Pension Commutation Shocker!

[Madras]

Hi Everyone,

I left the service nearly a year ago at my 38/16 point. The pension paperwork that I received indicated that resettlement commutation could be applied for within 12 months of discharge and I decided to use that period to wait and see how life and career was going outside.

Last week, about 11 months after leaving, I decided to commute the pension and submitted the paperwork to Glasgow. They have just called back and said that I am not entitled to resettlement commutation as you have to apply before you are discharged and your pension comes into payment. The stated reason is the change in the law due to the Finance Act 2004. Despite my protest that this change must have been made after I left, SPVA appear adamant that they are within their rights to change the rules and apply them retrospectively.

Effectively, they have removed the option to commute from anyone who was discharged in the 12 months before this regulation came into force, and who left believing their issued pension paperwork which stated that they had a year in which to decide how to proceed.

At the moment I feel like appealing against this decision, but the other gem that the SPVA came up with was that any lump sump issued after discharge would now be taxable, whch woul make the whole thing futile.

What makes all this even more galling is the fact that, before I left the service, I knew that AFPS75 had been affected by the Finance Act 2004 and resettlement commutation for service after 6 Apr 2006 had been reduced to 25%. I believed that this change showed that implications the FA2004 had already been examined and implemented. However, that review was clearly inadequate and I have been a victiim of further changes that have been made since I left the service.

I am posting on here for 2 reasons:

Firstly, if you are coming up to leaving at your IPP, or know someone who is, make sure that you/they are aware that there is a lot of out-of-date information in the public domain, both in terms of what people believe and on official documents.

Secondly, I would be interested to hear from anyone who, in the last 12 months or so, has applied to commute their pension after discharge. Even if you did not have the same problem, and were sucessful with commutation, I would like to hear from you so that I can narrow down exactly when SPVA started to apply this policy. If anyone has already won an appleal I would also be delighted to hear about it.

Regards to all.

[Bladdered]

The Forces Pension Society - Links and helpful information (http://www.forpen.org/links/)

Hum, not good at all. Have you tried contacting the Forces Pension Society - they are normally more than happy to take up the cudgels. You may have to join - it does not cost much.

Ed

[KeepItTidy]

Thanks for telling us your story. I have a few years left before I claim my golden handshake and things like this does worry me .There is very little information or anyone to ask about matters like this in the service now as its all gone electronic. I have over the years found the military not very helpfull when it comes to claims and benefits we are entitled too but more than happy to take without question, very similar to banks and funny old thing look whats happening to them !!!

[VinRouge]

Do we know how this will affect my commutation? I have over 7 years left to go...


Is the commutation unaltered if you apply for it before you leave (as per the old system) and will they pay you the commutation just before you leave to avoid taxation?

Or, how about if I emigrated and was not liable to UK tax, would I still have to pay?

This is an absolute disgrace, what concerns me is if they can change current pension arrangements with a finance act, what stops them altering our current final salary scheme to a more traditional 'pay in' scheme (hopefully with large pay rise I may add)?

Push factors building significantly if they try and f*ck me around methinks...:=

[LFFC]

It's actually been well documented but not that widely publicised. Here's a link to the MOD's website that deals with AFPS 75 Commutation (http://www.mod.uk/DefenceInternet/AboutDefence/CorporatePublications/PersonnelPublications/Pensions/AFPS75/Afps75Commutation.htm).

Resettlement Commutation

If you leave the Armed Forces before reaching the age of 55 and with an entitlement to an IP, other than invaliding benefits, you may apply for resettlement commutation. The changes introduced by FA04 and the way in which Lifetime Allowance (LTA) is calculated affects the amount of resettlement commutation you are able to take. With immediate effect, the decision to take advantage of resettlement commutation must be made before you leave the Service and your pension has crystallised (come into payment). There will be a compensating reduction in your pension, which will be restored to its original value at the age of 55. There can be no restoration of your pension to its original value before this time.

Life Commutation

which is being phased out, applies only to those who gave service prior to 31 March 1978 and to that part of the pension earned by reckonable service up to 6 April 1980. Your ability to commute your pension under the terms of life commutation has also been affected by FA04 and you will need to make a decision before you leave Service. This type of commutation is, as its name implies, for life and the full value of the pension cannot be restored later.

It's actually been that way since 1 Apr 06, but sadly there are still lots of active links to old booklets that give misleading information. This one for example:

http://www.rafcom.co.uk/pay_allowances/pdf/A5_Commutation.pdf

[Paul Chocks]

Madras,

I left only a couple of months ago and all the pension paperwork still stated that you had up to 12 months after leaving to commute. I am certain of it, as I seriously considered the option (or what I thought was an option) myself.

[glad rag]

OMG:eek:

So, so glag (getit??) I jumped ship when I did, this is unfair, unjust and just plain wrong.

I am in some ways DREADING the 55th birthday point 'cos **** knows what scheme they will have thought up to screw me (us) over by then.

Best wishes to all faced with this travesty.

glad rag.

[kweelo]

LFFC -

can you confirm that is definitely right? Has been shown, just on these few posts, there is a great deal of confusion.

I reach my 22 yr point in a couple of months (although I've signed onto LOS 30) I have remained on AFPS 75 and understood that any communtation, service etc. before 1st Apr 06 was not liable for tax and any service after this date was liable to tax - although as yet hadn't been enforced.

Are we now saying regardless of any service before 1st Apr 06 - any communtation is liable for tax and therefore not worth doing?:confused:
And that, more importantly, this is now being enforced - where we not granted some form of dispensation?

If this is true - another erosion of pay/conditions, particularly as I am so close to my 22yr point!

Will upset alot people

[Lurking123]

Having left the RAF a little under a year ago, I do seem to remember a number of warning flags about the change in commutation regulation; our PSF (sorry HR professionals) shoved something out at the time. Unfortunately, your gripe is with the Treasury and not the RAF.

Good luck.

[kweelo]

Lurking 123Unfortunately, your gripe is with the Treasury and not the RAF

Correct - but any change in rule/ pension regulations etc. cannot be applied retospectively for service already accrued, that consitutes a change in terms of service - doesn't it!!

[LFFC]

Are we now saying regardless of any service before 1st Apr 06 - any communtation is liable for tax and therefore not worth doing?http://static.pprune.org/images/smilies/confused.gif


No, I don't think we're saying that at all. What we are saying is that, you must apply for commutation before you leave the service; my understanding is that the ability to do so after you've left has been withdrawn.

When I enquired about Life Commutation a few months ago (yes, I am that old) I was told that there is now a very short window of a few weeks in which officers can apply for it. All the booklets say that you can apply anytime from 28 days prior to retirement, but in fact you now have to apply within a 28 day window so that it is paid on retirement. Other ranks can apply from 3 months prior to final discharge.

Just to be even-handed, here's a link to what I believe to be the latest AFPS 75 pension booklet that contains up-to-date information on commutation (pages 14 and 15). MMP/106 (http://www.mod.uk/NR/rdonlyres/73C97FDF-BCDA-4B3F-A686-CA8533FD52BC/0/afps75_mmp106_your_pension_scheme_explained.pdf)

[WorkingHard]

"There will be a compensating reduction in your pension, which will be restored to its original value at the age of 55."
Is this really what it means? At age 55 my pension would be updated for inflation and restored to what it would have been with no commutation?
Thanks

[Chainkicker]

Yes :) (Damn 10 chars rule)

[Madras]

LFFC,

I realised that something might be afoot when I looked for the pension regulations on-line at the weekend. Of course, I assumed that the statement With immediate effect, the decision to take advantage of resettlement commutation must be made before you leave the Service and your pension has crystallised (come into payment) applied to those personnel who were still serving and could not possibly include those who were already using the 12-month window.

When I left the service last year the 12-month rule was still extant and was printed on my pension application form; it was even highlighted at the pensions briefing. What they have done is to remove, at a stroke, this window and have applied that ruling to everyone who was already using it! They didn't even write to say that this was going to happen and offer a 'last and final' chance for decision to be made before a blanket deadline.

[Milarity]

According to the manual, Commutation is not a right and a set of conditions must be met before it is granted. For example, you must meet the required medical standard.

Commutation can be taxed if you use it for what the Treasury deem the wrong purpose, eg for investment. The Treasury calls it recycling and will set the taxman on you if they think you're recycling. As your potential change of job, lump sum, NI changes etc just about ensure you will have to complete a tax return, be ready to have the spotlight trained on you.

Mortgage repayments are an acceptable use of commutation and probably are the most common.

I found the system easy to use and it worked exactly as advertised, but only after having done the research.

To answer the fellow who did not realise commutation was temporary: In my case, my pension was abated by £3k pa for the 10 years from age 45 to age 55. This £30k bought me a lump sum of £20k. When I am 55 years old my pension will revert to the unabated sum. So why is it worth paying £30k for a £20k lump sum? First of all, because I used the lump to reduce my mortgage, it was an acceptable use of commutation, so stayed tax-free. Had I kept the £30k coming in monthly instalments, it would have been taxed along with the rest of my pension at 40% (I have another job). Plus there are all the bonuses in paying off the mortgage early, reducing debt, interest owed etc. For me it made sound financial sense. But it might not for you, do your own sums.

All this came round in a thread last year, might be worth dicing with the search engine for a look.

Mils.

[LFFC]

Madras,

If it's any help, here's a link to the PPRuNe thread (http://www.pprune.org/military-aircrew/299365-pension-commutation.html)that was running at the time when news broke about the impact that the Finance Act (2004) would have on commutation. Make of it what you will.

[RS15]

afraid it is correct. just applied for commutation and despite the AFPS form STILL stating you can apply upto 12 mths after leave date, this is not the case. I asked the monkeys at JPAC and eventually got the answer and backed up with a request in writing. I needed an answer to this for various reasons, but had not been told by HR or the JPAC 'leaving service' pack etc. had I not asked, I would be not getting my commutation in 11 months time. JPAC - SORT YOUR F***G PAPERWORK OUT!!!
RS15

[cazatou]

VinRouge

I am afraid I have some bad news for you.

HMG regards HM Forces Pensions as "Government Pensions" and reserves the right to tax them at source in UK no matter where in the World the recipient is resident.

The same applies to Civil Servants, Teachers, Customs & Excise, Police etc.

I don't believe it applies to Politicians though!!!