Defence IssuesNew AFPS & Compensation Schemes
NEW AFPS: FREQUENTLY ASKED QUESTIONS
Overview
Why change the pension scheme?
It has been a considerable time since Armed Forces pensions were subject to a thorough review. In 1997 the Government decided that a fresh examination of Armed Forces pensions should be commissioned. The Review Team’s terms of reference were to consider future arrangements for new entrants to the Armed Forces that would meet the essential needs in terms of recruitment, retention and motivation. Proposed changes in pensions arrangements as part of the Government’s wider agenda have given added impetus to this work.
When will the new scheme be implemented?
It is planned that new entrants to the Armed Forces will automatically join the new scheme from April 2005. Current serving personnel will be given the option to transfer into the new scheme as soon after April 2005 as possible and no later than April 2007, depending on availability of the admin delivery systems.
Offer to Transfer (OTT)
When will I have to make a decision?
There will be a fixed timescale in which individuals must make a decision with one opportunity to decide (approximately a 9 mth window). We will ensure individuals are provided with the relevant information well in advance to enable them to make an informed decision.
If I am on loan outside the MoD or on long leave (eg maternity) during the window of opportunity to transfer to the new scheme, will I be offered the choice to transfer?
You will be given the opportunity to transfer to the new scheme at the same time as everyone else – like them you will also retain the right to remain with the current scheme.
If I sign and extend my service after the new pension scheme has been implemented, or are commissioned from the ranks will I have to transfer to the new scheme?
No. Individuals will have the opportunity to transfer at the time of the implementation of the new pension scheme. Once this decision has been taken it will apply until you leave the Services. If you are commissioned from the ranks, this will be classed as continuous service. However, if individuals leave service and are re-employed at a later date they would have to join the new pension scheme (NB: FTRS, NRPS and Gurkha staff will have their own pension scheme).
Will there be a qualifying period of length of service remaining for eligibility to transfer to the new AFPS and if my service started before reckonable service was counted will I be credited the additional years if I transfer?
No decisions have yet been made on the transitional arrangements for those who wish to transfer. Information will be given in time for individuals to make an informed choice.
What communication will take place to inform all current Service personnel of the choices they have to make?
A detailed communication strategy is currently being devised to ensure existing personnel have details of the new schemes. At a future date, individuals will be given personal benefit statements relating to both schemes plus details of the final scheme design in good time to help them decide whether to stay with the existing scheme or to transfer to the new scheme. No advice can be given by MoD staff on what choice to make. This must be a personal decision. Individuals will be able to seek independent financial advice if they think this is necessary and MoD is looking to see how it might facilitate this. However, MoD could not pay for such advice.
Will I be better off in the new scheme?
It will be for individuals to decide if their personal circumstances better suit the new scheme.
Can former members of the Services transfer their benefits to the new scheme?
No. Only those members of the Armed Forces who will be serving at the date when the new scheme will be introduced for existing personnel will have the option to transfer to the new scheme or remain in the current one.
Why no retrospection for those who have already retired?
It is Government policy and a principle of occupational pension schemes in the public and private sectors that improvements are not made retrospective. Improvements to occupational pension schemes are made on the basis that they benefit only those giving service on or after the appropriate date. Only staff in post at the date of introduction of the new AFPS will have the opportunity to transfer to the new scheme.
Can Reservists join the new scheme?
No. Full Time Reservists have their own scheme which will be implemented in Apr 05. Members of the TA cannot join the scheme. Volunteer service with the TA is not pensionable, but TA personnel who are called-out may opt for MoD to bear the employer cost element of their civilian pension scheme or to be pensioned by MoD. Benefits may be payable to TA members where death or injury is due to Service.
Current AFPS
Is my Immediate Pension (IP) safe in the current scheme?
Yes. Currently serving personnel who remain in the existing scheme will retain their IP on existing terms, including a tax-free pension lump sum. Those who opt to transfer to the new scheme will receive the benefits set out under the new scheme (see below).
How will the transitional arrangements work for the change in preserved pension age from 60 to 65 in the current scheme?
Those who do not serve a full career and leave before the Immediate Pension Point are entitled to a preserved pension. Currently this is payable at age 60. From a date yet to be decided, preserved pensions earned for any future service will be payable at age 65. For example, if the date of change is from 1 Apr 2010, and an individual has already served 7 years by that date and then further serves another 6 years to 2016 they would receive the following: at age 60 they would receive their preserved pension based on 7 years service and at age 65 they would receive the pension and lump sum based on the total reckonable service served (13 years).
Preserved Pensions
Why has the age of receiving a preserved pension increased from age 60 to 65?
This responds to the Government’s Action on Pensions agenda which proposes a normal public service retirement age of 65. This affects ALL public service schemes. However, in the case of the Armed Forces this will only affect preserved pensions and not the normal pension age which remains at age 55.
Early Departure Payments (EDP) Scheme
Is there still an early Immediate Pension in the new scheme?
No. Proposed changes to pension legislation will not allow us to pay a pension as early as age 37. However, in place of the IP, there will be a similarly structured, but lower in value “Early Departure Payments” (EDP) Scheme. This will be payable from age 40 or after 18 years service, whichever is the later, and has been developed in close consultation with the single Services. The reduced value will help cover costs of people living longer and allow a major increase in the value of widows pensions. For further detail on the EDP see the separate note “Details of the EDP Scheme”.
If I transfer to the new scheme my length of engagement/commission will be shorter than the new EDP point. Is anything being done about this?
The single Services will consider the effects of the new AFPS on current engagements/ commissions and provide information on this in due course.
If I have served 18 years at age 38 but continue serving until age 40 will I be credited with 2 years’ of 1.67% added to the 50% value of the EDP income stream?
No. The EDP point has two criteria to meet – 18 years’ service and be at least age 40. If, however, you continue to serve further years beyond age 40 you will receive an extra 1.67% per year of service after the EDP point.
Given the Government’s commitment to extending working life, why have you got an early departure point?
We are no longer paying a pension from around age 40, but it is nevertheless considered appropriate to provide some level of compensation to those leaving the Service at mid-career whose prospects of a second career may be limited. This will also help to retain personnel until their 40s.
Pension benefits
My retirement age is different from the normal pension age of 55, does this affect me?
Retirement ages will continue to be tied to Service career structures. We consider it reasonable that, for fitness reasons, a normal pension age of 55, with a full career pension, should be retained for the Armed Forces in general.
How will the pension be calculated in the new scheme?
This is a final salary pension scheme with the pension based on final pensionable salary (ie excluding additional pay) and length of service. The highest pensionable earnings will in most cases be in the final 12 months before retirement. However, the last 3 complete tax years will also be considered, with pensionable earnings in the two earlier years increased by inflation. If any of these is higher than the last 12 months, it will be used as the basis for the pension calculation.
If the accrual rate is 1/70th of pensionable salary and 50% of pensionable earnings are received at 35 years, how is the total value worth 62.5% at 35 years?
62.5% includes the tax-free lump sum which accrues separately. The pension is worth 50% and lump sum 12.5%.
Does the new scheme remain non-contributory for the member?
Members do not make a direct contribution to cover the cost of their pension.
Will Resettlement Commutation still be available under the new scheme?
No, Inland Revenue rules do not allow this.
Will Additional Pay be pensionable?
No. Pensionability of additional pay was not considered affordable against other priorities. The fact that additional pay is not pensionable is taken into consideration when the level is set. Individuals will be able to purchase Additional Voluntary Contributions (AVCs) to top up their pension.
Will those on enhanced pay spines, ie medical/dental officers and Professional Aviators, receive a pension based on their individual pensionable pay rate?
Yes. All pensionable pay will be used when calculating the final pensionable salary. It is only Additional Pay, such as flying pay, submarine pay etc, which is not pensionable and is not therefore included.
AVCs
What effect does the new scheme have on my current AVCs?
The existing in-scheme arrangements for the current AFPS will continue and we would expect many in the Armed Forces to continue to have scope for AVCs in both new and current schemes. The Inland Revenue limits on the level of pension benefits allowable within a tax-approved scheme are due to be changed to a capitalised value of all pension benefits of £1.5M from April 2006. Very few AVCs will be caught by this threshold but more precise information will be provided in due course to enable people to determine whether their AVCs are affected.
Dependants’ Benefits
What additional benefits are proposed for dependants?
There will be a major increase in widows’ and widowers’ pensions of 25% and these will be payable for life (not ceasing on remarriage as at present). The death-in-service gratuity has been increased to 4 times pensionable pay from a maximum of 1½ times at present. In addition to current provisions for children’s pensions, a new feature will be that children of post-retirement marriages can also receive a pension.
Will benefits be available to unmarried partners?
Benefits will be extended to unmarried partners (both heterosexual and same sex partners) who can demonstrate they are in a substantial relationship, including financial inter-dependency. (See DCI JS 3/2004)
What are the wider implications within the Services of introducing pension and compensation benefits for unmarried partners?
The Services are trying to remove differences in treatment between married and unmarried personnel, except where these are justified by different needs. However, costs have to be a consideration. The aim is to keep abreast of developments in the law, and best employment practices. The policy is kept under review, but there are no present plans to extend to unmarried partners the entitlements of those who are married beyond pension benefits. The main difference between the treatment of married and unmarried partners is in the provision of Service Families Accommodation (SFA). However, if the Civil Partnership Bill is enacted, same-sex couples who obtain legal recognition of their relationship through a civil partnership will be eligible to receive the same benefits as married personnel (ie allowances/SFA).
Ill-Health Benefits
Why are some personnel who are medically retired not going to receive a pension immediately?
Those leaving the Services on medical discharge whose civilian earning capacity is not significantly affected will receive a gratuity related to their salary and the number of years they have served to help them adjust to their new circumstances. No ill-health pension will be payable. However, if they leave with sufficient service (at least 18 years and with a minimum age of 40) they will receive “Early Departure” payments and a preserved pension at the age of 65, rather than the ill-health gratuity. If they leave before the EDP point they will receive a preserved pension at age 65.
Communications
What happens next?
Enabling legislation is being sought in Parliament. Detailed scheme rules, supporting secondary legislation and administration arrangements will be developed over the course of 2004. We will continue to work closely with ex-Service organisations using their expertise when developing the scheme.
Last Updated: 18 May 04