MoD regrets costly pension error

24 Jan 02
The Ministry of Defence and the Inland Revenue are facing a payout of millions of pounds to army war veterans after wrongly deducting tax from disability pensions for the past 50 years.

25 January 2002

The MoD, which accepted responsibility for the error, said it had examined the files of more than 25,000 former soldiers and found that in 1,003 cases pensions were underpaid. The Navy and the Air Force have correctly paid their pensions without deduction.

Thousands of those injured and pensioned out of the army in a series of conflicts from the Korean war onwards have since died, and the ministry now faces the problem of tracking down and repaying their dependents.

Defence minister Lewis Moonie said on January 23 that millions of pounds would need to be repaid. 'It happened through an oversight in the Pensions Agency, one which I deeply regret,' he said. 'It happened a long time ago, I can't really justify it in any way. It was a terrible mistake to make and we have done our very best in the last couple of years to put it right.'

The mistake was acknowledged last year following a campaign by former Royal Artillery Major John Perry, who was invalided out of the army in 1971. This week Perry received a letter from Jonathan Iremonger, director of the MoD's services personnel policy, confirming the error.

Most of the cases are thought to involve sums of between £30,000 and £100,000. The taxpayer would not lose money, said Moonie, as it was cash the Inland Revenue should never have received.

The 1952 Income and Corporation Taxes Act made pensions tax-free when they are granted as a result of 'medical unfitness attributable to naval, military or air force service'.

Civil servants managing army pensions missed this distinction and thus deducted tax from payments to injured veterans from most of the major conflicts since World War Two. The final bill for repayments is likely to be in the order of £50m to £100m.


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