefits. Further support and advice have been given to a number of pension credit members, and, when appropriate, they have been helped to apply for further DWP benefits such as disability living allowance and carer’s allowance.

The potential financial difficulties that the adjustment might have caused some individuals was also recognised. Claims for hardship that could be substantiated could be discussed in confidence with the welfare service and submitted for consideration. Five claims for financial hardship, six claims for a consolatory payment and two claims for other financial losses have been received and considered, and compensation has been paid when appropriate. That route remains open to pension credit members, including my hon. Friend’s constituents, who may be facing genuine financial hardship as a result of the changes in their annual pensions. I appreciate that making any such claim is a difficult step to take, but I assure my hon. Friend that it would be handled in a sensitive manner and in conjunction with members of our welfare service. They are there to offer support, and I urge all affected individuals to make contact to see what can be done.

I was pleased that my hon. Friend recognised the efforts that my Department has made in supplying information to his constituent. I assure the House that it has learnt some valuable lessons from its mistakes in this case. Improved processes have been introduced to enhance the training of, and more effective working between, pensions policy and operational delivery staffs. That has included a strong focus on ensuring that the potential implications of future legislative changes are correctly interpreted and fully understood.

I have listened to all that my hon. Friend has said today. While it is perfectly true that an error was made in the interpretation of legislation in this complex area, and that that was further exacerbated by errors in our calculations—for which I have already apologised—I urge the House to recognise that my Department has acted to minimise the effects that the error has caused. We have not sought to recover the overpayments, we have given three months’ grace enabling members to adjust to the reduced amount of pension, we have offered welfare support when it has been required or considered appropriate, and we have made arrangements for claims to be considered when financial hardship has been demonstrated. My hon. Friend has made considerable efforts to support this group of individuals through all possible parliamentary channels. That is evidence of his commitment to champion their cause to seek to ensure that no injustice has taken place.

My hon. Friend has suggested that some form of compensation is due to those affected by these errors. I agree. Although there is no statutory entitlement to maintain these pensions at the full amount, I can assure the House that the MOD has in place a comprehensive process to compensate these individuals where financial hardship has resulted because of the changes to their pension. The process will consider individual cases and assess the impact the errors have had. If individuals are not satisfied with the outcome, it is of course open to them to pursue the matter of any compensation through the legal system.

In conclusion, I urge those individuals who have been affected to engage or re-engage with our welfare system so that we can consider each individual case in the round and do our best to put things right. We must make amends and we will seek to do so.

Question put and agreed to.