§ 12.19 a.m.
§ Mr. Robert Hicks (Bodmin)
Let me first congratulate you, Mr. Deputy Speaker, on your elevation to your present office. Knowing your fleeting acquaintance with my constituency in days gone by, I am delighted that I have the honour of initiating the first Adjournment debate with yourself in the Chair. I note, too, that the Minister is suitably attired for this occasion.
I am grateful to have this opportunity to initiate this debate on the subject of the commutation of Royal Naval pensions, as illustrated by the case of my constituent Mr. R. A. Puckey, of Saltash. Since 1970, I have on a number of occasions made representations to successive Ministers responsible for the Royal Navy on the question of the commutation of Service pensions. This is hardly surprising since I represent a constituency in which a large number of former Service men live, and, of course, we are adjacent to the garrison city of Plymouth.
I believe that during the period of office of the present Minister I have made 1380 representations on this subject on behalf of two constituents. I am pleased to be able to say that in one instance the case was resolved to my constituent's satisfaction, unlike that which concerns Mr. Puckey.
Mr. Puckey served for 24 years in the Royal Navy, and at the time of his leaving the Navy he held the rank of Chief Petty Officer. During that period he paid his full pension and insurance contributions. In 1970, in anticipation of his retirement, Mr. Puckey purchased the freehold of the Riverside Country Club in Saltash for £10,000. Since then he has spent over £20,000 on improvements and extensions, out of revenue from his business.
There is little doubt, therefore, that it has been a successful business venture. The premises provide a valued local amenity. They are widely used by local organisations and individuals for group functions. Furthermore, the existing market value of the business is about £60,000. Mr. Puckey has no bank overdraft at present, and his sole current liability is for £2,500, representing a loan from a national brewery company.
Mr. Puckey now wishes to embark on a major development scheme, since the existing site affords ample space. The plans involve the further expansion of existing facilities, plus the building of squash courts. To raise the finance for this project, my constituent wishes to commute the maximum part of his Royal Navy pension. He is supported in that application by both his accountant and his solicitor. I quote now from his solicitor's letter to me dated 17th September 1975:Mr. and Mrs. Puckey, who are a prudent and hard-working couple, have not spared themselves in promoting the clubs and building up a successful business. Since taking over, they have improved and added to the premises, at the same time increasing membership. They have repaid moneys borrowed from the bank initially to purchase and develop the premises since they took them over, so that, given its full potential, the club would provide an even more rewarding return than at present.There is still land within the club boundaries capable of development, and Mr. and Mrs. Puckey have plans for this.. With this in mind, we understand that Mr. Puckey has made application to commute his Naval pension, and this appears to be a prudent course of action which would undoubtedly result in a substantial increase in returns by 1381 reason of additional membership, at the same time enhancing the value of the premises. We fail to see how this can be otherwise than for his distinct and permanent advantage.His accountant has written to me in similar terms, and concludes:After dealing with the business affairs of this club from its inception, it is my considered opinion that maximum commutation of my client's Royal Naval pension would definitely be to his distinct and permanent advantage.His bank manager has confirmed to me that his financial situation is as I have described.
My constituent first approached me in April 1975 about the difficulties that he was experiencing in his desire to commute his Service pension. I first wrote to the Minister on 7th April 1975 and since then we have exchanged correspondence on four occasions. Such has been my constituent's sense of frustration, indeed annoyance, and my own disappointment at not being able to persuade the Minister of the justification of my constituent's case that I felt compelled to seek this debate.
The Minister has repeatedly said that commutation of a naval pension is a privilege and not a right. This I accept. He further states that commutation will be allowed only for some definite project or scheme which appears to the Ministry of Defence, on the facts before it, to be to the distinct and permanent advantage of the pensioner. Let us briefly consider those terms of reference.
My constituent's application is for a specific project. Both his lawyer and his accountant have confirmed in writing that in their view commutation of the pension will be to the distinct and permanent advantage of Mr. Puckey. I therefore ask the Minister whether, in rejecting his application, the pensions office took into account the opinions of my constituent's professional advisers, and if not, why not? What other evidence did the office seek in making its judgment, and from whom?
The relevant section applicable to Mr. Puckey's request and the conditions governing commutation of Royal Naval pensions concerns the purchase or expansion of a business. This states that the applicant must be employed in the business on a full-time basis. In addition, it will normally be necessary to 1382 produce audited accounts for the previous two or three years to demonstrate that it provides a good and full-time living. Furthermore, the net income from it, or net income expected, must he more than the amount of pension to be forfeited. Finally, evidence that the applicant has some experience in the type of business proposed is also essential. I should have thought that by describing the recent history of my constituent's business activity and the view expressed by his financial and legal advisers I have demonstrated that Mr. Puckey does satisfy these criteria in a conclusive way.
The one area which suggests grounds for hesitation concerns the fact that commutation is an expensive way of raising capital and that normally the Ministry requires the applicant to give reasons if a bank loan or mortgage is not obtained. The explanation for the latter is quite straightforward. My constituent takes the view—I support his sentiments—that after serving his country for 24 years and, more recently, having proved his ability to be a successful business man he should be given the opportunity and the responsibility to use his money as he sees fit, or at least to be given some rational and meaningful explanation of why this is not allowed.
After all, Mr. Puckey's record to date is not in dispute. I should have thought that in these days of high inflation it was a perfectly natural and human desire not to be saddled with the additional financial pressures of servicing a bank loan or mortgage repayment. If the Minister persists in using this high cost argument, perhaps he will state the comparable figures in a case such as I have described. It seems to me that the Ministry in this case is prepared to disregard its own advice to former Service men who wish to commute part or all, within the given limits, of their pension.
The public expenditure aspect as quoted at length to me by the Under-Secretary in his letter of November 1975 is totally misplaced. No one is suggesting that in all cases Service pensions should be allowed automatically to be converted into an instant capital asset. Indeed, in this context, I find it most surprising that in 1976 former officers should receive more flexible and preferential treatment. Apparently, they can still commute up to 50 per cent of their 1383 pension although other ranks are restricted to £1,000. I am not certain what has happened to the public expenditure consideration, but surely in this day and age of a highly trained, sophisticated Armed Service this paternalism on the part of the Royal Navy to its former non-commissioned personnel is somewhat out of date.
Having examined this case in considerable depth, I still believe that my constituent's case is worthy of more sympathetic consideration than it has received so far. I hope that the Minister will be prepared to review his earlier decision or at least provide some cogent reasons why this application should be rejected.
§ 12.31 a.m.
§ The Under-Secretary of State for Defence for the Royal Navy (Mr. Frank Judd)
I am sure that the House is deeply grateful to the hon. Member for Bodmin (Mr. Hicks) for the passionate but moderate way in which he put forward his case. Indeed, that is the purpose of Adjournment debates. I am sure that the hon. Gentleman's constituent will recognise that his Member of Parliament has done everything possible to put his case fairly and squarely before me and my Department.
I am always conscious that in pensions matters, apart from the philosophy which underlies the policies and principles, fundamentally important as they are, there are also the human aspects which stem from the implementation of the rules. What the hon. Member said about the case of one of his constituents has brought this home, and I am grateful to him for giving me this opportunity to explain the present arrangements which provide for the commutation of Service pensions.
Before I deal with the hon. Gentleman's specific case, I should like to describe some of the basic principles involved. The fundamental aim of our Service pension scheme, which incidentally has undergone considerable improvement in recent years, is to provide for life an assured inflation-proofed cash income for retired Service men and their families. The terminal grant awarded on discharge is meant to provide sufficient capital together with the pensioner's own resources to assist his resettlement in 1384 civilian life. Thus, after a full career the typical Service pensioner receives on discharge a pension of about half his pay plus a tax-free terminal grant of three times his annual rate of pension. As the House will recognise, this is very much on a par with the better occupational schemes in the public or private sectors. The further surrender of some of the cash pension—a minimum pension of £2.50 has to remain—in return for a larger tax-free capital sum has for long been a feature of Service pension arrangements. However, I should make it clear at this stage, when considering the hon. Gentleman's constituent, that this commutation is in all cases not a right but, as the hon. Gentleman said, a privilege awarded at the complete discretion of the Defence Council.
What is the guiding principle for the award of this highly-prized privilege? I think that a quotation from the journal of a service pensioners' society puts the matter in a nutshell. It says:Commutation is a subject in itself and therefore reference will only be made to some of the more important points, the most important being that the act of commutation is irrevocable. Once you have commuted you have committed yourself for life. You can never put the clock back. Also, once you have commuted, you will not receive any subsequent increase your retired pay code may attract on that portion of your retired pay which you have commuted. Now that retired pay is compensated for the rise in the cost of living, by commuting you will be giving up part of your income which will always maintain its purchasing power.Finally, it is stressed thatcommutation is a serious step and officers are strongly advised to weigh most carefully the pros and cons before committing themselves.That is advice from a society designed to safeguard the interests of pensioners.
Our guiding principle, therefore, is to ensure beyond reasonable doubt that commutation, whatever its attraction in the short term, would still be beneficial in the long term when, notwithstanding a man's present circumstances and expectations, adversity or ill health could make full preservation of assured income assume particular importance.
In the case of other ranks and noncommissioned officers, commutation is permitted up to 25 per cent. of pension, or enough to raise a capital sum of £1,000, whichever is less, subject only to medical fitness. This is known as 1385 special resettlement commutation and must be undertaken within six months of retirement.
Commutation beyond this is normally considered only for a specific purpose—the hon. Gentleman has referred to this matter—such as the purchase of a particular business or house if it would be to the person's distinct and permanent advantage. This is spelt out in detail in a document given to all who retire. By this we mean that the commutation agreed is the minimum necessary to complete a purchase after use of the pensioner's own resources and maximum recourse to the normal business facilities such as bank loans, mortgage, credits and hire purchase.
Bearing in mind that pensions are primarily to provide an inflation-proofed secure income at the end of the working life, these orthodox means are usually a more satisfactory and less expensive means of raising short-term capital.
The case of Mr. Puckey, raised by the hon. Gentleman, has, I assure him, been very carefully considered against the principles and criteria that I have just described.
Mr. Puckey left the Royal Navy in February 1975 at the age of 40 with the rank of Chief Petty Officer. He was awarded a pension and terminal grant appropriate to his rank and length of service, and he took advantage of the special resettlement commutation to realise a further £1,000, bringing the total capital sum that he received to over £4,000.
Mr. Puckey and the hon. Gentleman, on his behalf, have, however, made a number of requests to commute the rest of his pension, apart from the minimum, to which I have already referred, of £2.50 a week which has to remain. That would raise a further capital sum of about £10,000 which it would be proposed to use to expand facilities at the country club which Mr. Puckey owns and which, I understand, has proved highly successful.
For the reasons I have explained in correspondence with the hon. Gentleman, our normal practice in these cases is to grant commutation only where the business is small and expansion is essential to turn it into a viable economic proposition and where there is no alternative way of raising capital.
1386 The evidence I have received, however, based on all relevant available information and details, is that Mr. Puckey has indeed a thriving and prosperous business for which he should be able to raise capital through orthodox financial channels. I am afraid, therefore, that, unless there are any changes in these circumstances, I have no alternative but to continue to refuse his application for further commutation.
The hon. Gentleman said that we operate commutation on what might be described as excessively paternalistic and anachronostic bases—paternalistic, no doubt, because, as I have explained, we try to strike a balance between the shorter and longer-term inteersts of our pensioners; anachronistic because officers can normally commute up to half their retirement pay without question.
I think that Service Ministers of all recent Governments have found this differentiation—which goes back to the last century, when it was felt by those concerned that there were grounds for protecting improvident soliders and sailors from squandering pensions—hard to accept today, when there can be no argument but that non-commissioned ranks leaving the Services are indeed mature and responsible men, in almost all cases well able to take their own decisions.
One of the difficulties in trying to find a solution—as in the case of all projected pensions improvements—is the cost. In the present economic climate these difficulties are even more acute. It is a question of deciding where the limited resources can best be spent, and the emphasis has been on making other pensions improvements and, with pensions generally, in giving most help where the need is greatest.
To bring other ranks into line with the present terms for officers would be likely to involve substantial extra cost in the early years, following any changes, in the defence budget, which is already under heavy pressure. We could not very well bring other ranks into line with a reduced facility for officers, but even if we could it would still be a costly proposition and would also mean denying officers an entitlement that existed under their terms and conditions of service.
1387 New arrangements would also require acceptance by the Inland Revenue. Although, therefore, I do not dissent in principle from the proposition that, ideally, we should in the long term be moving towards new rules to be applied equally to officers and other ranks—rules that might allow us to relax somewhat the very strict criteria that we have to apply in cases such as Mr. Puckey'sI see no practicable alternative, for the time being, to the continuation of the present arrangements. All I can say to the hon. Member, who, I repeat, has put the case coherently and forcefully, is that I trust that he will appreciate that in the wider interests we are acting in what we believe to be a fair and reasonable way.
§ Mr. Hicks
Before the Minister sits down may I ask him, in the light of what he said, to have another look at the document that is issued to Service people on their retirement? I ask him particularly to look at Section C, headed 1388The purchase or expansion of business",because what he said in his reply is certainly different in content from what is on the paper that I have in my possession this evening. I think, in all sincerity, that this misleads constituents such as Mr. Puckey when they are making application for commutation of their pensions in the circumstances that I have described.
§ Mr. Judd
I understand and appreciate the thoroughly reasonable approach of the hon. Member, but I must emphasise that we have looked and re-looked at the paper to which he refers. If he likes to send us specific observations and, perhaps, proposed amendments to the text—amendments that he thinks would meet the situation more adequately—we shall give his views very serious attention.
§ Question put and agreed to.
§ Adjourned accordingly at seventeen minutes to One o'clock.