HC Deb 02 May 1980 vol 983 cc1840-52

Motion made, and Question proposed, That this House do now adjourn.—[Mr. Newton.]

2.44 pm
Mr. Tom Benyon (Abingdon)

The debate is about a vulnerable section of the public service—19,000 retired Service men. Many hon. Members receive mail from people who have suffered from what has been called the pension trough. I call it the yawning canyon.

I pay tribute to the Officers Pension Society, which has given me valuable help in preparing the debate. The people about whom I am talking are vulnerable because they are retired and have little or no bargaining power. Service men who retired in 1975, before pensions and incomes were pegged by the last Labour Government, are fine; their pensions march on with inflation. However, those who retired between 1975 and 1978, during the pensions and wages freeze, are much worse off than their analogues who retired earlier and whose pensions are index-linked.

A sea of grotesque anomalies has developed. There are many examples of what might be called constipated bureaucracy. I can name only a few because of the time available. One example which comes to mind is that of Brigadier Carter, a constituent. He is in a peculiar position because a colonel who worked for him, who is the same age, had the same length of service and who retired six months later than he will be £6,300 better off over the next four years than my constituent brigadier. A staff sergeant who retired in March 1978 is 32 per cent. worse off in pension terms than a staff sergeant who retired a week later.

Another constituent, Air Commodore Bob Martin, was persuaded to stay "in the public interest." It was said that it was impossible to spring him from his post. He was prevailed upon to stay. He put service and his country before his own interests. As a result, he is £2,000 a year worse off than his analogues. After many representations he was told that it was impossible to change the position. He met a stone wall of indifference. The 19,000 people of whom I speak did not join the Services to take part in a peculiar lottery for their pension rights.

I shall rehearse the understandable Government attitude and the way in which they have met the protestations. They say that it is not their fault but that of the iniquities of Labour Government wages and pensions schemes in previous years. I agree—it is an inheritance. We must sort it out.

The Government argue that the Service men are the beneficiaries of an index-linked pension scheme and are protected in a way in which people retired from the private sector cannot protect themselves. However, the index-linked pension scheme is of great value only if inflation marches on as it is. If, as the Chancellor of the Exchequer has said, inflation drops to under 5 per cent. in the next three years, index-linking will be of limited value only and will be overtaken by the benefits of occupational pension schemes.

The Government also argue that the people we are discussing have received precisely their entitlement—not a penny more, nor a penny less—and that they have stuck scrupulously to the letter of the law.

The last argument, which has not actually been articulated, but which I sense coming through the ether, is that these people are retired, they have no lobby or power and that they are no real embarrasment because they do not even usually live in marginal seats, so why is their case more important than many other cases of inequity that we are seeking to sort out?

Why should one read cynicism into this attitude? Possibly it is because other sections of the public sector which have found themselves in this position have secured special deals. I am a great supporter of the Post Office, but because it is an industry it has managed to do such a deal entitled "Dynamics of 1976–77 pensions " in which the injustices of the past have been corrected.

My hon. Friend the Under-Secretary of State for Defence for the Royal Navy, when challenged on this by my constituents, said that these decisions are matters for the industries concerned, not the Government. That means that because these Services have no lobby and no union, and because they are not an industry, they will suffer. Therefore, the message must go out to all people who are considering joining the Army, the Navy or the Air Force " Do not join them. Joint the Post Office, because it has better bargaining power when it comes to the crunch."

The people I am talking about are dedicated and have put in a lifetime of service. They are not business men, not the sort of people who read the fine print to rely on the letter of the law. They are people who have served—to use a florid, but accurate phrase—their king and country in the past. They have served in the spirit of the law and did not realise that they would have to end up looking at the letter of the law. They are people who trusted us because they could be trusted by us. They are people we needed in time of trouble. They are in trouble now and they need us.

I believe that as a mark of a civilised Government my right hon. and hon. Friends should honour their moral obligations to their trusted servants. I cannot believe that it is the style of our Government to deny them equity and to justify it by strict adherence to the letter of the law.

My hon. Friend the Minister of State, who is to reply to this debate, replied to me on this subject on 21 December, and I found his reply worrying. He talked about being " sympathetic", which is splendid, and he blamed the last Government, which was right. He used the word " unfortunate ", and I agree. He used the words in accordance with the rules ", and he ended up by saying " No ".

I say with a great deal of respect to my hon. Friend that fine words butter no parsnips with the 19,000 people for whom I am speaking this afternoon.

Perhaps I may offer some arguments as to why I believe this to be important. It is not just that I feel sorry for these people, because £100 million is a lot of money and it will take a lot more than sorrow and sympathy to get that sort of money out of the Treasury. We need to explain precisely why we should right this wrong. I believe, first, that it should be righted because there is a manifesto pledge that we in the Conservative Party regard external defence as being of great importance and that we should pay the people in the Armed Forces well. I believe that we should regard as being important not only people in the present and the future, but people in the past, with whom they are inextricably linked. We must pay as much respect in terms of pay to those who have served as to those who still serve, because those who still serve will note with what short shrift people have been treated in the past.

I believe that if this problem is not dealt with fairly now the following may happen. The message of inequity will travel, and the message must be thus: " Leave the Services when there are no wages or pensions constraints. If any Government look like imposing constraints in the future, for goodness sake go with the cash in hand ". The next message that will travel through the ether is " If you are asked to stay in the national interest because your country needs you, smile cynically, take the cash and run ". The third message will be " If anyone in authority says 'Stay, we will look after you and ensure that you do not suffer', do not believe them; take the money and run".

I know that £100 million is a lot to ask for at this stage and so I ask my hon. Friend to indicate that he will review the problem overall as speedily as possible and agree that when the country can afford it the inequity will be righted. Secondly, will he please right the problems faced by the widows of people who have suffered this injustice, and do so immediately? They are suffering in exactly the same way and may be suffering hardship. I should also like him to right the wrong which I believe has been clearly suffered by those who are asked to stay, and can prove that they were asked to do so, in the national interest.

I should like those wrongs righted now. I cannot believe that a Tory Government will ignore reasonable pleadings from those who gave unstintingly of their loyalty in the past, or that the Government will cynically give them short shrift now. On their behalf, I plead that the Government give them a fair deal and right the wrongs of the pensions lottery by which thousands of my constituents and constituents of my colleagues throughout the country find themselves penalised.

2.55 pm
Mr. John Major (Huntingdonshire)

This brief debate highlights a considerable injustice to pensioners in the public service. I congratulate wholeheartedly my hon. Friend the Member for Abingdon (Mr. Benyon) on bringing this matter to the attention of the House.

I have received a large number of representations from retired Service men in my constituency who simply cannot understand why neither the previous Labour Government nor the present Conservative Government are prepared to correct a pension situation which they regard—and I agree with them—as being both unfair and indefensible. They are specifically aggrieved on two quite clear counts: first, because their gratuity upon retirement and their subsequent pension have been seriously reduced as a result of their retirement during the period of the Labour Government's pay restraint, and, secondly, for the same reason, that an anomalous pension position now exists between retired Service men of similar seniority and service simply because of the date at which they retired.

They regard that, if I may use the term used by my hon. Friend, as turning pensions provision into a lottery. I can illustrate the point graphically by referring to a letter from a retired squadron leader in my constituency. He retired in March 1977 during the period of pay restraint, and he recently compared his present pension position with a colleague who retired in March 1973, before the period of pay restraint. Both officers were of equivalent rank. Both had the same reckonable service to within two months. Both commuted the same percentage of their pension. In equity, one would have thought that their pensions should have been identical. In fact, my constituent today receives a pension of £159 a month whereas his colleague receives £262 a month. Yet my constituent retired four years later and, consequently, if anything, one would have expected him to have received a larger pension than his fellow officer.

We understand how that absurd situation arose. It is a grotesque result of the Labour Goverment's incomes policy, which restricted pay but at the same time permitted the continuation of index-linking to pension increases. The absurdities which have resulted from that paradox have not subsequently been adjusted and are now manifold. Service men who retired under the pension codes of 1976 and 1977 now receive less pension, rank for rank, than those of similar seniority and service who retired outside that period, whether it was before 1976 or after 1978. That is a curious and difficult situation to tolerate. But there is an even greater absurdity than that immediately at hand.

One constituent has written to tell me that his present pension would have been greater than it is had he retired in December 1974 instead of continuing in service until December 1977. That is total and unprecedented nonsense. I suggest to my hon. Friend that there is nowhere at all, either in the public or private service, where one can extend one's service and as a direct result reduce one's pension entitlement and also, perhaps, in due course, the pension entitlement of one's widow.

I fully understand the problems of restraint on cash at the present time. I fully appreciate the problems which the Government face. Like my hon. Friend, I suspect that the Minister will point out that that anomaly stretches right across the public service and that it is not simply restricted to Service men. I understand that point of view very clearly, but I am not attracted to it, and neither are the Service men in my constituency. I quote from a letter that I received from a retired squadron leader: It does seem incongruous that the Armed Forces pensioners should now be grouped as being in the same position as all other retired public servants, when throughout my service the Armed Forces' pay was frequently held down ' in the interest of the country'. We were always considered to be different then, yet now we are considered on an equal basis. It is not necessary for us to agree with all those sentiments, but we appreciate the sense of injustice that underlies them.

That sense of grievance has been enhanced by another factor. Many of the Service men who are now suffering from this pensions trough were encouraged by fellow and senior officers to retire during the period of pay restraint in the belief that it would be beneficial for them to do so. I shall give a practical illustration of that. A flight lieutenant in my constituency wrote to me as follows: I was due for retirement on my 55th birthday, 29 May 1978. I was advised by the RAF pay agents, my superior officer, the accountant officer … to apply for premature voluntary retirement, to take place before 1 April 1978. This I did, and retired on 30 March 1978, and received a pension of £2,696, which was increased on my 55th birthday to £3,027. However, the revised pension issued on 1 April 1978 was £3,518 for persons serving on that date. This I missed by two days. I therefore lost £491 on my pension and £1,473 on my terminal grant through accepting this advice. I am sure that the individual officers concerned acted in all good faith.' I believe that the Minister understands those points, and that he has personal sympathy for them. Therefore, I ask him to do three things. I ask him to accept that Service men, by virtue of their profession, are in a special position and should be treated accordingly. Secondly, I ask him to promise that the door is not closed on justice for these pensioners and their widows. Thirdly, I ask him to examine this anomaly and take action to correct it. I am prepared to pass on to the Minister all the correspondence and evidence that I have amassed, and I hope that in his reply he will be able to give my hon. Friend the Member for Abingdon and myself the assurances that we seek.

3.3 pm

The Minister of State, Civil Service Department (Mr. Paul Channon)

I congratulate both my hon. Friend the Member for Abingdon (Mr. Benyon) on securing this debate, and my hon. Friend the Member for Huntingdonshire (Mr. Major) on his important speech. I shall study both speeches with the greatest care.

I shall speak quickly because I have many points to cover, and I should like to deal with the serious case advanced by my hon. Friends about the position of those who retired from the Armed Forces between 1976 and 1979, and whose pensions have been depressed by the effects of incomes policy. The Government are well aware of the sense of injustice felt by pensioners affected in this way, and I am grateful for the opportunity to explain more fully the Government's position.

I have listened with great interest and care to what my hon. Friends have had to say on this difficult question. This, as they both recognised, is a tragic by-product of the previous Administration's incomes policy. I have every sympathy with those who have been affected. It arises because the great majority of Armed Forces and other public service pensions are based on the salary earned by the pensioner in the year before his retirement.

Between 1976 and 1979 the salaries of all the public services—including those of the Armed Forces—were held back by incomes policy. As a result, the basic pensions of officers retiring during that period were similarly depressed. This, of course, applies also to policemen, firemen, nurses, doctors, civil servants, local government officers and a wide variety of people in the public sector. They are in exactly the same position as Army officers and other ranks. I shall consider what my hon. Friend the Member for Huntingdonshire said about the special position of the Services, but I must also consider the policemen, firemen and others in the public sector who are in a similar position.

Since the present arrangements for increasing public service pensions maintain but do not increase the real value of the pension at the time of retirement, these pensions will never catch up with those received by officers retiring immediately before or after that particular period.

Thus we have, as my hon. Friend the Member for Abingdon said, a pensions trough between 1976 and 1978. It is, interestingly enough, preceded by a similar but opposite pensions peak between 1971 and 1975. The height of the peak and the depth of the trough vary between public services and with different ranks and grades within each public service. But the broad picture is much the same. Those who retired in the early 1970s have done better than average; those who retired between 1976 and 1978 or 1979 have done worse.

Those such as Brigadier Carter who are in the latter group feel a very understandable sense of grievance. But I must, in fairness to others, emphasise that they are no worse off than the many thousands of people who retired in the early 1960s and who, despite pension increases, have not caught up with those who retired later. I recall debates on this topic during my early days in this House on a number of occasions.

As I have explained, pensioners throughout the public services have been affected in a similar way. I do not think, therefore, that we can look at the Armed Forces or any single service in isolation. We have had to examine the effect of any decisions in relation to the whole of the public services. This inevitably means that the cost of any remedial measures would be far greater than it would seem by looking at the Armed Forces alone.

I must make clear one point that was referred to, quite correctly, by my hon. Friend the Member for Abingdon, in case there is any misunderstanding on the part of those who may read what I say. There is no doubt that pensioners who retired during the period concerned are receiving their full legal entitlement. I think that my hon. Friend made that clear. These entitlements are laid down clearly in the rules of the schemes and have been honoured in full.

I stress this because it has been suggested by some that those who pay public service pensions have been guilty of maladministration by not acting to recalculate them to alleviate the effect of incomes policy. I refute that in clear terms, as there is no legal power under which they could have done so.

The Government have, of course, considered very carefuly indeed whether an alteration in the law is justified in these circumstances. I have received representations from individual pensioners, trade unions and pensioners' organisations. I have received a deputation and many representations from the national staff side of the Civil Service. I have looked at many possible forms of remedial action.

I have to bear in mind that pensioners are receiving their full legal entitlement. I have the greatest sympathy, and I fully appreciate that the pensioners affected feel a sense of injustice that their pensionable pay is lower than they might have hoped. That can happen in other circumstances—for example, when someone has to retire just before a major pay award. Such a person is in almost exactly the same position as someone whose pension is affected by incomes policy. Both have fallen on the wrong side of a dividing line.

What is being sought is a retrospective improvement in terms and conditions of employment. This is at a time when, as my hon. Friend the Member for Abingdon made clear, public service pension arrangements—and especially the inflation-proofing of them—are already seen in some quarters as unduly generous. Indeed, some people on the Conservative Benches think that. This is, of course, something that the independent inquiry, announced by my right hon. and learned Friend the Chancellor of the Exchequer in Budget Speech, might be expected to look at, but, in the circumstances, further improvements in already inflation-proofed pensions would need to be considered very carefully indeed.

The second point that I have to bear in mind is whether it is practical to alleviate the effects of incomes policy. I can assure the House that it is extremely difficult administratively to identify all the pensioners concerned and the precise extent to which they were adversely affected. Incomes policy in that period was voluntary, not statutory. Not every person's salary was affected in the same way at the same time. There were wide differences from public service to public service and from grade to grade, but I do not make that my major point.

The major point is, of course, the cost of any form of remedial action. It has been suggested that one possible remedy would be to base the pension on the level of salary earned in a previous year of service, uprated to its present-day value. That is called " pre-award dynamism ". If someone had retired on 1 April 1977, for example, he could have his pension based on the salary he earned in the year ending 31 March 1975 uprated by the increase in prices. Unfortunately, the annual cost of applying this form of " pre-award dynamism " would approach £100 million for all public service pensioners who have retired since 1 April 1974.

There are other variations. Some are even more expensive and others less. Any remedial action that does not penalise other pensioners would be formidably expensive in the present economic situation. We have had substantially to reduce the burden of public expenditure, entailing many difficult decisions. In those circumstances I wonder whether the taxpayer would think it right to make such a significant addition to expenditure on public service pensions.

I have also considered whether action could be taken without increasing expenditure, which has been suggested on other occasions. Several options have been explored. However, if the expenditure is not to be met by the Exchequer it can only be met by other groups of pensioners, which would reduce the real income of some public service pensioners, perhaps quite substantially, in order to finance increases for others. I do not know whether that would be welcome to many.

To give an example, a staff sergeant who retired in 1975 after a full career might have to suffer an ultimate reduction in his living standard of up to 15 per cent. To some extent such a reduction would go to finance increases for people with pensions bigger than his. If time was available plenty of other examples could be produced.

Equalising measures of that kind would therefore have to be related in some way to differing levels of income, which would create great difficulties. If those with small pensions were excluded, a heavier burden would fall on others. The House will agree that it would be acutely difficult to decide who should gain and who should lose, and by how much. For example, those who had bought added years in public service pension schemes on the assumption that arrangements would continue as at present could argue that the terms of the arrangements had been altered retrospectively.

I hope that the House will accept that I well understand the sense of grievance of Brigadier Carter and others about their pensions and the resulting bitterness that they feel. Great efforts are normally made to ensure fairness and equity in all the public service pension schemes. However, in this area I do not remember a time when it has been possible to achieve fairness. In my early days in the House it was always the earlier pensioners who suffered. Their pensions were increased from time to time in line with the cost of living, but more recent pensions were based on salaries going up at a faster rate. The newer pensions always drew ahead of the earlier ones, and older pensioners felt a deep sense of injustice.

Between 1976 and 1978 that historical relationship was briefly reversed by incomes policy, and earlier pensioners did rather better. Since then the old relationship has reappeared. The only way to resolve the problem is to increase pensions in line with the pay of the former post, known as " parity " in the pensions world. That is an ideal solution, but one which unfortunately would be far too costly to contemplate.

I assure my hon. Friend, as I have assured those who have been to see me, that no effort has been spared in exploring possible remedial measures, but there is no easy answer and it would be wrong of me to pretend that there was. I detest raising false hopes. I would far prefer to tell the truth to those affected. If money were available we might be able to come to a different conclusion. It is a difficult situation and there are grotesque anomalies.

I have looked at the question of separating special groups who have been treated particularly harshly, but it would be most unfair to help some and not others. I have also looked at the question of widows. Their pensions are calculated as a proportion of the pension that the man was receiving or would have received at the time that he died. The same problems arise as in the case of the pensioner.

My hon. Friend also raised the question of the Post Office. I have no control over the Post Office's pension arrangements. They are not a precedent for the public services, and as far as I know no such action has been taken in the public services.

I wish I could help. I wish that the situation had never arisen. It is one of many lessons in the unfortunate side effects of a rigid incomes policy, which affects not only the pay but the pensions of those unlucky enough to be retiring at that time. It affects many people in the public sector. Not only the Armed Services are affected. Many are equally concerned outside the Armed Forces.

I very much regret that I have been un able to help today. I shall study with the greatest care everything that my hon. Friends have said. If my hon. Friends care to send me any further evidence, I shall be only too pleased to consider it at any time. However, I do not wish to raise false hopes——

The Question having been proposed after half-past Two o'clock, and the debate having continued for half an hour, Mr. DEPUTY SPEAKER adjourned the House without Question put.

Adjourned at fourteen minutes past Three o'clock till Tuesday 6 May 1980, pursuant to the Resolution of the House of 2 April.