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Armed Forces Pensions

Volume 551: debated on Tuesday 16 October 2012

Motion made, and Question proposed, That this House do now adjourn.—(Anne Milton.)

The purpose of calling this evening’s debate is to bring to the Minister’s attention a group of former spouses who, due to miscalculations in their pension provision by the Ministry of Defence, now face very uncertain futures. It seems that there is a group of 126 women who have been affected by the mistake. I believe it right and proper for the MOD now to take the steps necessary to ensure that this does not happen again and to compensate the individuals affected, particularly where their financial situation and life circumstances have been substantively impaired.

Three constituents came to see me in March this year. In accordance with their wishes, I shall not be disclosing their names to the House. However, their experiences are fairly representative of the group of women affected. One individual, having made the difficult decision to divorce, asked for the details of her former husband’s pension pot from the SPVA—the Service Personnel and Veterans Agency, which administers military pensions—in March 2010. Her husband’s pension was in fact already in payment. The SPVA gave details and confirmed, both on the telephone and in writing, that my constituent would be able to take her pension from the age of 55 with no actuarial reduction being applied. Therefore, in April 2010 the judge was able to finalise her divorce, relying on the information provided by the SPVA, which had been confirmed in writing.

The pension for my constituent came into payment and she undertook a number of financial obligations, feeling certain of a definite and defined monthly income payment for the rest of her life. She bought a property and undertook renovations on it, as she sought to start her new life. It has since been discovered that in November 2010 the MOD was contacted by the Department for Work and Pensions and made aware that an error had been made in the way it had interpreted DWP legislation. It meant that actuarial reductions should have been applied to those former spouses who took a pension at the age of 55. However, none of the affected spouses was informed of the error, and their pensions continued to be paid from November 2010, when the MOD was first notified that an error had occurred, to spring 2012, when the MOD communicated the error to those affected and my constituent first approached me.

On 1 March 2012, 16 months after the mistake first came to light, my constituent was notified by phone that she would receive a reduction in her pension of over 40%, which was to take effect in three months’ time. A letter confirming that arrived a few days later, on 5 March. The stress and worry must have been unimaginable. Illness followed and she lost half a stone very quickly. She sold her car, as she was so worried about the reduction in her income and felt that she had to downsize her lifestyle rapidly. Obviously she also felt under an enormous degree of strain.

Then, two months later, on 13 May 2012, my constituent received a further communication from the SPVA informing her of another mistake, which meant that she would receive more than the reduced amount but still a 16% reduction on the amount on which her divorce settlement had been based, from which she had been receiving payments for the previous 18 months.

I am sorry to say that that individual is not an isolated example. A constituent of my hon. Friend the Member for South Norfolk (Mr Bacon), who is in his place this evening, had a similar experience. She took actuarial advice based on advice from the MOD before finalising the divorce, and acting on that advice, the judge awarded a clean break settlement comprising 40% of her former husband’s pension pot. On the basis of that guaranteed income, she secured a mortgage. She now finds herself with a 20% reduction in her income due to the miscalculation and is looking at losing her house. She has been in hospital for emergency operations and has been treated for stress, and she is now on sleeping tablets.

I am grateful to my hon. Friend for raising this subject and for mentioning my constituent. Does he agree that although one can understand that the principles of good administration require that public authorities such as the Ministry of Defence and the SPVA do not make irregular payments, they also require public authorities to be held to their promises, especially when they have created a legitimate expectation upon which people have acted, as in this case? Does he therefore agree that the right route in these circumstances is generous compensation?

Absolutely. I fully endorse what my hon. Friend says, and I will come on to some specific points to which I hope the Minister will respond.

In what is an exceedingly traumatic time for anyone—going through a divorce and facing up to a new life—it is absolutely imperative that any agency of a Government Department gets the facts right first time, particularly when dealing with issues that have painful and far-reaching implications. My constituent has told me that since the mistakes have been known, the SPVA, to its credit, has done its best to provide as much information as it can, for which she is sincerely grateful. Information is one thing, but we now need action, leading to justice.

The bottom line is that former husbands and wives, the courts, actuaries and mortgage companies all relied on the information provided to them by the MOD. They had no reason to believe it to be in any way incorrect, particularly in my constituent’s case, in which the SPVA was asked directly whether there would be an actuarial reduction if she took her pension at 55. The SPVA wrote back in black and white on 6 April 2010 to say that that would not be the case.

The mistakes have had serious repercussions for a number of divorce settlements, which were decided on the basis of erroneous information. That means that the lifestyles that the judges thought it fair for both parties to have after the divorce are now not sustainable. In most cases of a so-called clean break divorce, the court will not hear the divorce case again, so the former wife—it usually is the wife—has no legal recourse. It may be possible to go back to court under ancillary relief proceedings to re-examine the finances, but the former husband may have to agree to that. Even if a court agreed to a rehearing, which is expensive in itself, many husbands would not, quite rationally and understandably on one level.

I have figures provided by an actuary from Actuaries for Lawyers, specialising in armed forces pensions, who has estimated what my constituent’s loss will be over her expected life span. I would be happy to let the Minister see those figures, and the actuary himself would be happy to meet him and representatives of the relevant agency in the Department to explain how he arrived at them.

This evening, I would like to ask the Minister a number of questions. When exactly was the mistake made? Who notified the SPVA of the mistake? Who is accountable for it? I do not wish to have a witch hunt, but as yet I have not received a satisfactory account of why the mistake was made, and I am not yet confident that it will not happen again. I also want to know what actions the Minister and SPVA officials have taken, or will take, to ensure that there is no recurrence of the same mistake.

My most pressing question is why it took so long for the MOD to contact those affected by the error. There was a 16-month window from when the mistake was discovered to the point at which those affected were contacted. That wait was unacceptable. The strategic defence and security review has been completed and, from my recent Defence Committee experience, I know that many complex changes have taken place within the MOD, but the SPVA still had a duty of care to get things right. That is its job. The argument that it “had a lot on” cannot be used.

As I have tried to stress, this error has had a huge effect on the victims. Some have become ill, and chronic illness has ensued. Some have found it hard to cope with the paperwork involved as they try and get to the bottom of what has happened. Some are facing the risk of repossession. Many have committed themselves to expenses that they cannot now maintain, or would not have entered into had they known what was going to happen. Many face adjustments to their living arrangements that they would not have had to contemplate, had their settlements been agreed on the correct basis.

I cannot do justice tonight to the misery and upset of so many families, but I hope that the Minister will reflect fully on the circumstances of my constituent and others. I want him to give a categorical assurance that compensation will be awarded, not only to those who are able to challenge this decision, through me or other MPs, but to the whole group of women involved. My constituent was awarded the well-meant but token amount of £250 to cover the “inconvenience and uncertainty”, in a letter dated 13 September 2012. However, not everyone has been given that. Why not? Did she receive it just because she was able to pursue the MOD? Some others have not been strong enough to do so, perhaps because they have been ill or simply not as persistent. There is a principle at stake here. The MOD made a mistake and the miscalculations directly affected the choices made by this group of women and their former partners.

I am aware, from previous correspondence I have had with the MOD on this issue, that a hardship fund is available to those in need. That is welcome, but it does not address the real issue, which is one of justice. The MOD ought to honour the assumptions made by the court, which decided on what it thought to be a fair and just distribution of assets based on figures given to it by the SPVA. That decision has now been compromised through errors made not by the individuals concerned but by the MOD.

If we assume an average shortfall of £50,000 per person over their lifetime, we find that the MOD would need to find approximately £6 million in compensation. Given the lifetime of service that those spouses have given through supporting their husbands and, in some cases, forfeiting their own chances of a career through the frequent relocations necessary for many service households, I hope that the Minister will order full and complete compensation from the hardship funds. That should include all reasonable legal costs, and it would be helpful if the recoverable costs could be defined.

The Minister should also take whatever steps are necessary to establish where the error was made and to ensure those responsible are retrained to make certain that this does not happen again. This Government have taken great steps with the military covenant during their time in office, but this matter tests both the letter and the spirit of the covenant. I have the highest personal respect for the Minister. He has been in post for only just over 40 days, but he has already cultivated widespread respect among many veterans’ organisations. I now look forward to hearing his sympathetic and effective response.

I congratulate my hon. Friend the Member for Salisbury (John Glen) on securing this important debate. I acknowledge his genuine concern for the individual cases he has mentioned—several members of his own constituency and one other represented by my hon. Friend the Member for South Norfolk (Mr Bacon). I am aware of the particular circumstances of the individual case on which my hon. Friend the Member for Salisbury has focused, and I would like to explain the error in pensions policy interpretation that has led to this situation and what has been done to support individuals who might have encountered financial and other difficulties as a result.

For the benefit of the House, I will set out a little of the background, but may I start by saying that when a service person divorces or dissolves a civil partnership, we acknowledge that it can be a difficult and stressful time for both parties? I fully recognise, especially in the current climate, that to have received the news that the amount of pension that was already in payment would reduce, or in the case of deferred pensions would be less than expected, would have been a great cause for concern. If any additional upset or distress has been caused as a result of errors made by the Department, I offer my own very sincere apology to those affected.

By way of introduction to this subject, pension credit members are former spouses or civil partners of members of our armed forces pension schemes who have been awarded a pension sharing order on divorce or on the dissolution of a civil partnership. They are a special category member of the pension scheme to which their former spouse or partner belongs. So while they are members in their own right, the terms of their membership do not directly mirror the pension entitlement of their former spouse or partner.

As I think my hon. Friend the Member for Salisbury well understands, the legislation in this area is complex. Occupational pensions would normally become payable from age 65. New legislation was introduced in 2009 that allowed pensions to be brought into payment from the age of 55. The Ministry of Defence’s pensions policy staff wrongly interpreted this legislation as allowing payment from the age of 55 without any reduction for early payment. However, my Department’s reading of the law was mistaken.

The legislation was intended to make early payment an option, but if the pension was to be paid early, a corresponding reduction was also required. The error was first identified in the latter part of 2010 during an exercise to review the regulations for the armed forces pension scheme. As soon as it was identified, work began to amend the regulations of all of the pension schemes affected. My Department’s pensions policy staff instructed the Service Personnel and Veterans Agency to apply the correct policy to new cases from March 2011.

I am grateful to the hon. Member for Salisbury (John Glen) for bringing this matter to our attention. He said in his introduction that life circumstances have been substantially affected, so I ask the Minister whether, in the review, he would be prepared to look at those who have been awarded compensation, as it has affected their benefits? Will he consider them as well as the wives and family members as part of the review that the Minister hopes to undertake?

I hope that, by the time I get to the end of my speech, the hon. Gentleman will agree that we are doing our best to look at this issue and try to put it right. He will be able to make that judgment afterwards, but I hope that what I say will address the spirit of what he has asked.

The effect of misinterpreting the legislation was that 127 pensions already in payment to pension credit members required an adjustment to be made—in the majority of cases, this would result in a reduction. In March 2012, the Department notified all those members affected and advised that the changes would come into effect from June this year. The average annual reduction to pensions in payment was approximately £783, although in some cases this will have been significantly higher.

During business questions in April 2012, my hon. Friend the Member for Salisbury asked the Leader of the House to seek an apology from the Ministry of Defence and to take corrective action that would, in effect, restore the pensions to the original amount. The Leader of the House asked for urgent inquiries to be made to establish whether any injustice had occurred. My predecessor, the Minister for the Armed Forces, my right hon. Friend the Member for South Leicestershire (Mr Robathan) wrote to my hon. Friend on 10 May, confirming that while an error had occurred in allowing the pensions to be paid on the wrong basis, legally there was no provision to continue paying the pensions knowingly at the incorrect rate.

My predecessor also confirmed that when the pensions were being adjusted to the correct rate, a calculation error was made by the Department. That further mistake was identified quickly, and revised calculations were issued to those affected as soon as was practicable. When the correct methodology was applied, the reductions in pension amounts in all those cases proved to be less than had previously been indicated. In a few cases pensions actually increased, as did the lump sums received by some pension credit members as part of divorce settlements.

As I am sure the House will agree, when there is no legal entitlement for a pension to continue to be paid at an incorrect rate, the payment must be put right without undue delay. Regrettably, in this instance the matter was not addressed as quickly as it ought to have been, and the payments were allowed to continue. Again, I apologise for that.

In the spring of 2012, when the extent of both errors had been recognised, the Ministry of Defence did its best to put things right. As a first step, approval having been sought from Her Majesty’s Treasury, overpayments to 127 pension credit members totalling more than £176,000 were waived, and no recovery action was pursued. In addition, in recognition of the need for those affected to adjust to a reduced income in future, a period of three months’ grace was given to those whose pensions were already being paid.

For the sake of completeness, the House should know that the same errors also affected 417 deferred pension credit members. Deferred members are those whose pensions have not yet been paid. Those members were also written to in March 2012, and were told that the amount of pension they were expecting to receive at the age of 55 was incorrect. They could still choose to take their pensions early at 55 or they could wait until they were 65, but the amount would need to be recalculated. Once deferred members' pensions had also been calculated on the correct basis, the vast majority of deferred members saw their annual pensions actually increase above the original estimated value.

All those affected were offered an opportunity to discuss their situation with the Service Personnel and Veterans Agency’s welfare service. In March 2012, when the original pension recalculations were completed and the reductions in pension were known, the agency identified those with the most significant reductions and those who might be particularly vulnerable, and arranged for a welfare manager to visit them personally. The visits were completed, whenever possible, throughout March, and ensured that that group of individuals could be in direct contact with a welfare manager should they require further or ongoing support. In each case involving welfare contact, a full case assessment was carried out. It examined individual circumstances, and included potential entitlement to other benefits. Further support and advice have been given to a number of pension credit members, and, when appropriate, they have been helped to apply for further DWP benefits such as disability living allowance and carer’s allowance.

The potential financial difficulties that the adjustment might have caused some individuals was also recognised. Claims for hardship that could be substantiated could be discussed in confidence with the welfare service and submitted for consideration. Five claims for financial hardship, six claims for a consolatory payment and two claims for other financial losses have been received and considered, and compensation has been paid when appropriate. That route remains open to pension credit members, including my hon. Friend’s constituents, who may be facing genuine financial hardship as a result of the changes in their annual pensions. I appreciate that making any such claim is a difficult step to take, but I assure my hon. Friend that it would be handled in a sensitive manner and in conjunction with members of our welfare service. They are there to offer support, and I urge all affected individuals to make contact to see what can be done.

I was pleased that my hon. Friend recognised the efforts that my Department has made in supplying information to his constituent. I assure the House that it has learnt some valuable lessons from its mistakes in this case. Improved processes have been introduced to enhance the training of, and more effective working between, pensions policy and operational delivery staffs. That has included a strong focus on ensuring that the potential implications of future legislative changes are correctly interpreted and fully understood.

I have listened to all that my hon. Friend has said today. While it is perfectly true that an error was made in the interpretation of legislation in this complex area, and that that was further exacerbated by errors in our calculations—for which I have already apologised—I urge the House to recognise that my Department has acted to minimise the effects that the error has caused. We have not sought to recover the overpayments, we have given three months’ grace enabling members to adjust to the reduced amount of pension, we have offered welfare support when it has been required or considered appropriate, and we have made arrangements for claims to be considered when financial hardship has been demonstrated. My hon. Friend has made considerable efforts to support this group of individuals through all possible parliamentary channels. That is evidence of his commitment to champion their cause to seek to ensure that no injustice has taken place.

My hon. Friend has suggested that some form of compensation is due to those affected by these errors. I agree. Although there is no statutory entitlement to maintain these pensions at the full amount, I can assure the House that the MOD has in place a comprehensive process to compensate these individuals where financial hardship has resulted because of the changes to their pension. The process will consider individual cases and assess the impact the errors have had. If individuals are not satisfied with the outcome, it is of course open to them to pursue the matter of any compensation through the legal system.

In conclusion, I urge those individuals who have been affected to engage or re-engage with our welfare system so that we can consider each individual case in the round and do our best to put things right. We must make amends and we will seek to do so.

Question put and agreed to.

House adjourned.