New armed forces pension scheme
Following initial consultation at numerous units throughout the Armed Forces and the opportunity to comment on the Outline Scheme Design, final agreement has been reached with the Government on the overall design of the New Armed Forces Pension Scheme (currently referred to as the Future Armed Forces Pension Scheme).
The new scheme contains the elements detailed in the previously published Outline Scheme Design. In addition there are some elements within the agreement that are new, which are detailed below.
What we already know:
The move to a Career Average Revalued Earnings scheme will mean that the new scheme will be less generous for some, but will benefit others. It will remain a defined benefit scheme, which means that it will provide a guaranteed level of pension – calculated as a proportion of a Service person’s salary, not an uncertain amount based on investment returns. It will also continue to provide valuable benefits such as ill-health and dependants’ pensions.
The full effects of the new scheme will not be felt before 2035, i.e. by Service personnel
who join after 2015 and leave at the new scheme’s Early Departure Payment EDP point 20 years later; and those joining the scheme will still join a pension scheme which is amongst the very best available.
Service Personnel will not pay personal contributions when the scheme is introduced nor are there plans to introduce this for the Armed Forces.
Whilst the qualification threshold for the EDP will move from 18 years Service to 20, the requirement to be at least 40 years old is unchanged. No other public service pension scheme makes any payment this early.
The Normal Pension Age (NPA) will move to 60, whereas for most other public service pensions the NPA will be linked to the State Pension Age, which is considerably higher.
This creates one scheme for all – including Reservists. There are currently several different Armed Forces pension schemes.
The Government has offered transitional protection for all members of public service
pension schemes who are closest to retirement. The Government has defined this as those individuals who were within 10 years of their current scheme’s NPA on 1 Apr 12, because these individuals will have less time to make alternative financial and lifestyle arrangements. Service personnel should note that the 10-year limit is fixed to their pension scheme’s NPA, which may be different from an individual’s retirement age (see Outline Scheme Design ‘Further Information’ for more details).
What is new?
The EDP will normally be paid as a combined monthly income and lump sum.
However, in light of views expressed by Service personnel during consultation, the new scheme will also offer the choice to forego the lump sum and convert it into additional monthly income. This additional option is not currently available to members of any current Armed Forces Pension Scheme.
Further work is being undertaken by the 3 Services to consider how Terms of Service (commission/engagement lengths) might be revised to reflect the changes to the EDP point and the Normal Pension Age in light of the introduction of the new scheme.
The creation of an online calculator, to allow Service personnel to forecast their revised pension benefits, should be available in 2013.
Further work, to be conducted through the New Employment Model Programme, will be undertaken to explore further ways of assisting Service personnel with house purchase. 71% of respondents to the consultation stated that they wanted to use their EDP to assist with home ownership.
A further DIN will be published, explaining more about accrued rights to pension benefits already earned. Accrued rights for most Service personnel have been covered so far in 2012 DINs 01-63 and 01-175; the next DIN will provide information on the accrued rights for most of the remainder (e.g. personnel commissioned from the ranks, ill health and dependant’s benefits, pension sharing on divorce, AVCs, and Loan Service).
Once policy is refined, a further explanatory document and video about the Final Scheme Design will be produced.
Full details of the New Armed Forces Pension Scheme Final Agreement is available through the Defence Intranet. Queries regarding pensions’ policy should be directed to Unit, HR staff in the first instance, however requests for individual pensions forecasts should be made directly to SPVA.