New AFPS & Compensation Schemes

Q&A BRIEF

New Armed Forces Pension Scheme

1. 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 for the next century 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.

2. 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, depending on availability of the admin delivery systems, and no later than April 2007. There will be a special exercise in due course to consult people on whether they wish to transfer and this will include the necessary information on the benefits people would receive under the two schemes.

3. 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. New members of the Armed Forces will automatically join the new scheme from April 2005 and current members will have the opportunity to transfer to the new scheme as soon after 2005 as possible and no later than 2007. We will ensure individuals are provided with the relevant information well in advance to enable them to make an informed decision.

4. Is my Immediate Pension (IP) safe in the current scheme?

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).

5. What about currently serving personnel who leave with preserved pensions?

For those not serving to the IP point who remain on the current pension scheme, payment of that part of the preserved pension payment earned as a result of future service will be deferred from age 60 to 65. Rights already earned will be unaffected, so they do not lose out from staying on. A decision has yet to be taken on the date for this change, but it will not be for some years. Those that have already retired with a preserved pension are not affected by this change.

6. 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 40. However, in place of the IP, a similarly structured system of "Early Departure Payments" (EDP) payable from age 40 or after 18 years service, whichever is the later, is being developed in close consultation with the single Services. The final shape of the EDP is yet to be finalised but we expect to have an initial lump sum, together with a stream of income, payable until the preserved pension comes into payment at age 65. At this point a pension lump sum will also be payable, ie there will be two lump sums. The cost of this system of payments will be less than that of the IP to help cover the cost of benefit improvements elsewhere in the new scheme and increased costs due to the fact that pensioners are now living longer. The new system will offer more flexibility to focus the phasing of payments on need.

7. What are the Scheme’s Costs?

The cost of the benefits building up for those currently serving is assessed at £1BN pa for all the Armed Forces. We expect this to remain the same fore the new scheme.

8. 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.

9. 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 the 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 (see Q5).

10. 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.

11. 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, but they may wish to seek independent financial advice before they make the decision.

12. 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 individual circumstances. This must be a personal decision but individuals will be able to seek independent financial advice.

13. How will the pension be calculated in the new scheme?

This is a true final salary pension scheme with the pension based on final pensionable salary (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 tax years will also be considered, with pensionable earnings in each of the earlier years increased by inflation. If either of these is higher than the last 12 months, it will be used as the basis for the pension calculation.

14. Does the new scheme remain non-contributory for the member?

Members do not make a direct contribution to cover the cost of their pension.

15. 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.

16. Will benefits be available to unmarried partners?

Benefits will be extended to registered unmarried partners (both heterosexual and same sex partners) who can demonstrate they are in a substantial relationship including financial inter-dependency.

17. What are the wider implications within the Services of introducing pension and compensation benefits for unmarried partners?

We are trying to remove differences in treatment between married and unmarried personnel, except where these are justified by different needs. We aim to keep abreast of developments in the law, and best employment practices. We keep the policy under review, but we have no present plans to extend to unmarried partners, beyond pension benefits, the entitlements of those who are married. The main difference between the treatment of married and unmarried partners is in the provision of Service Families Accommodation.

18. Can former members of the Services transfer 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. There may need to be a short return of service under the new scheme to qualify for benefits.

19. Why no retrospection for those who have already retired?

It is Government policy and a principle of occupational pension schemes in the public services 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.

20. Can Reservists join the new scheme?

No. Full Time Reservists have their own scheme which will be implemented before the new AFPS. 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. Service as a TA Volunteer (except when called-out) carries no commitment beyond the minimum number of days. Such service does not fit well in an occupational pension scheme like the AFPS and would produce only a trivial pension (typically £100 per annum). Benefits may be payable to TA members where death or injury is due to Service.

21. Will Resettlement Commutation still be available under the new scheme?

No, and Inland Revenue rules do not allow this.

22. Will Additional Pay be pensionable?

No. Pensionability of additional pay was not considered affordable against other priorities.

23. 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) 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 this point they will receive a preserved pension at age 65.

24. 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 are expected to be revised within the next few years, and it is not possible at present to say precisely what the effects, if any, will be.

25. What happens next?

Enabling legislation will be sought as soon as possible. Detailed scheme rules, supporting legislation and administration arrangements will be developed over the course of 2003/04. We will continue to work closely with ex-Service organisations using their expertise when developing the scheme.

New Compensation Scheme

26. What is the purpose of the new Compensation Scheme?

It replaces current arrangements for attributable benefits (under the War Pensions Scheme (WPS) and Armed Forces Pension Scheme (AFPS)) for those injuries, illnesses or deaths caused after the date of introduction of the new scheme. It gives modern, fair and simpler arrangements, which focuses help better on the more severely disabled.

27. When is the Scheme to be introduced?

Our current intention is to introduce the scheme from April 2005 for all members of the Armed Forces.

28. Who will run the new Compensation Scheme?

The Veterans Agency will be responsible for delivering the new Compensation Scheme. However, as we take implementation forward, we would expect to achieve a more integrated delivery of pensions and compensation, notably to develop a single point of contact and delivery for widow(er)s and dependants.

29. Who is covered?

All regulars and reservists for all attributable (ie due to Service) deaths, injuries or illnesses caused after the scheme is introduced.

30. If I remain with the current AFPS can I choose to receive current benefits for injuries due to Service and a War Pension?

No. All those who are attributably injured or suffer ill-health due to Service after the new Compensation Scheme is implemented will automatically be covered by the new scheme, even if they have chosen to remain in the current pension scheme.

31. Will WPS supplementary allowances still be payable under the new scheme?

No, but the claimant will be eligible to claim the corresponding state benefits. It is no longer considered necessary to replicate the benefits which are now available from the State, which are paid on the basis of need.

32. Will attributable awards remain tax-free?

Yes. Awards under the new scheme for members’ attributable benefits in retirement will remain tax-free. However, as with the current AFPS scheme, dependants’ benefits will be taxed.

33. How will the new compensation payments be made?

A lump sum is payable to compensate for pain and suffering based on a tariff. A guaranteed income stream, payable for life, will also be paid for those whose earnings capacity is significantly affected.

34. What is the basis of the 15-tier tariff?

It takes account of the Judicial Studies Board Guidelines for the Assessment of General Damages in Personal Injury Cases and will be updated to take into account any developments in this and in medical understanding before the scheme is launched. Thereafter, the tariff will be regularly reviewed to take account of changing levels of award elsewhere and developments in medical understanding.

35. Why will those with minor attributable injuries not receive as much in the future as under the current scheme?

A lump sum for pain and suffering will be paid for an attributable illness/injury and paid for the first time for those who remain in-service. However, an income stream to compensate for loss of earnings is not considered appropriate in circumstances where the earning capacity of the individual is not significantly impaired.

36. Why is there a time limit for claiming attributable injuries?

The sooner a claim is made the better, in terms of ready access to evidence. However, a 5-year time-limit, together with an exceptions list for conditions whose onset we recognise may be delayed, and discretion for unpredictable cases, should ensure that all claims relating to injury or illness due to service are compensated.

37. Why is ‘balance of probability’ being used as the standard of proof for eligibility of claims?

The new scheme uses the ‘balance of probability’ standard of proof, as used in the civil courts and other occupational pension schemes. Our experience shows that those who in future suffer an injury, illness or death as a result of their Service should not be disadvantaged by the proposed evidence-based assessment using the balance of probabilities standard of proof. Although the onus of proof would be on the individual, the MoD is required to support any claim by releasing relevant information (such as Service medical records). Where the evidence shows that Service is more likely than not the cause of a condition, a claim will be accepted.

38. Is there an appeals process?

Decisions on claims will be subject to the Independent Pensions Appeal Tribunal (PAT) process. In line with the Leggatt Report, a second tier tribunal (the Social Security Commissioners) is proposed to hear appeals from the PAT, instead of the High Court. Further work is being undertaken by the Department for Constitutional Affairs on the reform of the tribunal process to provide better customer service to appellants.

39. Are fewer cases likely to be accepted?

Claims that are supported by reasonable evidence, will continue to be accepted under the new standard of proof. The new scheme proposes a 5-year time limit to claim, but with an exceptions list for late onset conditions plus discretion for cases where an individual has been unable to claim for exceptional reasons (e.g. mental incapacity); this is more generous than the current AFPS which only provides compensation benefits for conditions that have led to medical discharge. However, it would not be open-ended like the War Pensions Scheme. These arrangements should provide ample opportunity for claimants who are injured or become ill due to service to claim in time.

40. Will the new scheme allow for review in cases where the condition or disablement deteriorates over time?

There is no routine review process. The level of the tariff takes into account the normal expected deterioration of a condition. However, in cases of exceptional deterioration significantly beyond that normally to be expected of a condition, the scheme has the discretion to review a case.

41. How will the scheme view ‘home to duty’ travel?

It is not considered appropriate to cover all home to duty travel. However, travel on detached duty and on emergency call-out will be covered; also travel to Service Accommodation where nothing is available within 50 miles of place of work.

42. How will the scheme view sporting injuries?

All publicly funded fitness training, sport and adventurous training qualifying as on-duty and contributing to Service objectives of fitness, and leadership, team or military skills will be covered under the new scheme.

Last Updated: 20 Apr 04