§ 7.11 p.m.
§ Mr. Angus Maude (Stratford-on-Avon)
I am grateful for the opportunity at this early hour to raise a question which is comparatively non-controversial and involves no party political cause of dispute at all.
I raise the question of the provisions for the commutation of pensions by Army warrant officers. I wish to discuss it as a matter of principle. This arises, as the Under-Secretary knows, from a case of a constituent of mine about whom I have been in correspondence with the Under-Secretary for some time, I raise it as a matter of principle, because the attitude being taken by the Defence Council is unduly restrictive in the light of the changed circumstances in the modern Army.
I prefer not to mention my constituent's name in this case. I am sure the Under-Secretary will follow the same convention, because it would be hardly fair to drag into the public eye the financial affairs and domestic details of a man living in a known place. The case is that of a warrant officer who retired from Army service in 1967 after 23 years with an excellent record, having been honoured with the award of the M.B.E. When he left the service he was unable to get a council house, as is very frequently the experience of men leaving the Army. He decided to buy one. He commuted a part of his pension in order to put down a deposit on a house and he raised a mortgage on the rest for £3,500. He is now anxious to commute a further part of his pension to enable him to pay for £1,000 worth of the mortgage which totals £3,500. His annual expenses on this house, including rates 1349 and insurance, are approximately £470 a year or £9 a week.
Almost immediately he left the Army this retired warrant officer went into a good job under the auspices of the public service. He is a training officer with an industrial training board. He has a good salary but—and this is the important point—his job is pensionable, so he has a pension from his existing job to look forward to.
He is a man who is taking some pains to acquire educational qualifications. While in the Army he gained "O" levels and "A" levels, and he is now reading for a degree. I want to persuade the Under-Secretary that times have changed substantially since the perfectly reasonable, paternalistic precedents were laid down governing the granting of permission to former warrant officers to commute their pensions. As I understand the situation, it is not that the Defence Council are bound by regulations to prevent further commutation. This is a question of precedents and their estimate of the rights and wrongs of a particular case. A warrant officer is allowed to commute his pension in exceptional circumstances down to 21s. a week, provided that—I think I have the right words—" it can be shown to be to his distinct and permanent advantage."
The question presumably is how is this "distinct and permanent advantage" to be estimated. Here I feel the Defence Council or the Under-Secretary's advisers are taking a line which is not entirely in tune with the changed conditions in the modern Army. One can well understand that provisions of this kind were necessary at a time when those leaving the Army, even holders of the warrant, were perhaps not very highly educated and not very highly qualified technically. The situation is very much changed. A high proportion of warrant officers who leave the Army, particularly in technical corps, are very highly qualified indeed and are able to step into good jobs with good salaries for their qualifications and, as in this case, pensionable jobs.
Whatever the precedents from the past may be, there is a case for taking a more flexible line and looking at each case on its merits, without being afraid that precedents will be created which need necessarily be applied to every other case.
1350 If I can persuade the Under-Secretary to say that an attitude of greater flexibility will be observed in future, this will have been something of a gain, though I should like also to persuade him to apply this flexibility to the case of my own constituent.
I suspect that my constituent's case is not exceptional. He could have stayed in the Army and probably secured a commission. I doubt whether that will be questioned. Had he stayed on and taken a commission, it is extremely probable, if not almost certain, that he would have been allowed to commute a further part of his pension in his present circumstances. To all intents and purposes, in terms of education, technical qualifications and the kind of job he has, he is indistinguishable from many former commissioned officers. Therefore, his case should be considered on his personal merits, and its economic implications, rather than distinguished sharply from that of officers in a similar position merely because he was not commissioned and they are.
I can understand that the Minister may wish to make out a case for saying that to refuse a further commutation of the pension in order to reduce a mortgage from £3,500 to £2,500 is to the man's distinct and permanent advantage. If so, I hope that he will make out that case, because it is necessary to persuade my constituent, and it is also necessary to persuade me.
The mortgage interest rate is 8½ per cent. now. I shall firmly resist the temptation to make any political point, and merely state that as a fact. Let me disarm the Minister in advance by saying that it is, of course, true that if my constituent retains the pension uncommuted he has what may be an appreciating asset, in that it is possible that under subsequent amendments to the Warrant the rate of pension may be increased, whereas if he commutes now he will get no appreciation in that part of his pension which he has commuted.
At the same time he has an appreciating asset in his house, and so long as mortgage interest rates remain at anything like their present level it is very difficult to suggest on economic grounds that it would not be to his advantage, at the age of 44 and with a good and pensionable job, to reduce the very heavy 1351 burden that the mortgage places on him. He had no alternative but to take on that burden because he had to buy a house to live near his job.
Assuming that the recent rate of inflation will go on indefinitely, the value of foreseeable future increases in pension is no doubt increased. One could argue that inflation means that the value of the pension will have to be increased, and that the real value of the debt which the mortgage repays will be going down, but in my view it is offset by the fact that the real value of the house will be increasing.
I hope that the Minister will take the time to try to demonstrate that in a case like this it is to this man's permanent financial advantage to refuse him permission to commute his pension. If he cannot do so, I shall be grateful if he can tell me on what other grounds it seems reasonable to refuse it. Since the Defence Council has the power to do it, it seems to me unduly paternalistic, inflexible and restrictive for it to deal with a case like this on precedents, to say that it cannot budge from its view because of the precedent it might set.
Nowadays, the authorities should be prepared to look at exceptional cases on their merits, to take flexible and, if necessary, quite exceptional decisions in particular cases.
§ 7.25 p.m.
The Under-Secretary of State for Defence for the Army (Mr. James Hoyden)
May I thank the hon. Member for Stratford-on-Avon (Mr. Maude) for the notification he gave my private office on this matter and for the tone in which he presented the case both in principle and for his constituent. I hope that what he said may be helpful.
I say at once that the hon. Gentleman's constituent is an absolutely admirable warrant officer. What he has been doing in the way of his studies, his job and the way he has bought his own house are the sort of things we are always trying to persuade warrant officers and senior N.C.O.s to do. Although I do not know him personally, he is a classic case of a good soldier making a good citizen. I am very glad that he has the sort of job that he has, and I suspect that his good Army training helped him to get it. I 1352 have no doubt that in it he is making a good contribution from the Army to civil life.
I would like first to set out the rules for officers and other ranks to put the case of the hon. Gentleman's constituent into perspective. A retired officer may be permitted to commute part of his retired pay under the rules made under the Pensions Commutation Act, 1871, which I think the hon. Gentleman knows. The main rules are that the retired officer must be medically fit; that he may not commute more than half his retired pay; and that he must keep at least £150 a year of his retired pay. A discharged warrant officer, senior N.C.O. or private may be permitted by the Defence Council to commute part of his Service pension. He is required, under the provision of a Royal Warrant, to prove that it would be to his distinct and permanent advantage to commute. The case with which we are now concerned hinges very much on that.
The present rules are that the serviceman must be medically fit and that he may commute up to £600 within six months of leaving the Army if the money is required towards purchase of a house, furniture or a car that is essential for his business. That £600 is conceded very easily, without much argument. It is the second slice, the higher sums, that causes the difficulty. On the whole, there are not many requests for sums over the £600. After the first £600, he can apply at any time to commute, but this is much more difficult. It is put through a very severe sieve.
A warrant officer Class II, as the hon. Gentleman's constituent is, must keep at least 14s. of his pension, and a warrant officer Class I must keep 21s. In other words, anybody below the rank of warrant officer Class I must keep 14s. The question is, what is the distinct and permanent advantage in this case? The view in the Department has been for a considerable time that it is not generally in a serviceman's interests to commute beyond the £600 for a deposit on a house. I agree that mortgage interests rates have risen since these rules have been operated, but the general policy is that he should pay the mortgage rates and that he should enter into hire purchase arrangements for the purchase of furniture. If 1353 he is considering business arrangements and wants a large sum, as occasionally happens, the view is that he should have a bank loan, as well as perhaps getting commutation.
The point hinges very much on what the hon. Gentleman said, that in the first case he is also sacrificing the pension increases that he would get at the age of 60. But in addition, which the hon. Gentleman did not mention, but which is quite important because in a way it is insurance cover, he sacrifices in the same way an increase he would get if he were incapacitated through ill health. In other words, there are two solid advantages in not commuting a pension—the increase at 60 and the cover for incapacity which might cause a man to give up his job and be effectively retired before he reached the age of 60.
However, the Department considers major cummutations for the purchase of a business, which is the most common type of major commutation beyond the £600. The Army Pensions Office administers these aspects of pensions for the three Services and makes an investigation, assisted by field workers of the Forces Help Society. This is quite a difficult investigation. Men are disappointed. But, nevertheless, we have received letters from men subsequently thanking the Society and the Pensions Office for stopping them from getting into a bad deal. I have also had a number of cases since I went to the Department where I think I would have had letters of this sort had those involved bothered to write. But it is an equal balance.
Commutation is not agreed in order that Service pensioners may raise money for investment, or purchase a non-essential car, or clear their debts. There are exceptional circumstances in which debts might be considered, but, generally speaking, the sort of cases I have had in which pensioners complain about this are those in which I am sure the rather paternalistic view which the hon. Gentleman referred to would be justified. I agree at once that there is something of a paternalistic attitude here, and it is very difficult to weigh the balance between over-cautious and being rash. This is the heart of the problem, plus the relative ease with which an officer can commute compared with the difficulties for other ranks.
1354 I think that, on the whole, the present arrangements deal satisfactorily with most of the cases. It is the exceptional case—and the hon. Gentleman's constituent is such a case—which causes difficulties. But a fair sum of money is involved. It would be expensive to go for a much easier commutation and the facility is seldom available in other occupations and to other pensioners. For example, the police can commute up to 25 per cent. of pension but do not receive the Services' lump sum terminal grant, and of course, there are in the Services satisfactory terminal grants. In the case of the hon. Gentleman's constituent it was £1,175.
So, in this sense, Servicemen are exceptionally favoured. They can make this commutation for good Service reasons. They come out of the Services without a house, although many local authorities grant them council houses. They do not have much furniture but probably in these days they do have a car. One of the things my wife comes across in meeting Service families is the fear among the women not only of their husbands plunging into new jobs—in the case of the hon. Gentleman's constituent, that has been overcome—but of the setting up of a new home and finding new furniture.
I remind the hon. Gentleman that we are reviewing the whole aspect of commutation. The review is nearly at a conclusion and I hope that it will only be a matter of weeks before we can announce the results. The review has been thorough. I am also looking into the question of applying the present rules more flexibly, in a less paternalistic manner. There is an increase in the Estimates this year—and it is a fairly substantial one—to deal with the question of increased commutation, but it is a tri-Service matter. It extends into other Departments and this is one of the reasons why I am not now in a position to say positively what we are going to do.
I can hold out considerable hope that, on general principles, we will in future be less paternalistic and bring the rules more in line with modern conditions. But I must disappoint the hon. Gentleman to some extent. I do not think that I can hold out much hope that, on the mortgage side of his case, I can do much 1355 about it. His constituent would be entitled to be considered for commutation for business or something of that sort—indeed, for a car if that was essential to his business. But that is hardly the point.
The hon. Gentleman fairly said that this was a matter of mortgage and I cannot honestly say that I can hold out much hope. However, on the general issue, I hope that we shall be able to produce some new rules which will be less paternalistic, more flexible and more up-to-date.
§ 7.35 p.m.
§ Mr. James Ramsden (Harrogate)
My hon. Friend the Member for Stratford-on-Avon (Mr. Maude) has done the House a service in initiating this short debate. It has enabled him to put the case for his constituent, which he did with great logic and clarity, and he showed it to be a case of considerable concern to the individual involved. Again, in raising it, he touched on a general principle which, as we have gathered from the Under-Secretary of State's reply, is topical, to say the least, in the context of the present review of pay and pensions. It is the more topical in that the reduction in the size of the forces means that more than the average number of senior ranks will be coming out with pension and gratuity. Therefore, this sort of case is likely to arise again in future.
No one can complain—and I am sure that my hon. Friend does not—of the tone of the hon. Gentleman's reply, which was extremely sympathetic. I have only one or two short comments. First, I ask him whether it is within his power to look at this case again. I am not sure whether it is within his power to do so, although I should remember because I saw some of these cases myself. My impression is that, if the hon. Gentleman were to look at it again with his advisers and to decide that some further extension of commutation were desirable, it would be possible for him to take that decision and have it implemented.
If I am right, I hope that he will take another look at the case because I am slightly worried by the somewhat artificial distinction between an officer, who could have commuted all he wished for this purpose, and a senior warrant officer who, as my hon. Friend has pointed out, might well have stayed on 1356 in the Army and had commissioned rank but who is limited by the rules which the hon. Gentleman has explained. I ask the hon. Gentleman to look at the case again with a view to exercising discretion. It is a worrying anomaly that a man in this position should be treated differently because he happens to be a commissioned warrant officer instead of a commissioned officer in this day and age.
The hon. Gentleman said that if there were any general relaxation of principle it would affect the money put in the Estimates, increasing the amount of money annually paid out of the total lump sum for commutation, and would make a significant difference in the amount required on the Army Votes. I appreciate this, but it would not vitiate the possibility of looking at one or two individual cases which come on the borderline.
I do not know that what the Under-Secretary of State said will completely satisfy my hon. Friend or his constituent on the economic aspects of whether it is better to commute £1,000 and not have to pay mortgage interest or to continue borrowing at a time when money values are depreciating and, therefore, the repayment of a loan is becoming cheaper. I shall not go into that argument. I did not understand the hon. Gentleman to be endorsing the principle on behalf of the Government. The Government are no longer in any position to control the rate of depreciation of the value of money. I hope that the hon. Gentleman was not saying that it was to the distinct and permanent advantage of pensioners to retain their pensions as a hedge against inflation. I hope that he will look at this case again, and treat it sympathetically if he can.