There are currently three pension schemes for members of the Regular Armed Forces. These schemes differ significantly, and the amount of pension entitlement, the time at which it is paid, and the ability for the individual to change the way he or she receives that money will be different depending on what scheme he or she served under.
Furthermore, for those who served after 1 April 2015 it is possible that there will be a combination of schemes affecting entitlement, with service after that date under a different scheme from service before that date.
All of this can be very complicated, but the basic rules for eligibility are simple enough. The pension schemes are as follows:
- AFPS 75 – which closed to new entrants on 6 April 2005. At that date existing members were given the choice of staying with AFPS 75 or transferring to AFPS 05.
- AFPS 05 – which came into being on 6 April 2005. All new entrants on or after this date joined this scheme. AFPS 75 members who chose to transfer did so on 6 April 2006.
- AFPS 15 – which came into being on 1 April 2015. All new entrants on or after this date joined this scheme. If you were serving and aged 48 or over on 1 April 2015 you remained in your ‘old’ scheme but everybody else was transferred to AFPS 15 with protected rights in their ‘old’ scheme.
The qualification criteria and a brief outline for each of these schemes is at Annexes A, B and C respectively.
Typically, members of the Armed Forces serve for relatively short periods of time, most leaving before they qualify for any immediate lump sum or pension. These early leavers will normally have to wait until the preserved/deferred pension age for their scheme but, if they are permanently unable to work due to ill health, the pension may be claimed at any time.
All of these schemes are administered by Veterans UK, part of the Ministry of Defence. They will NOT normally keep in touch with those who leave the Armed Forces before their benefits are due to be paid and most people leave years before that point. Individuals may move many times before reaching the pension age. It is not uncommon for Veterans UK not to be told of these movements, so tracking people down can be a near-impossible job. It is for individuals to apply for their pension and many fail to do so. .
The Forces Pension Society exists to help its members with pension problems. This may simply involve explaining rules clearly but more often it means more active engagement with members, assisting them in getting their correct entitlement, occasionally supporting them through the appeals process if necessary. With three schemes in existence at once and a huge number of personnel being entitled to benefits from more than one scheme, things have never been more complicated.
SSAFA caseworkers can contact me direct on fpsconsultant@hotmail.com
Annex A
AFPS 75
Those who do not meet the qualification (or ‘Vesting’) criteria are not entitled to AFPS 75 benefits. This criteria has evolved over the years:
- Prior to 1 April 1975 Immediate Pensions (IPs) were awarded to officers who served 16 years or more from age 21 and ORs who served 22 years from age 18. These ages are important as reckonable service was service from 21 for officers and 18 for ORs. Preserved pensions did not exist.
- On 1 April 1975 preserved pensions were introduced for those in service in the Regular Armed Forces on 1 April 1975 but, in order to qualify, an individual had to be age 26 or over when he left and to have at least five years reckonable service for pension purposes. Those who left service before 1 April 1975 were not entitled to preserved pensions, neither were those who left after this date without ‘Vesting’. In the rare case where someone left after 1 April 1975 without a preserved pension (because they hadn’t ‘Vested’) and rejoined within 30 days, they were allowed to count the earlier period of service together with the new for future qualification.
- In 1978 the criteria were changed slighted slightly, in that the requirement to be aged 26 or over was removed. The five years reckonable service from age 21 for officers and age 18 for ORs remained until 5 April 1983. From 6 April 1983 until 5 April 1988, it was a 5 years “Contracted Out” service (so, irrespective of age).
- On 6 April 1988 new ‘Vesting’ criteria were introduced that required officers to give two years reckonable service from age 21 to qualify for a preserved pension. For ORs this was two years from age 18.
Preserved benefits usually comprise a pension in the form of a taxable annual income and a one-off tax-free lump sum equal to three times the annual income payable. If the pension is very small, the preserved pensioner is often invited to take an annual taxable lump sum rather than a monthly pension and, in some cases, the pension is converted into a one-off taxable lump sum under the small pension commutation rules.
Preserved pensions in AFPS 75 are payable at age 60 for those who left before 6 April 2006. For those in service on or after that date, the proportion of the pension earned before 6 April 2006 is payable at age 60 with the balance payable at age 65. However, the balance due at age 65 may be claimed at age 60 but it will be reduced by actuarial reductions.
There are groups of individuals who will not have any Armed Forces Pension Scheme entitlement. They are people who joined on non-pensionable terms (being entitled instead to a gratuity on successful completion of their engagement), members of the Volunteer Reserve, personnel who opted out of the Armed Forces Pension Scheme and those who left with a preserved pension and transferred it out to other occupational pension arrangements.
Those who left with an IP (having served for 16 years from age 21 as an officer or 22 years from age 18 as an OR) or an invaliding pension will not have preserved benefits to claim. Invaliding pensions are index linked straightaway (currently to CPI). IPs are paid at a flat rate until age 55, at which point they increase by all the CPI rises which have occurred since the individual retired.
ANNEX B
AFPS 05
The 2004 Finance Act introduced a rule which said that pensions may not be paid before age 55, save in the event of medical discharge. AFPS 75 did not have to change as that scheme was closed to new entrants prior to the ‘commencement date’ for the new rule. That meant that AFPS 05 had to be designed in such a way as to award a preserved pension to anyone who left before age 55 (other than with an ill-health pension) AND offer benefits from another scheme to encourage service to what would have been the Immediate Pension point (about age 40). Those who leave at or after age 55 receive their pension immediately and it is index linked immediately.
The Vesting criteria for this scheme was 2 years paid service – no age criteria as all paid service in this scheme counts. The preserved pension usually comprises an annual taxable income and a one-off tax free lump sum of three times the annual income. The preserved pension age is 65. However, it is permissible to claim the preserved pension from any age after age 55 – but it will be actuarially reduced.
The mechanism devised to encourage service to age 40 is called the Early Departure Payment (EDP) Scheme. In order to qualify, the individual must serve for at least 18 years and must attain the age of at least 40. So, someone who joined at 17 would have to serve to age 40 to qualify and someone who joined at 30 would have to serve to age 48 to qualify – both criteria have to be met. This is called the EDP point.
An individual who leaves at the EDP point receives a lump sum of three times his preserved pension and an income of 50% of his preserved pension. An individual who leaves after his EDP point receives an increase to his EDP income worth 1.667% of his preserved pension for each year he served beyond the EDP point.
At age 55 the income is increased to 75% of the value of the preserved pension and CPI increases are applied. The EDP income continues until age 65.
Because the pension and EDP come from separate schemes and individual is permitted to draw his pension early and have it paid at the same time as his EDP. We always suggest that individuals take advice if considering this, as at age 65 they are left with just their actuarially reduced pension.
ANNEX C
AFPS 15
AFPS 15 was introduced following the recommendations of Lord Hutton which saw all public sector pension schemes close to all but a few older personnel and the introduction of Career Averaging schemes. Armed Forces personnel over the age of 48 on 1 April 2015 were allowed to stay in their old schemes but everyone else transferred to AFPS 15. AFPS 15 members may be Regular personnel, members of the Full Time Reserve Service or the Part Time Volunteer Reserve and, provided the break between period of service is less than five years, the pensionable service is considered as continuous.
The Vesting criteria for this scheme was 2 years paid service – no age criteria as all paid service in this scheme counts. The deferred pension annual taxable income. There is no automatic lump sum in this scheme but an individual may surrender pension to create one – the maximum lump sum is worth 25% of the value of the pension pot (not a straight 25% of the pension). The deferred pension age is whatever the individual’s state pension age is. However, it is permissible to claim the preserved pension from any age after age 55 – but it will be actuarially reduced.
As with AFPS 05, AFPS 15 was not permitted to pay a pension before age 55, save in the event of medical discharge and it followed the idea of an EDP scheme but with a slightly different length of service criteria. AFPS 15 awards a deferred pension to anyone who left before age 60 (other than with an ill-health pension) AND offer benefits from another scheme to encourage service to what would have been the Immediate Pension point (about age 40). Those who leave at or after age 60 receive their pension immediately and it is index linked immediately.
In order to qualify for the AFPS 15 EDP payments the individual must serve for at least 20 years and must attain the age of at least 40. So, someone who joined at 17 would have to serve to age 40 to qualify and someone who joined at 30 would have to serve to age 50 to qualify – both criteria have to be met. This is called the EDP point.
An individual who leaves at the EDP point receives a lump sum of 2.25 times his deferred pension and an income of 34% of his preserved pension. An individual who leaves after his EDP point receives an increase to his EDP income worth 0.85% of his deferred pension for each year he served beyond the EDP point.
The EDP income continues until the individual’s state pension age.
Because the pension and EDP come from separate schemes and individual is permitted to draw his pension early and have it paid at the same time as his EDP. We always suggest that individuals take advice if considering this, as at age state pension age they are left with just their actuarially reduced pension.