Pensions Commutation Bill (Hansard, 8 March 1984)

§ Lord Glenarthur
My Lords I beg to move that this Bill be now read a second time. The purpose of this minor measure is to modernise the arrangements established by the Pension Commutation Acts of 1871 and 1882, for commuting certain pensions into lump-sum payments. Dissolving the Pensions Commutation Board is expected to lead to a substantial reduction in the administrative costs of providing the commutation service.
The board was originally established by Act of Parliament in 1869. It is composed entirely of officials, the chairman being the director of the national investment and loans office in his capacity as comptroller-general of the National Debt Office. Other members are appointed from the Ministry of Defence, the Department of Health and Social Security, and the Treasury. The right to apply to the Pensions Commutation Board for commutation of part of a pension is conferred by various Acts of Parliament. At present almost all applications come from retired officers of the Armed Forces, although certain civilians in receipt of pensions awarded for abolition of office before the implementation of the 1972 Superannuation Act are also entitled to apply. At present the board is dealing with over a thousand applications a year, involving lump sum payments totalling about £20 million a year.
At the time the board was established, commutation decisions were much more difficult, and potentially more controversial than they are now. That no doubt was why elaborate control procedures were established. However, in recent years, when we have a mass of published information about the likely effects on life expectancy of various medical conditions, much of the work of the board has become routine. Commutation decisions are taken in accordance with tables drawn up by the Government actuary. Most applicants receive the full amount unless medical evidence suggests otherwise.
368 In recent years the board has become something of an historical curiosity. It is insulated from the main pensions commutation work of the Ministry of Defence, and the national investment and loans office, with which it is associated, has no other pension or commutation functions. Nevertheless, the board has to meet every six weeks or so. As a result of changes in pension arrangements for the armed forces introduced in 1978, the Board's work will eventually come to an end, but there is expected to be a substantial body of commutation work each year until the end of the century and beyond.
The main effect of this Bill would be to dissolve the Pensions Commutation Board and provide that, in future, the commutation of pensions will be exercisable by the Secretary of State, or, if the Treasury so directs, by another Minister of the Crown or other authority. In practice, this will be the Secretary of State for Defence. The commutation work on officers' pensions will be done as normal departmental business by the division of the Ministry of Defence which deals with other pensions matters.
The Bill is confined entirely to changing administrative procedures. It does not affect in any way the rights of any person who is eligible to be a potential applicant, nor does it affect the amount of money which he is likely to receive. Applicants for commutation are charged a fee which is related to the costs of providing the service. By making the changes proposed in the Bill, we can reduce the administrative costs, and this will be of benefit to applicants. The Officers' Pension Society has been consulted and has raised no objection.
Under the provisions of the 1871 Act, commutation awards are paid out of funds administered at present by the national investment and loans office, and are reimbursed by annuity payments from the votes upon which the respective pensions were charged. To change these provisions could affect the way in which the defence budget is at present controlled, and the Bill leaves them in place. However, it also provides for the financing of commutation awards direct from Votes, and for the early discharge of annuities, thus giving a greater measure of flexibility.
The Bill also provides for the continuing in force of the existing regulations which are concerned with fees and with the commutation tables. This is a very small measure; but I hope your Lordships, will agree that it is a useful one which will secure a worthwhile reduction in costs and greater efficiency. I beg to move.

§ Lord Barnett
My Lords, I am delighted to welcome this Bill on behalf of the Opposition. It seems, if I may say so to the Minister and to your Lordships, a sensible if modest reform of an Act of 1871. The Minister referred to the situation as being a sort of historical curiosity. I suppose if we were to dispose of all historical curiosities, going back to 1871, we might be here for a long time; but I certainly would not wish to detain the House on this particular Bill. It is welcomed by the Opposition. As the noble Minister has said, it is accepted and welcomed by the officers' pension association and, I gather, everyone concerned with this particular question.
369 I only have one or two points, if I may, to put to the noble Minister. First I note in the Memorandum to the Bill—and he himself said—that there will be a substantial reduction in costs. I wonder whether he could give us an estimate of what is meant by substantial. Secondly, I note in the Memorandum to the Bill that the benefits will be taken into account in reviewing the fees to be charged. Does this mean, as I hope it will, that the whole of the savings will be passed on to the pensioners concerned? If so, what is that likely to mean?

§ Lord Banks
My Lords, I should like to join in thanking the noble Lord, Lord Glenarthur, for his explanation of the contents of this Bill, and to say that we on these Benches fully support it. As he has made clear, it eliminates a body which is no longer necessary: the Pensions Commutation Board, which has been in operation from 1871. Advances in medical science have made the work of the board largely routine, and it does seem sensible to pass is functions over to the appropriate Secretary of State, who will be exercising precisely the same function as the board and will be using precisely the same tables.
I understand from what the noble Lord has said that savings will allow the fees which are paid by successful applicants to be reduced. I should like to ask whether it is necessary to charge a fee, and do those successful applicants who are not covered by the 1871 Act have to pay a fee? What proportion of the cost of the operation of the board at the present time is covered by the fees? The noble Lord has said that the Officers' Pensions Society have raised no objection to the contents of this Bill and nor do we on these Benches.

§ Lord Glenarthur
My Lords, I am very glad that the noble Lords on the Benches opposite have received this small measure in the way that they have. So far as savings are concerned, the present administrative costs of the Pensions Commutation Board work are in the region of £80,000 a year. With the work being done in effect by the Ministry of Defence, it is estimated that the cost can be reduced by about 50 per cent. or perhaps even more. Most of this will arise from savings in accommodation costs and some from a decrease in staff and changes in staff grades. No staff will be made redundant in this exercise. The fees will not go up, as they otherwise would, over the next 20 years or so, so I hope that is some comfort to the noble Lord opposite. So far as the question raised by the noble Lord, Lord Banks, is concerned, at present fees range from £10 to a maximum of £75, depending on the amount of the award. Most applicants pay £75, although the average is about £73.
No increases have been made to fees while consideration is being given to proposals which are introduced in this Bill. It is therefore unlikely that the savings which will be achieved by this Bill will bring about a lowering of fees. However, they will not go up, as I said just now, by the amount which they would have done under the present system. Fees are only paid by the successful applicants who are told what they will be awarded before they decide to proceed with it.