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Armed Forces: Pensions

Volume 481: debated on Monday 27 October 2008

To ask the Secretary of State for Defence how much was paid (a) by (i) employees and (ii) employers into and (b) to those receiving pensions payments from the armed forces pension scheme in each of the last five years. (229434)

The armed forces pension scheme (AFPS) is a non-contributory scheme. When pensions become payable the cost is met from Government revenues at that time. There is no pension fund or deficit. Income from employers' contributions is used to offset the costs of paying benefits to pensioners each financial year. Minimal income is received from armed forces personnel who opt to make additional voluntary contributions (AVCs) or to purchase added years.

The amounts contributed and paid under the AFPS for financial years 2002-03 to 2006-07 are set out in the following table:

2002-03

2003-04

2004-05

2005-06

2006-07

Employer contributions (£ billion)

1.146

1.224

1.246

1.404

1.420

Employee contributions from AVCs/purchase of added years (£ million)

1.328

1.612

1.669

0.657

0.594

Pensions in payment (£ billion)

2.440

2.517

2.664

2.846

3.009

Note: The AFPS Resource Accounts for financial year 2007-08 have yet to be finalised and published.

To ask the Secretary of State for Defence (1) what estimate he has made of the annual change in the cost to the public purse of the 2006 changes to the armed forces pension scheme; and if he will make a statement; (229489)

(2) what methods he has considered for reducing public sector pension liabilities in relation to the armed forces pension scheme;

(3) what the projected savings are of the armed forces pension scheme 2005 changes in relation to public sector pensions for members of the armed forces.

For the armed forces pension scheme 1975, the 2006 change constituted the introduction from 6 April 2006 of a preserved pension age of 65 for future service. The preserved pension age for service before that date is 60.

The armed forces pension scheme 2005, which was introduced for new entrants on 6 April 2005, was designed with a preserved pension age of 65. In addition further savings were realised by the overall scheme design. For example, removing the immediate pension for those leaving before the age of 55 and replacing it with early departure payment (EDP) scheme benefits for those who serve until at least age 40 and have at least 18 years service. EDP income, which is paid until the preserved pension comes into payment at age 65, is paid at a significant lower level that would have been the case if the pension had become due on leaving the armed forces.

The adoption of age 65 as the preserved pension age was a specific measure aimed at tackling the increased costs of longevity, and savings from this will essentially be longer term.

A proportion of the overall saving was recycled into improved death-in-service and dependants' benefits. Savings in employer contributions for the armed forces pension schemes is estimated at around £50 million in 2008-09, which will grow in subsequent years due to the increasing proportion of membership covered by the new scheme. In the longer term, annual savings are estimated at around £125 million a year.