EARLY DEPARTURE PAYMENTS (EDP) SCHEME

Introduction

Changes to tax law by the Inland Revenue do not allow pension benefits to be paid from a tax-approved pension scheme before the age of 55 (apart from those for ill health). The new Early Departure Payment (EDP) Scheme is not a pension, but it pays a tax-free lump sum of three times pension and a taxable income, so it is a compensation payment, similarly structured to the Immediate Pension (IP) in AFPS 75 but of a lower value. It is payable to personnel who leave Service from age 40 AND with at least 18 years of service, but before the normal retirement age of 55.

Who is will be affected by this change?

Those who choose to transfer to the new AFPS 05 and, new entrants or re-entrants to the Armed Forces from 6 Apr 05 will be eligible to receive an EDP (apart from certain specialist staff who are on bonus terms). Those already in receipt of an IP or who are currently serving and decide to remain in AFPS 75 will NOT be affected by these changes.

What is the EDP?

The EDP is in part a compensation payment to Service personnel who leave the Armed Forces before normal retirement age and in part an incentive to serve at least 18 yearswho are not members of AFPS 75. Its purpose is to offer a measure of financial security to those whose second career prospects might be affected adversely by delaying a change of employment. Under the EDP scheme all personnel will have to reach age 40 or over AND serve at least 18 years to be eligible for an EDP. Qualifying service for EDP builds up from the first paid day of service after joining the Armed Forces irrespective of age.

What will I receive if I transfer to AFPS 05 and leave service at the EDP Point?

A tax-free lump sum (the EDP lump sum) is will be payable equivalent to three times your preserved pension. Fixed, taxable income payments are will be made, worth 50% of the individual’s preserved pension (based on final pensionable salary, that is excluding allowances, loan service and specialist pay) payable until age 55. The income increases to 75% of preserved pension at age 55, at which point it is increased by inflation since the last day of service. EDP income is will be increased in line with inflation every year after age 55, until age 65 when the preserved pension and pension lump sum is paid.

What will I receive if I transfer to AFPS 05 and leave Service at some point after the EDP Point?

For each complete year of service completed after reaching the qualifying EDP 18/40 point (but before reaching the normal retirement age of 55), the level of income payable is will be increased by 1.6667% of the preserved pension. Only complete additional years count: no adjustment will be made for parts of years. See the examples below. Thus, 4 years’ additional service will give a total EDP income of 56.6668% of preserved pension.

Examples

If I have 18 years’ service at age 38, but serve until age 40 do I get two years’ "credit" added to my EDP income?

No. You have to serve at least 18 years AND be at least age 40. Only when both these conditions are satisfied have you reached the EDP 18/40 point. However, the EDP income would be based on 50% of the preserved pension based on 20 years’ (not 18 years’) service.

What happens to the EDP at age 65?

The EDP is no longer payable. Another tax-free lump sum (pension lump sum) of three times the preserved pension at the completion of service is will be payable. This is adjusted to take account of inflation since the last day of service. The pension entitlement which was preserved when leaving the Armed Forces will then commences, adjusted to take account of the changes in inflation since the individual left service. Inflation increases are will be applied, as now, on an annual basis for life.

What will I receive if I leave Service at age 55 after serving a full career?

You receive your pension, including and a tax-free lump sum of three times pension. An EDP will not be payable.

As an officer on a commission of less than 18 years, what happens if I transfer to AFPS 05?

If you transfer to AFPS 05, your commission will be extended so that you reach the EDP 18/40 point.

My commission/engagement ends at age 53. Do I get a pension under AFPS 05 if I leave at this age?

No. As you will be leaving before normal retirement age of 55, you will get an EDP provided you have completed 18 years’ service.

Last Updated: 8 Apr 05