Final-salary Pension under threat!

[Equilibrium]

Apologies if this has already been beaten to death but just been reading The Times today and an article by Jill Sherman the Whitehall Editor is suggesting that the public sector staff are expecting to contribute hundreds of extra pounds towards their pensions and the "gold-plated" final-salary pension is under threat!

Part of my decision to stay in the *RAF for the long-term to age 55 was *governed by the final-salary pension and gratuity.*

Can the Government do this to us?*

*

[Pontius Navigator]

Can the Government do this to us?**

To you, most probably not. To your successors, almost certainly.

You are in one pension scheme or another; that is part of your ToS. The 05 scheme was the scheme to which new recruits would automatically be joined. The scheme had certain attractions and was offered to people in the 75 scheme. Some chose to change and some chose to remain in the old scheme. It was your choice.

Any new scheme must balance economic reality with sufficient recruitment potential to sustain recruitment and retention.

Flying Instructional Pay and Flying Pay was an example of how changes in new ToS might be introduced. At first FIP was reduced, then delayed, then abolished. Flying Pay was changed. In the former their belief was that people wanted to join to fly and you didn't need to pay them an incentive so to do. I guess it might have put some off but clearly had not real effect. The Flying Pay change to tiers also had an effect but perhaps not as well received as had been hoped.

So your new pension scheme might have incentives that make it more attractive to switch - say a personal contribution leading to a bigger pension. The downside of that is that you would lose an element of pay and have a potential of early death precluding you drawing your pension.

KF, thank you for that, 75 it was although the buying in for widows pension was 73. And your link helped not a lot.

[Equilibrium]

Thanks guys, the link is great. I opted to go for 05 as this for me was the best option. Decided to stay till age 55 luckily on PA Spine, and this would ensure financially, mortgage gone and generous pension to live off. Will not be happy if my choices to stay are to be undone by a broken Gov etc

[vecvechookattack]

The main thrust of the article concerned the fact that the Armed Forces are the only public sector workers who do not contribute to their pensions. It suggested that as of April 2011, the AFPS will change to become a contributory one with suggestions between 5-8% muted. The article argued that the contributions would equate to a 5% pay cut for the Armed Forces

[MRA4Man]

Deliverance, you are spot on the AFPRB conducts a quinquenial review of the various pension schemes and recommends an abatement of pay to take into account the value of our pension with that of other pension schemes. There are different abatements for Officers and other Ranks as pensionable service starts as different ages. If you follow this link you will find the last report which set the level at 4%. It is, therefore, arguable that we already make contribution.:8 http://www.ome.uk.com/Document/Default.aspx?DocumentUid=73D087FC-86B9-476C-835B-F35D76E6FF1B

[Pontius Navigator]

Deliverance, it was 9% but brought down over 2 successive years to 7%. Quite right, a contributory scheme of 5% should see a 7% increase gross or 2% net.

Whoopy, I can see the headlines now Forces get 7% pay rise wit scant mention of the 5% contribution. Same deal when they brought in the military salary, with one hand they giveth . . .

[Pontius Navigator]

KF, thank you, I didn't find that item but it is certainly one that the press choses to ignore, same as civil servant's bonus. Their bonus scheme, imposed as a result of Treasury policy, is actually a return of 2% of their salary redistributed based on relative performance.

[Not Long Here]

Could anyone actually point me to a link which has the actual statement that salary was abated to account for our pension?

[Always a Sapper]

Could anyone actually point me to a link which has the actual statement that salary was abated to account for our pension?


Pick any report listed here (http://www.ome.uk.com/AFPRB_Reports.aspx) (such as the 2001/2 one) and search for either 'pension' or 'Abatment'

[The Old Fat One]

To answer the original question - can the government do this to us? Emphatically yes, and often with little or no primary legislation. I have an old Which Guide to Pensions on the bookshelf, which points out in the opening chapter that all governments, irrespective of political persuasion, are forever tinkering with pensions...why? Because they can.

However, where public sector final salary pensions are concerned (including the AFPS), it will be a case of fiddling and evolution, not drastic revolution.

The key public sector roles, specifically those that are vital to the function of an evolved democratic state such as ours (police, NHS, teachers, armed forces, fire brigade, much of the civil service and even politicians) require a good percentage of their public servants to be of the full career variety. This is because of the huge costs associated with training these people. We all know how much military pilots costs to train, but they are only the tip of the iceberg. Compared to the commercial world, where "within the work place" training is virtually non-existent nowadays, the resources and public money required to train a doctor, or a policeman, or a teacher etc etc are immense.

Pensions may not be the biggest attraction to university leaver (although I suggest they are fast becoming a young persons consideration when seeking a career) but once a public servant has got a few years and started a family, they become a massive inducement to stay.

If you removed the inducement by making public sector workers responsible for their own "defined contributions" pensions, most of which are both optional and highly portable, you would see public sector workers job hopping like everybody else, every time something more attractive passes by. And this is something that the state (any state) simply cannot afford, either in terms of cost, or in the disruption which would arise from the continual turnover of public sector staff (especially as it would be the good ones that go and the chisellers that stay).

Small changes yes (and so there should be). Big changes - no chance.

[LFFC]

Sapper,

I think the last in-depth review of the value of military pensions was conducted in 2006. See the external report here (http://www.ome.uk.com/Document/Default.aspx?DocumentUid=075D6578-52BE-4E7E-88DA-8D12A09825FB).

That review prompted the AFPRB to state the following in their 2007 Report (http://www.ome.uk.com/Document/Default.aspx?DocumentUid=360492BA-69DC-4768-9712-BBBADF806D1A).


Our valuation of Armed Forces’ pensions suggested that the adjustment we apply to comparator pay to reflect the relative value of pensions should be 4 per cent.


The AFPRB noted in their 2008 report that:


Civilian comparators were established which use base salary (annualised basic salary including contractual bonuses and permanent payments) and total cash (basic salary plus variable bonuses and incentives), adjusted to reflect the relative value of the military pension.


but they didn't mention the value. However, they did set 2011 as the date for a review of that value.

Hope that helps.

[Al R]

If you removed the inducement by making public sector workers responsible for their own "defined contributions" pensions, most of which are both optional and highly portable, you would see public sector workers job hopping like everybody else, every time something more attractive passes by. And this is something that the state (any state) simply cannot afford, either in terms of cost, or in the disruption which would arise from the continual turnover of public sector staff (especially as it would be the good ones that go and the chisellers that stay).


The new National Employmemnt Savings Trust (NEST) Regs could ensure that many civvy employers offer an even worse retirement proposition than they do at the moment. From October 2012 until 2017 (and depending on the size of company), all UK employers will contribute a minimum of 3% of each employee’s eligible earnings into a pension, assuming the employee does not “opt out”. This is intended to incentivise them to save for their retirement. Employees will also pay a personal contribution of 4% with a further 1% tax relief being added to make the minimum contribution 8%.

So, by comparison, the MoD can afford to dilute things, because civvy street will be less attractive. Many civvy pension plans are better than NEST already anyway, but opinions are divided as to whether or not many will wind up their existing schemes in order to dumb things down even further, to NEST level. By comparison, AFPS could still look more attractive. And don't forget - many civvy employers don't offer the other perks that the MoD does (learning credits, free gym, subsidised food, housing etc).

Latest news - DWP (http://www.dwp.gov.uk/policy/pensions-reform/latest-news/)

[LFFC]

Hutton's Interim Report (http://www.hm-treasury.gov.uk/d/hutton_pensionsinterim_071010.pdf) has been issued this morning.

Regarding short term options for change:


It is a matter for the Government to decide the manner and level of any increases in contributions necessary. However, the Commission feels that any increases should be managed so as to protect the low paid and, if possible, increases in contributions should be staged and need to be considered with a view to preventing a significant increase in opt out rates. The Commission does not recommend introducing contribution rates for the armed forces at this time.

[The Old Fat One]

I've glanced at the key features of his report and find it very encouraging. Given the inevitability that public sector pensions have to be, and will be, reigned in a little, some of the worst scaremongering is - as usual - way off the mark.

He has rejected wholesale slaughter ("I won't get involved in a race to the bottom") thus siding in spirit with the unions who want private sector pensions dragged towards public sector values, rather than vice versa.

He has endorsed the principle of what you've earned you keep.

He has noted that the affordability/cost balance is already improving (and will continue to do so as the percentage of the working population in public sector employment will dramatically decrease over the next five years.)

And he is keeping the focus on basic structures such as contribution (however contribution is calculated or defined), age ranges and types of payout.

On balance, public sector pensions (and especially the AFPS) will continue to to be very good in real terms and vastly better than 99 per cent of the schemes in the private sector.

[Ken Scott]

....although Armed Forces Pension Schemes are usually considered to be non-contributory, the salaries of all Service people are abated by an amount agreed by the Armed Forces Review Body to take into account the value of the pension? This is currently 4%, a not insignificant amount and is a contribution about which you, the contributor, have no say."

Your final salary pension is then based on the net, ie:96%, value of your pay, so we would be better off getting the pay rise & then making a contribution. Unlikely to happen though.....

[vecvechookattack]

It was interesting to read that in the past 10 years the amount of Armed Forces pensioners has risen by 19%. In 2000 there were 335,306 pensioners picking up an AF pension and this year there are 398,840. The average AF pension is £7,722 PA but there are 70 Ex servicemen picking up Circa £67,000 PA pension..... ....Its no wonder we can't afford it.


Anyway, we need our pensions expert Al R to have a look at this and see how it will affect us... Where are you Al R ? What does it all mean?

[Biggus]

So what is the pension for a 4*, who by definition will retire having probably served for 40 odd years....... £67,000 perhaps?

Considering that it was recently announced that a number of military officers earn more than the Prime Minister, i.e. over £150,000ish, I suppose it is not surprising that some are getting over £67,000 as a pension. No doubt there are still some ex-5*s in that figure of 70 as well.....

I'm not surprised that the number of people drawing military pensions has gone up by 63,000 odd in the last ten years. The RAF shrunk by about 10,000 in that time, the RN by about 5,000 (I think), I'm not sure about the Army. It was also a period (at least before the credit crunch) where retention was a major issue and a large number of people left.

As for an average pension of £7,722, that means that by definition a very large proportion, probably more than half given the skewing effect of some pensions at £67,000 (e.g. what is the average of 1,2, 3, 4 and 100?), are lower than £7,700. I don't consider a pension of sub £7,000 to be a particularly excessive reward for a military career.

[xenolith]

Dont 4*'s retire on full pay? I thought that there some mechanism whereby they stay on the 'active list' to justify it?

[Biggus]

xenolith,

That was 5*s. When that rank was abolished as part of the Bett report that "perk" did not trickle down to 4*s...

[November4]

As for an average pension of £7,722, that means that by definition a very large proportion, probably more than half given the skewing effect of some pensions at £67,000 (e.g. what is the average of 1,2, 3, 4 and 100?), are lower than £7,700. I don't consider a pension of sub £7,000 to be a particularly excessive reward for a military career.

More than likely all those who did less than a full career and get a bit of a pension at age 60. I would imagine that they would make up the bulk of military pensions.

[xenolith]

Biggus,

TVM.

[minigundiplomat]

Consider the words used very carefully.

What Hutton didn't say is that military pensions will be left alone.

What Hutton did say,is that it wasn't fair to make us start contibuting whlist we are fighting in Afghanistan.

Subtle distinction I accept, but I wouldn't make long term plans that don't involve pension contributions post 2014-15.

[NUFC1892]

In a briefing a few years ago, I remember not when or by whom, it was floated that the average age at which the mil pension ceased to be claimed was 62 (may have been in response to a FoI question?). Anyone else heard anything along these lines?

[The Old Fat One]

NUFC1892

Sounds like someone was being creative with statistics - maybe including data way back from the dawn of military pensions???

It does not seem to make any sense in the present context, especially as widows (or widowers) increasingly recieve a proportion of the pension in the advent of the pension holders prior demise.

I would have thought nowadays the figure would be closer to 80, but that is nothing more than an educated guess.

On a different note, I served through the pension change from AFPS 75 to AFPS zero whatever, and whilst, like many, I fiddled with the various calculators and guides to suss out the financial consequences, I was always far more interested in the affect a change was likely to have on my back up early exit strategy.

I am a massive believer in freedom of choice and I was always comforted by the arrangements in AFPS 75 which gave me a guaranteed option from age 38 - which is an absolutely ideal time to start a second career.

If I was still in, as many of you are, this is the element I would be watching most closely and the element I suspect may be subject to the the most significant change. As I understand the current deal (AFPS05??) with its EDP, still has a fairly good yellow and black handle component and that would from the backstop for any worse case scenario I would be planning.

Just a thought.

[NUFC1892]

Sounds like someone was being creative with statistics - maybe including data way back from the dawn of military pensions???

It does not seem to make any sense in the present context, especially as widows (or widowers) increasingly recieve a proportion of the pension in the advent of the pension holders prior demise.

I think you are probably right, I haven't heard it mentioned since.

[Biggus]

When I got a pensions briefing at IOT, in the very early 80s, the chap giving the brief (not regular RAF, something like an RAFBF rep I seem to remember) said that the average age of demise on someone retiring from the RAF was 58! So, within 3 years of leaving over 50% of retirees were dead! This figure had a profound impact on me - which is why I remember it still today!

I can't say that I was surprised. At the time the RAF was much more a way of life or vocation than a "job". People lived much more in quarters, often right up to retirement (probably having been on several overseas tours - no point in buying in UK yet, etc), socialized almost exclusively in the Mess and with other RAF personnel on camp, etc. In short they were institutionalised! Especially when you consider that people retiring at 55 then (in the early 80s) had joined the RAF in the 1950s

Then, come the age of 55, they were thrown out the main gate, with a "never darken our door" again attitude - no veterans organization as such, other than the British Legion. They often moved far from where they had been based, into a small cottage or house. The wife (largely a male airforce then) carried on with all the things she had got on with while hubby had been at work, away on exercise, etc. The husband had nothing to do, and, unless he found a new outlet, whithered on the vine while reliving memories of his time in the mob, and popped his clogs pretty soon thereafter....

Thankfully today things are different!

[November4]

The Country would soon be bankrupt if lived to draw the pensions for as long as the gentleman in the middle...

http://www.second-opinions.co.uk/images/henry-allingham-111.jpg]





Not sure if he got a pension from the military though, but imagine 22 years service to get a pension for 70+ years!

[Al R]

If he bought himself an annuity, he would certainly have won the 'bet'! I'm reminded of the Labour (?) politician who said recently that he would like everyone to earn more than the average national wage..

[Melchett01]

2.10 However, as with the uniformed services, because of protections given to existing members in respect of future service, it will be some time before the full impact of the reforms appears in employer contribution rates.

To me that suggests that all existing AFPS members are safe, both in terms of what they have already accrued and going forward until they reach pensionable age, or until they change their ToS due to promotion, re-engagement etc.

We may well have been let off the hook - for now. But quite frankly, looking at the numbers involved in some of the other pension schemes - health, education etc, I think the Armed Forces scheme is fairly small fry.

[Talk Reaction]

My understanding from the announcements is that they will affect the pensions of those who join in the future. I believe that is the case in the other public services who may not be as protected as us.

It makes sense. I'm not going to start to panic just yet!

But, can any of us see the AFPS continuing for new entrants past say the next decade??

[Aeronut]

only affect the pensions of those who join in the future

Not necessarily just those but as Melchett says:

or until they change their ToS due to promotion, re-engagement etc.


Think about that, almost no-one serves on just their orginal engagement.
There may well be conditions tied to promotion, course amortization, re-engagement etc etc. May be difficult to avoid without bailing out.

[RumPunch]

Well I have 3 years left and I wont be signing on or changing contract. cash in now while its still there.

Im sure there will be plenty others in exactley the same boat.

[The Old Fat One]

Think about that, almost no-one serves on just their orginal engagement.
There may well be conditions tied to promotion, course amortization, re-engagement etc etc. May be difficult to avoid without bailing out.


A good point.

Some advice which worked well for me for 27 years.

Take responsibility for your own career. Do your homework and know the facts regarding your terms of service. Treat crewroom scuttlebutt, barrack room lawyers and chain of command bull with equal scepticism. As pointed out above, things change - quickly and frequently. Keep the big picture in mind and make the changes work for you.

An example of two real NCO aircrew (many were in the same boat)...

Circa 1990 and cue the option to sign onto the new terms of service or retain "reserved rights".

Young Sergeant A read the blah, went to the interview and thought screw this what I have I hold - I'm sticking with reserved rights. Thus confiming him his original financial terms of service, but rulling out the prospect of further promotion (even though he would get the money when due). PS He had already signed on since in those days NCO aircrew were signed up to 55 in their first tour.

Young Sergeant B went with the command plan and opted into competitive promotion.

Things change....rules change....circumstances change.

Not so young Sergeant A is promoted, without loss of rights. How did that happen? Answer...operational necessity. In other words, our train set, we do what we want.

Much older, unable to get promoted and extremely bitter Sergeant B leaves.

Fast forward to 2010. Young at heart Master WSOp A has played his hand with style and panache...well done that man.

PS Neither one of them was I.

[Diablo Rouge]

When the individual NCA trades were terminated a few years ago my understanding is that all bar one rejected the new (you will not promoted because we want to try and achieve a rank pyramid) terms of service. [The one already had an IOT entry date].

Yet within five years the system had reigned in almost everybody through further service / promotion / PA spine. They know that they can change terms of service quite radically and get away with it.

If this speculation is true, there must be some fairly A Level staffing going on to dispose of the aircrew without portfolio which now includes Nav - AEOp - Flt Eng and quite possibly ALM (FW c130/vc10 & rotary) and some pilots. In short, there is no job security whatsoever in the 21st century UK Armed Forces and therefore morale is destined to descend further still.

I think a change of career to Debt Advisor, Undertaker, or Divorce Lawyer is on the cards because they will always be in demand.

[Pontius Navigator]

the RAF was much more a way of life or vocation than a "job". People lived much more in quarters, often right up to retirement

. . .

The wife (largely a male airforce then) carried on with all the things she had got on with while hubby had been at work, away on exercise, etc. The husband had nothing to do, and, unless he found a new outlet, whithered on the vine while reliving memories of his time in the mob, and popped his clogs pretty soon thereafter....

Thankfully today things are different!

Biggus, quite right. But in fact any wives suffered too - wives club, coffee morning, mess flower arranging, bridge club, no longer Mrs Sqn Ldr etc. Remember one couple, the Commander and His wife. The highlight of the day was goin into the village bar near Kyrenia around 10am to check for the mail and have a stiff brandy or 3.

Also watched one guy working flat out for the Service in 1974 right through into his terminal leave - very sad.

[Al R]

Vecvec,

My pensions experience is not so much Trustee based, but rather, using AFPS as part of an overall investment and retirement strategy (as an IFA). And although I know AFPS inside out (I have one!), I wouldn't claim to know specifically how the MoD and Parliament is going to change it in the future.

Having said that, my working days at the moment seem to revolve around JSP 764, offsetting AFPS AVC calculations and The Armed Forces (Pensions and Compensation) Act 2004. So, talking of which, and in keeping with your question, it was amended in 2004 to read (rather opaquely and ominously)..


(1) The power of the Secretary of State to modify an armed forces pension scheme may not on any occasion be exercised in any manner which would or might adversely affect any entitlement, accrued rights or pension credit rights of any member of the scheme acquired before the power is exercised unless—

(a) the consent requirements are satisfied in respect of the exercise of the power on that occasion in that manner, or

(b) the scheme is modified in the prescribed manner.

(2) The consent requirements are those prescribed for the purpose of obtaining the consent of members of the scheme to its modification.

(3) In this section—

“prescribed” means prescribed by an order under section 1,
“accrued rights”, “entitlement”, “member” and “pension credit rights” have the same meanings as in Part 1 of the Pensions Act 1995 (c. 26).
The cynic would suggest of course, that in 2004, everyone already quietly knew that the principle of the Public Sector Final Salary pension was fast becoming unsustainable. In general terms, it is always in everyone's best interests to start taking responsibility for their own financial futures anyway, and to create a personal financial plan - and not to wait for events to arrive from a great height at their door (if in doubt, recce out..?).

PS: Diablo,

Add to that list, toilet paper manufacturer..?