Understanding the cuts-Financial advice sought

[MaroonMan4]

I have never seen so many calculators and counting of fingers in my crew room and in the mess than this week. Even without the detail, we have all been scoping the impact of career average earnings and not receiving pension until 60 etc. I think we are all doing the same thing in trying to reconcile the simple question of is it financially viable to stay (regardless of whether we still believe in Queen and country and still enjoy Forces life). Simple maths is possibly taking over where loyalty once was?

I am running out of fingers when trying to sort out should I go before the end of this Govts term (2014/2015) and the advertised change to pensions? CEA, Invol Sep, HTD, Incidentals, loss of flying pay if not in flying related appointment after 2 years, LOA etc are all adding to this formula for leaving early and attempting to join the private sector (emerging from recession) whilst I still have age relatively on my side, rather than remain in Defence which is most certainly in decline, and forecast to remain so for at least the remainder of my career.

Is there a financial or military organisation that will be be able to fuse all of these cuts and reductions into a simple ready reckoner/ software programme that will take into account all of these variables (not just pensions)?

If not an organisation, is there an accountant that any of you could recommend that has his/her head around all of the forces allowances and could give independent financial advice to inform my personal career/financial plan.

Thanks :confused:

[Grimweasel]

I'd talk to Al R mate.

I wrote off to the Pensions people at JPA Glasgow on Friday for an accurate forecast. I no longer trust this lot to look after the interests of the Armed Forces. I think it's time to grab what you can, cut and run before they push the pension drawing age out to 60 and start taxing EDP's/Lump Sums:(

[Al R]

MM4,

I am ex RAF Regt (now an IFA and Stockbroker) and happy to help (I visit more Units now that I ever did in over 20 years ‘in’), but here’s some advice. Before you start focusing on ‘you’ as things stand right now, take a step back and blow away the smoke before addressing things in light of the cuts and how they relate to your specific circumstances.

I work with the FSA and CFEB on a voluntary basis to deliver Making the Most of Your Money workplace presentations to RAF audiences. They aren’t sales pitches – just objective and impartial delivery of the basic financial facts of life, allowing a useful macroperspective which everyone should know before focusing on the specifics of their own individual circumstances. At that point, you might like to go to an IFA or your bank, whichever you are happy with. I also deliver a Redundancy presentation, which is depressingly topical.

The presentation lasts an hours or so, is ideal for workplace or Mess, encourages questions and covers;

· budgeting;
· saving and borrowing;
· protection;
· investing;
· retirement planning;
· tax and welfare benefits;
· AFPS and mil benefits.

http://www.cfebuk.org.uk/our-work/workplace/ (http://www.cfebuk.org.uk/our-work/workplace/)

If I can help you in my capacity as a ‘moneyguide’ or as an IFA, I’d be happy to do so.

[VinRouge]

Do we know what the intent of the reccommendations is in terms of our ability to draw a representative pension at my 38 point earned up to that point on the "old" (current) scheme? What will happen to our gratuities at the 38 point and will we have any option to commute?

If I wait until 60 to draw any pension, we are literally talking about hundreds of thousands of pounds difference here, not only in lost pension payments, but in mortgage interest I wasnt expecting to pay... A bit unfair as I will only have 2 years left to do in 2015 to my 38 point.

Can anyone please offer guidance as to what we can expect in terms of previous promises earned up to the alleged 2015 changeover date, IE, can we still expect gratuity and commutation earned so far?

[Kreuger flap]

Vin, the proposals recommended by Hutton have yet to be accepted by the government. The detail will be added when this agreement is given. You can ask a thousand Pension advisers and they won't be able to give you any answers yet, so you will have to be patient until then.

[MaroonMan4]

Thanks for the constructive input so far....

VR, yep you have got it - and exactly my sentiments and thought process. If this new pension scheme is going to come in before 2014 do I jump early and look for a second career, whilst at least having the cushion of my pension. As you, my whole financial plan revolved around being able to draw my pension at either my 38 point (which I have passed) or my 55 point.

My concern is that the Govt may announce changes with only a 6-12 month lead in, therefore for those of us that require a 1 year to serve our notices will fall the wrong side of the new pension rules. I may well get my pension earned to date preserved on the old final salary scheme, but I get the feeling that I may not be able to draw it until 60 - which for me is a non starter and I would prefer to leave early.

But pensions is only half of my conundrum - and perhaps I was being naive, but I will have to look at every single new job now, not from a career enhancement or interest of the service, but how much real income will I lose - or in the case of flying pay, lose after only 2 years (when the aspiration for defence is for tour lengths to increase to 3 years)?

[The Old Fat One]

Can anyone please offer guidance as to what we can expect in terms of previous promises earned up to the alleged 2015 changeover date, IE, can we still expect gratuity and commutation earned so far?


With a nod to KF, I don't think you are asking for pensions advice, but more general comment of military peoples past experience in a world where Governments of all political persuasions are repeatedly tinkering with pensions - public and private.

Therefore with the huge disclaimer (and another nod to KF) that, at they end of the day, they can pretty much do anything they want (often without primary legislation), my "experiences" follow....

As far a public sector pensions are concerned the rule "what you've earned you keep" is fairly well observed. Equally, changes are not usually applied retrospectively, unless applying a ruling to a past technical error.

Specifically, the above principles have been endorsed by every paper I've seen on AFPS pensions since 2000. I am fairly sure Hutton has already endorsed these principles and even Osbourne has confirmed changes will not affect existing pensions, or the parts that have been earned.

In your case I would repeat what I have posted earlier...keep informed and keep one hand on the yellow and black. I think AL R's advice to take a "macro" view of your financial circumstances, and what your future needs will be, is very sound. For example...the biggest difference (according to the Forces Pension Society) between AFPS 75 and AFPS 03?? (sorry never bothered to learn the exact date) is that the former is better for a short career and the latter better for a full term career. Since I wanted an early exit option it made sense to stay on 75. Further, it was absolutely obvious that the new (AFPS03?) scheme was going to solve nothing, another change was coming along shortly. Ergo, first decision, stay on 75, second decision, leave now while the going is good.

Therefore, keep informed, don't lose sleep (on the dates you mentioned I think you will be OK), a bird in the hand is worth two in the bush, and a pension is only a part of your life, not your whole life.

Hope this is of some worth. All the best.

PS As regards organisations for advice, the only correct answer anybody can give is the Forces Pension Society - a no brainer.

[Al R]

Firstly,

.. a pension is only a part of your life, not your whole life.
Yup.

Second - MM4,

Tinkering with pensions is like making tiny mid course corrections on an Ocean going cruise liner - you just shouldn't, or need to do it, unless its absolutely necessary or you can't read the map. If you're blasting about the harbour in a speedboat on the other hand, then thats the time to be making lots of minute tweaks, especially as you get closer to the objective.

The g'ment knows that it must not keep tinkering with the financial equiv of cruise liners (pensions) and thats why it has to take its time to get it right. With that in mind, Hutton has suggested that the changes are introduced by 2015 (this will not be done without a suitable lead in time) and that all benefits so far accrued will be ringfenced. Yes, final salary public sector pensions will be phased out in favour of cheaper career average schemes by no later than 2015, and yes, Osborne could do it tomorrow. But lets face it, we don't get out of Afghan until 2015..

Joanne Segars, chief executive of the National Association of Pension Funds said last week;

"Lord Hutton's findings strike the right balance between fairness and cost, and have avoided a race to the bottom. Public sector workers will still retire with a good pension, and it is important that they can bank what they've already built up. It is an ambitious timetable to implement this by 2015, but it is important to crack on with these reforms."

[Navaleye]

Just to put things into perspective. A friend of mine got made redundant from after 26 years service. She got the legal minimum of £2,700 redundancy.

[charliegolf]

Twenty-six years and she ended up on £100 a week before tax?

CG

[Party Animal]

Are we in a potential situation here that if officer/airman x reaches the age of 55 and retires from the RAF in Dec 2014, they will get a currently known pension that is index linked immediately but if officer/airman y reaches the age of 55 and retires from the RAF in Jan 2015 (or whenever the new rules would apply from) they will get absolutely nothing for 5 years?

Even worse for the 44 year old who has just waived their option to stay in till 55. They will have to wait till 60 till they get anything and that will be based on a much lower figure.

Or am I just being pessimistic?

[Herc-u-lease]

PA,

that is exactly the situation people are nervous about, but quite simply that is our worst fear w.r.t pensions. Nobody knows what the pension reform will look like yet or the Armed Forces. I would suggest that it would be a very poor show if the situation did occur as you described. There would have to be lead-in periods to allow people to adjust their long-term financial plans. I am in the exact time frame as VinRouge and have similar concerns about there being a "cut-off" date imposed.

As Al R points out, nothing is final and what you will get from this site is mostly rumor - with a few notable exceptions (Al R as one).

I doubt our worst fears will be realized, but vigilance is my main take-away here. AFPS 75 never has been my only retirement scheme in case pension reform materialized before my 38 point. Having a diverse range of investments is paramount so if the Government does do its worst you're not completely sunk.

Don't panic just yet!

[GrahamO]

FWIW chaps although not in the forces myself, I have not met many ex-RAF chaps who have not made a really good go of it on leaving. Many have gone on to pretty impressive business careers, with their mix of professionalism, dedication, reliability and attention to detail. Ex-Forces people once they have some commercial skills, are in demand for the reasons already mentioned.

Get your pensions sorted of course, but do start building your network of contacts using something LinkedIn. Thats how people get on to many good jobs these days. About half my personal contacts (and I have a huge number) are ex-Forces.

[Al R]

Herc-u-lease: AFPS 75 never has been my only retirement scheme in case pension reform materialized before my 38 point. Having a diverse range of investments is paramount so if the Government does do its worst you're not completely sunk.

Bang on. AFPS is 'just' a small, but significant component in the picture. A personal financial strategy is like a battlegroup - interlocking, flexible, over lapping, punchy when it needs to be and sensible when in defensive posture, capable of reacting swiftly with no gaps in defence, everything in moderation yet all working together or capable of working alone if need be. Savings and Investments within or without the ISA wrapper (yup.. its that time of year folks!), Unit Trusts, OEICs, VCTs, MIPs, personal pensions, AVCs, using your and your partner's tax relief allowances wisely.. they all form part of the bigger picture, and most RAF clients get the picture really quickly - which is why its good to work with people on a similar wavelength. The pension/retirement conundrum is an opening (potentialy!) Pandora's Box, if not a can of worms. Most army careers mature on an equiv salary at the 22 year point, whereas 'ours' don't. Will RAF careers now be more focused towards a 22 year span because soon, benefits will be start or be staggered from 60? Will SP leave early or will they start personal pensions capable of giving benefits at 55 anyway to make up the gap?

By way of a contra perspective, George Osborne has just finished consulting on allowing early access to private pensions, for the purposes of buying a home etc. In principle, and if that happens, diversifying away from AFPS/AVC (where all your eggs might be in one basket) could form the basis of how to counter what, for many, is the terrifying thought of not having such early access to AFPS benefits. So, there is a lot to consider but there is no need to act like rabbits caught in the headlamps (just yet anyway) because although we have laid down smoke, it will take time to lift so there is no point in doing anything now. However, now is the time to check pouches, make an objective appreciation and be prepared to act. There is still time to consider plans A, B, C etc, especially if you have time on your side.

Finally, I have just created a business Face-Book (that should beat the word Stasi!) page which is aimed at RAF clients. Although it is pretty sparse at the moment, and although it will not offer advice (just info), I'd like it to complement business and allow financially like-minded RAF and ex-RAF types the chance to get together and discuss financial and retirement matters, to communicate instantly, to read what is happening, get/swap ideas, share tips and thoughts, or create model portfolios, and possibly form self generating investment clubs etc. Although it looks rather prairie like, on the plus side right now, it does have one or two spiffy pictures on it (thank you MoD image library), so if anyone wants to find it, then its not a million miles from my website or just e-mail/PM me from here - although my PM box is quite chokka right now). Incidentally, and following on from Graham's post, it was created by my former Wing Commander who I found on Linked In.

Interlocking Arcs, etc. ;)