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KEY FEATURES OF THE ARMED FORCES PENSION SCHEME 2005 (AFPS 05)

The key features of the AFPS 05 are:

  • Defined benefits based on final pensionable pay (greatest amount of pensionable pay (including the X factor but excluding allowances and any form of specialist pay) received for the best 365 consecutive days over the last three years of service), rather than a pension based on a representative rate of pay as in AFPS 75.
  • Common treatment for Officers and Other Ranks, unlike AFPS 75. Pensions build up from the first day of paid service. Officers and other ranks serve the same number of years (35) to earn a pension worth 50% of pensionable pay, with an even accrual rate (1/70th a year). In AFPS 75 there is an accelerated rate of accrual for Officers, in particular up to the early Immediate Pension (IP) Point. Officers build up pension from age 21 and other ranks from age 18, and it takes officers 34 years and other ranks 37 years to earn a pension worth 48.5% of pensionable pay.
  • A new system of Early Departure Payments (EDP) has been introduced to replace the IP. These compensation payments are for those personnel who leave service before age 55, after a minimum of 18 years’ service AND who are at least age 40 - the EDP 18/40 point. Payments are made up of a tax-free lump sum equal to three times the value of the annual pension (as for the IP) and an income payment equal to at least 50% of the preserved pension. The smaller EDP income payments fund improvements to dependants’ benefits and cover the cost of pensioners living longer. EDP is payable until the pension and pension lump sum come into payment at age 65. EDP is not normally payable to Medical and Dental Officers, who have separate bonus arrangements.
  • Value of pension. After 35 years, the pension income is worth half of pensionable pay, with scope to earn further pension up to 40 years. The tax-free lump sum builds up in parallel with the pension and is worth three times annual pension.
  • Improved dependants’ benefits. Spouses’ pensions are worth up to 62.5% of the member’s pension entitlement and are awarded for life, unlike AFPS 75, where widows’ pensions are worth 50% and only attributable widow(er)s keep a pension for life. However, in AFPS 05, if the spouse, civil partner or partner is more than 12 years younger than the member, the pension is reduced. Children’s pensions are awarded to children born of a relationship after the member has left service, unlike AFPS 75.
  • Provision is made for partners in a substantial relationship (including same sex). Civil partners will be entitled to benefits based on service from 6 April 1988 in AFPS 75 and AFPS 05.
  • Death-in-Service benefits are increased to four times pensionable pay, compared to a maximum of 3 times in AFPS 75.
  • New three-tier non-attributable ill-health arrangements, with minimum guarantees for the more severely disabled. For the most disabled, this means an enhancement of one half of future service to age 55 (subject to a minimum pension guarantee of 20 years’ pensionable service on exit). For those personnel whose employment prospects are deemed to be significantly impaired, there is an enhancement of one third of future service to age 55. For those whose ability to get gainful employment is NOT deemed to be significantly impaired, but who are unable to do their service job, a tax-free lump sum is awarded based on one eighth of pensionable pay per year of service (subject to a minimum payment of 6 months’ pensionable pay and a maximum of 2 years’ pensionable pay).
  • Preserved Pensions. The Armed Forces will retain a normal pension age of 55. This does not affect different retirement ages in place, as these continue to be tied to Service career structures. However, to reflect the Government’s plans to raise the public service pension age, the preserved pension will be paid from age 65 (rather than age 60). In AFPS 75, preserved pensions will be paid at age 60 for all service up to 5 April 2006, with service after that date paid from age 65.
  • The scheme remains unfunded, in line with the majority of public service schemes, and non-contributory although it is expected that the pension value will continue to be taken into account (currently through a 7% abatement of comparator pay) when the Armed Forces Pay Review Body recommends Service pay increases.

Last Updated: 8 Apr 05