New pension finalised

[downsizer]

So the deal is done....the sooner they produce a working calculator the better.

Ministry of Defence | Defence News | Defence Policy and Business | New Armed Forces pension agreed (http://www.mod.uk/DefenceInternet/DefenceNews/DefencePolicyAndBusiness/NewArmedForcesPensionAgreed.htm)

http://www.mod.uk/NR/rdonlyres/5DD400AA-CEF3-4046-BDEB-3A0683BAC74A/0/20121016_afpc_final_agreement.pdf

[BlindWingy]

Another shafting...

[Lushington]

Another shafting...

Not for me it isn't.:ok:

[monkeymanagement]

Right Gentlemen, all of the shafting aside, can anyone point me at a reputable financial advisor with a complete understanding of how mil pensions work? More importantly, how mine bloody works now! I understand the basics, which appear to be 'if you're not fecked by this, then you're fecked by that'. What I want is cold harsh cash values! Preferably in a slidable scale xls format, Eg: if I leave today or if I leave in a year, what's the difference?

Regards, MM

(10 years in the ranks, a short hiatus and now an O4)

[Stuff]

Give Al R a shout. He's a forum regular and will likely contribute to this thread sooner rather than later.

He works for Echelon Wealthcare (http://www.echelonwealthcare.co.uk/)

Disclaimer: I've never done business with him but his advice in other financial threads made perfect sense to me. Attempting to find the same detail in official documents confused me to hell and back.

[Lima Juliet]

Monkeyman

Try Armed Forces Pension and Annual Allowance Calculator (AFPAAC) (http://www.mod-pc.co.uk/) :ok:

For the new pension scheme there are a few surprises in store, as far as I can see:

1. Employer cost cap - is this a way for another snivelling pencil neck to fiddle with our pensions inside 25 years?

2. Members transferring between public service schemes to be treated as having continuous Service; Members rejoining after a period of deferment of less than 5 years can link new Service with previous Service - does this mean no more retiring and going FTRS? If it does, it makes a mockery out of the new "no abatement" rule!

3. 1/47th accrual rate is far better than current AFPS05 1/70th rate - however, you need to factor in the £1 pension surrendered to £12 raised in tax free lump sum. When you look at them both I get a 1/56th accrual rate for AFPS05, so the new scheme appears to be better.

4. Early retirements from age 55, with benefits to be actuarially reduced - does this apply to everyone? At present those on Reserve Forces Pensions Scheme need to retire at 60 to get a pension or it is deffered to age 65.

LJ

PS - here's a link about CARE from Echelon Wealthcare...Future Armed Forces Pension Scheme (F-AFPS) CARE. (http://www.echelonwealthcare.co.uk/future-armed-forces-pension-scheme-f-afps-care/)

[downsizer]

Try Armed Forces Pension and Annual Allowance Calculator (AFPAAC) (http://www.mod-pc.co.uk/)

Not much use for those of us that chop from one to the other though...

[Background Noise]

Monkeyman et al,

It is worth joining the Forces Pension Society - Forces Pension Society - Fighting for the Forces and their Families (http://www.forcespensionsociety.org)

[Could be the last?]

So what is the deal for those who maybe lucky enough to go onto PA at some point in the future?

The 'deal' being what T&Cs will the system use for the pension?

[RandomBlah]

CBLT,

You can expect PA too disappear in the near future; it is too expensive. Increased FTRS will be used instead to retain experience, it is a different question as to if such an offer would retain those that the service would like to keep.

[Lima Juliet]

Randomblah

I'm afraid FTRS won't save money if you want to replace Regular Aircrew - they would need to be deployable and that would mean FTRS(Full Commitment) which are paid 14% X Factor, get full medical care, are entitled to SFA and SLA (which are effectively Regulars' terms and conditions). FTRS(Home Commitment) do no time away from home and IIRC FTRS(Limited Commitment) can do up to 21 nights per year away. So how would they replace PAS and save money?

As far as I'm aware, PAS and those others on non-regular pensionable pay spines (like vicars, nurses, tooth farriers and lawyers) will just get the same pension deal of 1/47th (1/56th in real terms). Now this might sound good for those on PAS, butdon't forget that the new scheme is "career averaging" when it comes in, so those jumping from Flt Lt on FP to PAS will get their pension "averaged out" and so will get significantly less than those on the current PAS deal - probably closer to Sqn Ldr's pension rates than Wg Cdr that it is now.

Make sense?

LJ

[TheWizard]

From the above posted calculator link.

FUTURE ARMED FORCES PENSION SCHEME – ACCRUED RIGHTS
2012DIN01-063 outlined the pension rights in AFPS 75 and AFPS 05 that will have been accrued prior to the introduction of the new AFPS from 2015. As a result the forecasts provided by this calculator are no longer complete projections of future entitlement beyond 2015. The calculator will still provide a general guide to benefit entitlement for those due to retire before 2015 and those who are covered by the additional transitional protection outlined in the DIN (ie those who are born on or before 1 April 1967 for regular forces). Details of the new AFPS are being developed and additional information will be promulgated in due course. A revised Pensions Calculator, incorporating both accrued rights and benefit entitlements under the new scheme, will be developed once the final design of the new scheme is agreed. On current planning assumptions it is anticipated a revised calculator will be on line from April 2013.

So not really much use for those staying after 2015!

[high spirits]

On the contrary- a useful tool to get a comparison between what you would have got under 75/05 and what you will get under the new pension. The new calculator will inform my decision to stay in, or go and work at Maccy Ds.

[Lima Juliet]

Latest article in Pathfinder from the Forces' Pension Society may be helpful to some...

Pathfinder International - The New Armed Forces Pension Scheme - How Good Is It And How Will It Work? (http://www.pathfinderinternational.co.uk/index.php?option=com_content&task=view&id=1446&Itemid=173)

:ok:

Full text


The New Armed Forces Pension Scheme - How Good Is It And How Will It Work?
The Outline Scheme Design of the New Armed Forces Pension Scheme has finally been released, and with it has come the inevitable flood of enquiries as to exactly how its introduction will affect individuals...

Lieutenant Commander David Marsh, Pensions’ Secretary of the Forces Pension Society, looks at some of the Scheme’s important elements, and explains how these might impact on somebody on the AFPS75 pension scheme on the date of the new scheme’s inception...

Well, it has finally arrived – almost. There are still one or two details on the matter of the Early Departure Payment (EDP) system attached to the new scheme that need to be ironed out, but otherwise the package appears to be complete.

What of the scheme itself? The first thing that must be borne in mind is that the Ministry of Defence had little choice but to start planning the new scheme using a Career Averaging scheme structure. This was as a result of the study and subsequent recommendations to the Government by Lord Hutton’s report into the provision of pension schemes to the whole public sector.

The Civil Service already had its latest pension scheme based on a Career Averaging structure, but for the rest of the public sector, all, including the Armed Forces, were to move away from a Final Salary scheme.

The two types of scheme are quite different, and so exact comparison between them is not a simple exercise – and it is easy to find individuals who do better under one scheme or the other. In essence, the less successful you are in terms of promotion in your career, the more likely it is that a good Career Averaging scheme will be more advantageous to you than a Final Salary scheme; if you are a ‘high flyer’ then the opposite applies.

Having had the peace and quiet of a spot of leave to digest the document in full, along with the two DINs on accrued rights, I believe it is probably the best proposal out of all the public sector scheme choices in terms of a complete package. It is easy for the cynic to cherry-pick the worst of everything (that is what the press love to do to create sensational stories to sell newspapers), but in overall terms I am 100% sure that the scheme on offer is as good as the Armed Forces could have hoped for - and the biggest coup of all, was gaining the Treasury’s approval not to insist that members of the Armed Forces make personal contributions from salary towards their pension entitlement, at a time when all other members of the public sector were having the level of their direct contributions from salary increased!

Let’s now look at some of the most important elements of the proposed scheme and how it will operate in practice.

The accrual rate of 1/47th is very strong. What this means is that your annual pension award accumulates by 1/47th of your pensionable salary each year. For example if you were a Sergeant in receipt of a salary of £36,437, then your annual pension award would be £775.26 for that year’s service. If the same Sergeant received a salary of £37,412 for the following year, then the annual pension earned for that year would be £796.00.

The previous years’ earned pension will be revalued annually by an Average Earnings Index (AEI). There is more than one AEI, but it is understood the MoD will look to use the National AEI as the fairest index for the purpose of increasing the value of previous years’ earned pension. So, to take our Sergeant’s awards calculated in the previous paragraph, together with an assumption that the AEI was 2.6% for the first year, the first year’s award of £775.26 would grow to £795.42. It is the revalued figure of £795.42 that is then added to the £796.00 at the end of the second year, to give a new total value of annual pension award of £1,591.42.

To take the example one step further, if the Sergeant were subsequently promoted to Staff Sergeant three months into the next year, and received a salary of £38,237 for that year, and the AEI at the end of the second year was 3.1%, he would have earned a a further £813.55 (£38,237/47) towards his overall pension entitlement and his £1,591.42 would be revalued to £1,640.75 which, when added to the £813.55, gives the Staff Sergeant a new annual pension award of £2,454.30.

This may seem more complicated than the basic final salary schemes of AFPS75 and AFPS05, so how can an individual be expected to keep up with his or her pension entitlement. Well, apart from there being an online calculator available (it’s on its way), every serving individual will receive an annual statement of their current pension entitlement as a matter of course – something that you have been entitled to, but denied, for too long! This will remove the need to carry out these calculations yourself. That said, individuals should still be conversant with the processes carried out that lead to the forecast they receive.

To carry on with our Staff Sergeant’s career... Let’s assume that on the day of inception of the new scheme, he had completed 19 years’ reckonable service on the AFPS75 pension scheme, and will leave the Army after 22 years’ reckonable service on 6th April 2018. This means that there is going to be a split pension award on exit – some AFPS75 and some AFPS15. I will deal with the AFPS75 entitlement first.

Even though the Staff Sergeant will not have completed 22 years’ reckonable service on the date the new pension scheme started, he would, on his day of exit, have achieve that amount of service in total, albeit with 3 years of that service under the new pension scheme rules. Therefore, since 22 years’ service will be attained, he will receive an immediate pension and lump sum award on exit under the AFPS75 pension scheme rules.

The rules of AFPS75 state that an individual must complete at least 2 years’ reckonable service in the substantive rank in order to receive a full pension for that rank; if they complete at least 12 months’ reckonable service in the substantive rank, there will be a proportionate increase in the pension award based on the rates payable for each of the two ranks.

Unfortunately, as our Staff Sergeant did not complete 12 months’ reckonable service in the substantive rank, his AFPS75 pension award will be based on that of a Sergeant for the full 19 years.

The current annual pension award after 22 years’ service for a Sergeant is £10,509; therefore the award of a pension payable immediately on exit under AFPS75 would be 19/22nds of the £10,509 (£9,075.95) and a lump sum of 3 times that figure (£27,227.85).

What of the small pension earned under AFPS15? Assuming our Staff Sergeant is 41 on exit and has completed over 20 years’ service, his full pension becomes a deferred pension payable from State Retirement Pension Age. However, because he is aged 40 or over and has completed at least 20 years’ reckonable service, he qualifies to receive EDP payments.

The amount of EDP income stream payable is based on 34% of the pension earned plus 0.85% for each complete year beyond the EDP qualifying point. Our Staff Sergeant reached his EDP point at age 40 (he had completed 21 years’ reckonable service then), so given that he has completed one further year beyond his EDP qualifying point he will receive an EDP income stream of 34.85% of £2,454.30 (£855.32). Please note that you only need to hold the rank for one day and that one day’s salary in the higher rank is pensionable under the new AFPS15 scheme rules.

The amount of EDP lump sum is equal to 2.25 times the value of the pension pot. This means £2,454.30 x 2.25, equals £5,522.18. So, the overall award on exit for our Staff Sergeant is a lump sum equal to (£27,227.85 + £5,522.18) £32,750.03 and a total pension/income stream until State Pension Age of (£9,075.95 + £855.32) £9,931.27.

At State Pension Age the EDP income stream stops and the proper pension becomes payable. Our Staff Sergeant has a choice of taking all the pension in income, so the total pension would increase to (£9,075.95 + £2,454.30) £11,530.25, or he can surrender (up to) 25% of the AFPS15 pension and buy another lump sum at this point. If he did that, then for every £1 of annual pension surrendered, a £12 lump sum is paid. Surrendering 25% of £2,454.30 (£613.57) would buy a lump sum of £7,362.84, and the pension at State Pension Age would only be (£9,075.95 + £1,840.71) £10,916.66.

There will remain the opportunity for our Staff Sergeant to opt for Commutation of his AFPS75 element of his pension too, but I’ll delve into that issue in a future article.

Further Information

If all the above seems incredibly complicated or if you have any questions about the new Armed Forces Pension, AFPS 15 or your own military pension, you can call the Forces Pension Society on 020 7820 9988 for a rapid and accurate answer, assuming of course you are a member of the Society. If you are not a member, the fee to join is modest and benefits include an expert helpline, numerous discounts on a range of useful products and services and the assurance that a dedicated organisation, independent of the Government, is championing the pension interests of the Forces and their families.

[Corporal Clott]

So there we have it...

The current annual pension award after 22 years’ service for a Sergeant is £10,509; therefore the award of a pension payable immediately on exit under AFPS75 would be 19/22nds of the £10,509 (£9,075.95) and a lump sum of 3 times that figure (£27,227.85).

The amount of EDP lump sum is equal to 2.25 times the value of the pension pot. This means £2,454.30 x 2.25, equals £5,522.18. So, the overall award on exit for our Staff Sergeant is a lump sum equal to (£27,227.85 + £5,522.18) £32,750.03 and a total pension/income stream until State Pension Age of (£9,075.95 + £855.32) £9,931.27

Read £10,509 on old pension scheme versus £9,931 on a combination of old and new scheme - £478 per year worse off. Not too bad, but significant over 30-40 years. It's also the first time I've seen it written that previous service to an option point qulaifies you for a proportion of the new scheme without serving 20years on it. :ok:

CPL Clott

[Stuff]

Wait a second.

The rules of AFPS75 state that an individual must complete at least 2 years’ reckonable service in the substantive rank in order to receive a full pension for that rank; if they complete at least 12 months’ reckonable service in the substantive rank, there will be a proportionate increase in the pension award based on the rates payable for each of the two ranks.

Unfortunately, as our Staff Sergeant did not complete 12 months’ reckonable service in the substantive rank, his AFPS75 pension award will be based on that of a Sergeant for the full 19 years.

That's got to be wrong. AFPS75 is based on final salary so surely if this man completes 2 years in rank (even after transfer to AFPS15) then the ENTIRE 19/20ths will be paid at SSgt rate and not, as is suggested here, as a Sgt.

[November4]

AFPS 75 was representative salary. It was the Pension 05 that is final salary based IIRC

Glad I left when I did....no option to change to the 05 scheme.

[Stuff]

Agreed, I got my terms wrong but either way the text has to be wrong. If it's true then no matter what happens to our SSgt afterwards eg. promotion to WO, his pension will forever be 19/20th of a Sgt pension!

[von Klinkerz]

Can anyone shed any light on what this actually means, ref retiring 'early' at 55? I looked at some Sunday rag annuity best buys, and the difference between 55 and 60 seemed to be about 12-15% less p.a. (for joint pension, index linked etc). Am I on the right lines?

I looked at the current RCAF scheme and, assuming you haven't served their full-pension-earning 25 years, they take off 5% per year that you leave before 60, down to a min age of 55; if you go before that, it's their equivalent of EDPs. ¼ less would be a bit harsh.

I dip out of the 10 year protection by 8 months, so this is all in anticipation of not being offered service to 60, from my current PAS piece of paper that says 55...

von K

[Al R]

In the grand scheme of things, AFPS-15 is about as good as a public sector pension can get. Comparing a CARE scheme with a Final Salary scheme is like comparing apples and oranges; there will be losers and there will be winners.. more of the former I guess, although CARE schemes are great social levellers. It'll be interesting to see what the MoD does to maintain interest with the thrusters, who tend to lose out with career average schemes.

I think that the Forces Pensions Society did a great job batting for the troops; I think I'm right in saying that SP are the only public sector workers who don't make an active contribution to their occupational pension/retirements. I'm stupified that it is going to take until next year to get a calculator out. But now possibly, its up to the AFPRB to get stuck in, and quickly.

I was/am uncertain about the decision to use an average earnings index as a revaluation factor; but when you look at what the ONS wants to do to RPI, you have to wonder where the greatest threat to incomes (before and after retirement) is going to come from. All the clamour is on the detail, and in many ways, thats great from the Exchequer's perspective. But the elephant in the room, in my opinion, right now, is this.

Change to RPI is politically motivated - Echelon Wealthcare (http://www.echelonwealthcare.co.uk/rpi-change-will-have-impact-on-pay-increases-and-pensions/)

The Exchequer can argue (relative) pounds and pence about the finer points until the cows come home, because its easy to engage and tangle over tangible issues like tax relief, annual allowances, contributions etc. But the technical aspects and potential impacts of the bigger picture stand to cause more problems but slip under the radar because they are harder to comprehend.

Everyone is different when it comes to working out the impact of AFPS-15. Get the basics right, if you're married use your partner's various (tax relief etc) allowances, make use of your own (ISA etc) allowances, have you done a self assesment and if not, will it be worth doing one(?), make sure your savings and investments are doing well and are suitable for you.. and know what, where, when and how you want retirement to look like. As soon as you've done that, you can start to reverse engineer and work out if what you're doing now is fine, and/or what you might have to do to get on track, if it isn't.

[Melchett01]

It'll be interesting to see what the MoD does to maintain interest with the thrusters, who tend to lose out with career average schemes

I would hardly describe myself as a thruster, more someone who ended up as a sqn ldr almost by accident, but I am very keen to get sight of the exact details for this very reason.

In a pensions briefing earlier this year we were told, or I misunderstood, that for currently serving personnel, their 'starting salary' for AFPS-15 would be what they were on at the time of transition and that we shouldn't worry about pensions calculations potentially based on our original joining salaries in the 90s. If this is the case, then surely it puts us at a potential advantage? We get to keep what we have earned up to the point of transition and then start the new scheme at whatever level pay point you are on in current rank at transition i.e. potentially 50k+ .

Or have I got this wrong? Will they in fact go back to my salary level when I first joined - which would effectively give mean my service so far generating 2 pensions? Confused! Wish they would get on and produce the new pensions calculator - I've got an option point in 2 years :\

[Voxpop]

What you have got is protected. Going forward the amount you accrue is 1/47 of you pensionable pay. So, no, you do not go backwards to an earlier rank or rate of pay.

[Easy Street]

I'm in the same situation as Melchie - aged less than 45 so will be going from AFPS75 onto AFPS15. I think the key line is that pointed out by Voxpop - according to the literature, the annual pension under AFPS15 grows by 1/47 of pensionable pay for each completed year. For those of us who have already completed the lower-earning part of our careers, the transition appears to be an excellent deal - the AFPS75 we have already earned is 'safe' and will be based on whatever rank we retire with in 15-20 years' time, and the AFPS15 we are about to earn will start accumulating from the reasonable base of a mid-career salary rather than the Plt Off's pittance.

If that's not to be the case, a specific clause would have to be written somewhere to modify the annual salary-based accrual for those transitioning from previous schemes - and I haven't found any such clause... yet!

[Just This Once...]

I appear to be in the same situation as above, so if I have this right I have secured the high accrual rate of the early part of the AFPS 75 scheme and rather than following the tapering off part of the 75 scheme I will now move onto the flat 1/47 accrual at a mid-career rate of pay.

Compared to some of my contemporaries who moved on to the 05 scheme I appear to be a 'winner'. Why we should have winners and losers for personnel who joined on the same day and earn the same pay is beyond me. It appears to be a financial punishment for those who believed the 05 pension scheme literature.

[alfred_the_great]

Quick Q - will I start my '15 pension on my (paid) Acting Rank or my substantive Rank (and seniority)?

[Biggus]

JTO,

Why all this bashing of the 05 pension scheme? As I remember at the time, the 05 scheme literature simply described the details of how it worked. There was no "hard sell" at my unit to switch across to it, indeed, unlike the new scheme, you had the choice of staying on 75 or moving across to 05, depending on your personal wishes.

I knew many people who didn't bother to try and understand 05, both on the basis that "pensions are complicated", and out of a cynical attitude that "no new pension scheme will be better the the one it replaces".

Well, guess what, for some people 05 was better than 75. You take the combination of PAS and 05, and you were in a win/win situation.

Yes the 75/05 decision did take some thinking about for many, depending on your situation and intentions, and no doubt there were "winners" and "losers" if you got the decision wrong, or your circumstances changed drastically. But the information was out there, and it was your choice whether to stay on 75 or switch. There is no such option with the 15 scheme.

[Hueymeister]

So, me, PAS on grandad rights to get to top level with 3 yrs to spare, with 10 yrs to 55 as of 2015, how do I fare?

My question revolves around making the decision to jump by no later than 2015, by which time I'll be 45; what are the upper age limits to airline recruitment? Am I betting the farm to stay fit enough to fly to 60-65, or do I stay to 55+ with the mob on a decent salary? Questions, questions?

:sad::)
?

[Just This Once...]

Biggus, I think you are taking a deliberately oblique view. Clearly there was a great deal of literature during the OTT and clearly individual circumstances can change. If you were cleaver enough to predict the wholesale closure of the of the '05 scheme for some people after just 10 years then well done to you.

I retain my sympathy for those who find themselves in the position I describe above; they did not get their decision wrong or fail to do the correct thinking - someone else changed the rules of the game.

[Biggus]

JTO,

You're entitled to your opinion.

The point I'm trying to make is that the current situation is not the fault of the 05 scheme, or the people who designed it. Neither is the 05 scheme itself the villain of the peace, as often seems to be portrayed by those on 75. It was a good, optional to join for those already in, scheme, with undoubted benefits to some, that has been overtaken by events beyond its control.

Switching from 75 to 05 for some individuals was not a clear cut decision, and a certain amount of risk was inherent in switching for a variety of reasons. On this basis some stayed with the horse they knew, and maybe they were right to do so.

I do sympathize with anyone who will lose out having switched to 05 only to see it close. No doubt that was a risk they didn't anticipate. However, there was no MOD conspiracy to introduce 05 and then close it later just to save money and disadvantage some people.




I haven't kept abreast of all the details of 15, but I believe that anyone with 10 years or less to serve in 2015 will stay on their original pension scheme. Therefore anyone over 35 when they switched to 05 will stay on that scheme until retirement, providing up to 20 years of cover.

[Just This Once...]

Biggus, I don't regard the '05 as the villain and I retain my sympathy for those who made an informed decision to transfer in 2006 from the older scheme.

To gain protection under the '10 year' rights and individual would have to have been over 39 years old when the OTT happened in 2006 (it was only open in 2005 for new entrants). For those who made a decision to transfer to '05 post their IPP this has become quite a key point.

Whilst the new scheme is not expected to come into force until 2016 the 10 year point is an arbitrary line drawn at age 45 on 1 Apr 12 - in other words it will provide protection for those aged 49 or over in 2016 when the scheme is predicted to go live. Or as one wag has pointed out the 'protection' will insulate all bar 2 air ranking officers from the change.

[Arty Fufkin]

Huey,

Transitioning to AFPS 15 on PAS would appear to be a bit of a bargain. The accrual rate of 1/47th on all of your £70k+ salary would make the deal quite attractive. It actually doesn't change your situation now from the old PAS /05 benefits. The question is whether or not someone will balk at the idea of giving a Flt lt a Wg Cdr / Gp Capt pension.
I don't believe the PAS situation has been clearly stated yet but in my book average earnings are average earnings. Stand by for a shafting though, possibly through the introduction of PAS flying pay bands which sit outside of the new scheme. Just a (cheery) thought.

[Hueymeister]

Arty - here's hoping. I'm relying on the fact that as I'm on grandaddy rights on 75, my PAS will stay as is....as I said, here's hoping!

[VinRouge]

or exclusion of pa from pensionable salary, with the only thing promised an extended fp scheme (say 20k /25k for enhanced rate) and the only benefits being extension of pensionable benefits to flt lt/sqn ldr salary.

I think many have misunderstood the afprb comments ref. the fairness of fp for pa vs non-pa. in the current environment, its a prime area for savings surely?

If it goes though the outflow rates will be pretty savage.new aircrew fri would work out cheaper in. the long term, but with cost savings targetted at the short term, i cant see where the light at the end of the tunnel is?

[Lima Juliet]

FTRS mates are also 'quids in' vs the old RFPS05 - we used to accrue at 1/70th for each year of FTRS for a pension and lump sum, we now accrue at 1/56th if you account for the 1:12 commutation rate to generate similar lump sums to go with a pension.

I reckon that my combined pensions at age 60 will be equivalent to a Gp Capt's - whereas, if I'd stayed to the bitter end as a Wg Cdr then I would have about £7k a year less.

So for once in my life I am a winner - or something beginning with a 'w'!

LJ

[Al R]

Any word on possibly being able to serve until aged 60, anyone? Another 'win' situation for someone on a good salary, and accruing good average benefits.

[Lima Juliet]

Al R

FTRS already go to age 60 - although I was told I could go to 65 recently if I wanted. I expect Regulars will get option to 60 and follow suit.

LJ

[Melchett01]

Al R,

I believe (hope?) that is something being looked at as part of the introduction of this New Employment Model. If they do allow service to 60, it will be win-win for individuals and the Service as they get to retain experience and we get another 5 years of salary and pensions before hopefully retiring for good.

If not, it will put AFPS-15 in the same situation as AFPS-75 i.e. it incentivises people to go early. Nobody in their right mind - or without a substantial second income - is going to 'sign up' to Ts & Cs which boot you out 5 years before you can draw a pension other than by taking an actuarially reduced one, and then expect you to scrabble around in your mid-late 50s looking for work. People will just go at their first option point and start a second career - which is one of the things AFPS 05 hoped to try and stop.

Then again, it would require a bit of joined up thinking, so I wouldn't be surprised if the answer was no.

[Al R]

.. thanks, both.

Yes, serving until 60 will be a complete game changer for many.

[Uncle Ginsters]

Reference the PA question,

I think the problem is that PA needs a lot of clarification. This year, manning offered an unprecedented number of PA slots. In return, they received an unprecedented level of rejection.
For that to change on subsequent boards, there needs to be some definitive comment as to the future of the scheme, an acceptance of the toll being taken by current changes to Service life and an idea of how retention will be effected.
T
There is an undoubted requirement to maintain experience; I sit here watching almost every first tourist co-pilot doing their ATPL with a view to using it in the near future...with the push-factors seemingly growing by the day, the level of retention incentive increases proportionately for those with the requisite experience...

Or am I missing something?

[Bob Viking]

Do you have any info' regarding the numbers of PAS? I know of a couple of people who turned it down and I may be making a similar decision myself in the new year.
Since the current FRI finishes in Apr 13 I don't want to make any decisions until I know if/when it will be replaced. Sadly I think my Deskie is too busy with promotion boards to reply to me at the moment!
BV:rolleyes:

[faarn]

I can not find the info I am looking for so hope someone in the know can help. I am on AFPS 75 and due to reach IPP in 2018. This means I will have done 16 years towards my pension. As I move over to AFPS 15 in 2015 only 13 of those years will come under the AFPS 75 terms. Will I still get the remaining 3 years on the new scheme or is the qualifying period 20 years? If that is the case will my final 3 years not count towards any pension if I leave at 16 years?

This leads to another question. If a Commission is terminated at 16 years but pension only paid out after this time, is it a sneaky way to reduce the pension bill and do you think it will affect recruitment if those joining know there is a good chance they will not get an immediate pension when their Commission ends (providing they don't get FTC)?

[VinRouge]

up to 2015, you will get what you were owed, when you were owed it you will get your proportion of 75 up to 2015, so minor change for you... probably will still be around 80-85% of what you were expecting. be more fearful of redundancy 1 week before your 38 point...

[BlindWingy]

So...back to faarn's question - what happens to the 3 years he spends on afps15?

[Hueymeister]

What Vin said, the last 3 years will come at 60/65:\

[harrier123]

Do you think it will be ready for 2015? Or is it a case it has to be? If it was late it would benefit many. But this will probably one of the few targets the MOD hits.

[Stuff]

I'm still confused about what happens to the AFPS75 bit once we transfer over to 15.

Student Officer Smith finishes Cranwell in 2003 as a 23 year old Fg Off and picks up his Flt Lt in 2004. Flt Lt Smith does 12 years on AFPS75 terms then transfers to AFPS15 in 2015 as level 8 Flt Lt.

He continues to serve and gets some good news in 2016 and gets promoted to Sqn Ldr then continues to serve before deciding to leave in 2022 (age 42). His final pay level is Sqn Ldr level 7.

The protected bit of his AFPS75 benefits are payable immediately since he did 16 years total but is this calculated as:

A: 12/16th of his Flt Lt level 8 IP (which is the best 12 months of pay he was on when he transferred out of AFPS75)
or
B: 12/16th of his Sqn Ldr level 7 IP (which is the best 12 months of pay, earned under continuous service but not under AFPS75 terms)

The pension society brief seems to suggest it's A, which sucks... A lot. If 'A' is right then there's very little incentive to seek promotion out after the transfer since the bulk of his pension is now forever frozen at the Flt Lt rate and what he does earn under AFPS15 won't be payable until age 60 anyway.

There seems to be a huge push factor for our intrepid 'Smith' to cut and run early for a second career. It gets even worse for those who have done closer to 16 years under AFPS75.

[Just This Once...]

Money is on 2016, albeit there was a hastily withdrawn note recently that had 2017 on it. There was talk of 2015 for new entrants only (like they did for AFPS 05) but not seen anything with that written on it for a while. We are told that a bunch of information will be out by March with the calculator going live for regular folk the following month.

In truth the rumour mill has as much information in it as the formal stuff. The 'Senior Leadership Team' got their lines to take in the last couple of weeks.

[RandomBlah]

Dear Stuff,

I understand that due to accrued rights the portion earned on AFPS 75 retains its finally salary (ie rank) link, even if promoted when on AFPS 15. So, in the case you describe, Smith would get the AFPS 75 portion of his pension, at Sqn Ldr rate, when he expected to get it (his leaving point age 42).

I stand to be corrected by the great and the good though.

[Easy Street]

Randomblah not so random on this occasion. Sqn Ldr Smith gets 12/16ths of a Level 7 Sqn Ldr AFPS75 immediate pension straight away on leaving. Then, at age 60 he gets his AFPS15 pension, 1/47th of his pensionable salary for each of those 7 years served after changeover.

[Lima Juliet]

From the before mentioned Forces Pensions Society piece at Post #9...

Let’s now look at some of the most important elements of the proposed scheme and how it will operate in practice.

The accrual rate of 1/47th is very strong. What this means is that your annual pension award accumulates by 1/47th of your pensionable salary each year. For example if you were a Sergeant in receipt of a salary of £36,437, then your annual pension award would be £775.26 for that year’s service. If the same Sergeant received a salary of £37,412 for the following year, then the annual pension earned for that year would be £796.00.

The previous years’ earned pension will be revalued annually by an Average Earnings Index (AEI). There is more than one AEI, but it is understood the MoD will look to use the National AEI as the fairest index for the purpose of increasing the value of previous years’ earned pension. So, to take our Sergeant’s awards calculated in the previous paragraph, together with an assumption that the AEI was 2.6% for the first year, the first year’s award of £775.26 would grow to £795.42. It is the revalued figure of £795.42 that is then added to the £796.00 at the end of the second year, to give a new total value of annual pension award of £1,591.42.

To take the example one step further, if the Sergeant were subsequently promoted to Staff Sergeant three months into the next year, and received a salary of £38,237 for that year, and the AEI at the end of the second year was 3.1%, he would have earned a a further £813.55 (£38,237/47) towards his overall pension entitlement and his £1,591.42 would be revalued to £1,640.75 which, when added to the £813.55, gives the Staff Sergeant a new annual pension award of £2,454.30.

This may seem more complicated than the basic final salary schemes of AFPS75 and AFPS05, so how can an individual be expected to keep up with his or her pension entitlement. Well, apart from there being an online calculator available (it’s on its way), every serving individual will receive an annual statement of their current pension entitlement as a matter of course – something that you have been entitled to, but denied, for too long! This will remove the need to carry out these calculations yourself. That said, individuals should still be conversant with the processes carried out that lead to the forecast they receive.

To carry on with our Staff Sergeant’s career... Let’s assume that on the day of inception of the new scheme, he had completed 19 years’ reckonable service on the AFPS75 pension scheme, and will leave the Army after 22 years’ reckonable service on 6th April 2018. This means that there is going to be a split pension award on exit – some AFPS75 and some AFPS15. I will deal with the AFPS75 entitlement first.

Even though the Staff Sergeant will not have completed 22 years’ reckonable service on the date the new pension scheme started, he would, on his day of exit, have achieve that amount of service in total, albeit with 3 years of that service under the new pension scheme rules. Therefore, since 22 years’ service will be attained, he will receive an immediate pension and lump sum award on exit under the AFPS75 pension scheme rules.

The rules of AFPS75 state that an individual must complete at least 2 years’ reckonable service in the substantive rank in order to receive a full pension for that rank; if they complete at least 12 months’ reckonable service in the substantive rank, there will be a proportionate increase in the pension award based on the rates payable for each of the two ranks.

Unfortunately, as our Staff Sergeant did not complete 12 months’ reckonable service in the substantive rank, his AFPS75 pension award will be based on that of a Sergeant for the full 19 years.

The current annual pension award after 22 years’ service for a Sergeant is £10,509; therefore the award of a pension payable immediately on exit under AFPS75 would be 19/22nds of the £10,509 (£9,075.95) and a lump sum of 3 times that figure (£27,227.85).

What of the small pension earned under AFPS15? Assuming our Staff Sergeant is 41 on exit and has completed over 20 years’ service, his full pension becomes a deferred pension payable from State Retirement Pension Age. However, because he is aged 40 or over and has completed at least 20 years’ reckonable service, he qualifies to receive EDP payments.

The amount of EDP income stream payable is based on 34% of the pension earned plus 0.85% for each complete year beyond the EDP qualifying point. Our Staff Sergeant reached his EDP point at age 40 (he had completed 21 years’ reckonable service then), so given that he has completed one further year beyond his EDP qualifying point he will receive an EDP income stream of 34.85% of £2,454.30 (£855.32). Please note that you only need to hold the rank for one day and that one day’s salary in the higher rank is pensionable under the new AFPS15 scheme rules.

The amount of EDP lump sum is equal to 2.25 times the value of the pension pot. This means £2,454.30 x 2.25, equals £5,522.18. So, the overall award on exit for our Staff Sergeant is a lump sum equal to (£27,227.85 + £5,522.18) £32,750.03 and a total pension/income stream until State Pension Age of (£9,075.95 + £855.32) £9,931.27.

At State Pension Age the EDP income stream stops and the proper pension becomes payable. Our Staff Sergeant has a choice of taking all the pension in income, so the total pension would increase to (£9,075.95 + £2,454.30) £11,530.25, or he can surrender (up to) 25% of the AFPS15 pension and buy another lump sum at this point. If he did that, then for every £1 of annual pension surrendered, a £12 lump sum is paid. Surrendering 25% of £2,454.30 (£613.57) would buy a lump sum of £7,362.84, and the pension at State Pension Age would only be (£9,075.95 + £1,840.71) £10,916.66.


It appears to infer that you get the reduced AFPS75/05 at or after your Initial Pension Point (IPP) following 2015 and if you have also cracked the 20 year IPP of AFPS15 (including your AFPS75/05 time) then you appear to get a 1/20th of what you expected for each year you work after 2015.

I've highlighted the interesting bits in BOLD. VoxPop - is that correct?

LJ

[RandomBlah]

Dear Easy Street,

In this case wouldn't the Sqn Ldr start getting his AFPS 15 pension at age 67? I thought that only an individual who completed a full career (ie age 55 for officers as I write) started recieving their AFPS 15 pension at age 60- leave any earlier and you would start to get it at state retirement age.

[Easy Street]

Yes, you're right on that. My mistake!

[Uncle Ginsters]

Bob Viking:Do you have any info' regarding the numbers of PAS? I know of a couple of people who turned it down and I may be making a similar decision myself in the new year.

Bob, I do have rough figures but they shouldn't cloud your own individual decision if presented with the choice next year. On the last board, it was a hollow carrot being dangled - 5-yr RoS, loss of 38-pt option, no known pension deal and end of FRI in 2013. The pension is becoming clearer, and one can only hope that one/any of those other factors change for the better to aide the decision-making of those offered on the next board.

On any respect, who knows where PAS will lie in the NEM...:sad:

[Voxpop]

" The pension society brief seems to suggest it's A, which sucks..."

I can confirm that the AFPS 75 part of pension is paid in the rank at the time of retirement.

I have checked our brief and that is what it says. The slide is a bit 'busy' so I will redesign it to make it clearer.

[Voxpop]

"What of the small pension earned under AFPS15? Assuming our Staff Sergeant is 41 on exit and has completed over 20 years’ service, his full pension becomes a deferred pension payable from State Retirement Pension Age. However, because he is aged 40 or over and has completed at least 20 years’ reckonable service, he qualifies to receive EDP payments. "


I confirm that LJ is quite correct.

[Stuff]

Antelope - Unless Smith gets offered some form of extension of service I think he would have to leave. If he had done 38/16 he'll be entitled to some sort of IP from whatever part of service was under the 75 scheme.

Perhaps the New Employment Model will give some additional options to manning other than the just assimilation to age 55 and he might benefit from that but we'll have to see what NEM brings first.

Voxpop - Thank you very much.

[Lima Juliet]

Voxpop - thank you :ok:

[OldnDaft]

As I understand it the New Employment Model will have 3 blocks of Service - I await more concrete information!!

[Al R]

The new one might be finalised, but what about a possible 'next'? The report writers lean to the right and might have an agenda, but does that make the message less valid? I don't think so. The Martin Baker clause in AFPS15 has been all but screaming for the past 12 months or so.

In case I get a dig for simply looking for bad news/an angle, I'm not. The bad news is already out there, it just isn't particularly widely known. If people have as many facts/informed opinion as possible, they can start planning properly.

I think this will creep up and bite people on the backside and thats the thing that annoys me.

The cashflow crisis for AFPS/public sector pensions? - Echelon Wealthcare (http://www.echelonwealthcare.co.uk/the-cashflow-crisis-for-afps-and-public-sector-pensions/)

[Fintastic]

I made my current commitment (PAS) to the RAF because I enjoy the lifestyle and the job, but the financial aspects were obviously a consideration when I decided to sign on. I, like many of my friends, fall outside the '10 years to go' point when you can remain on the current scheme and I feel is grossly unfair and ageist. I cannot help but think that any forced change to our pensions represents a fundamental change to our terms of service.

I'm not sure that the government can actually do this without our consent, as it has financial implications for most of us. I'm not an expert in employment law, but I would be interested to hear from anyone with experience in this field or from anyone in a similar situation.

I'd like to see the option to either remain on our current scheme, accept the new scheme or leave without prejudice be made available to anyone who's pensionable engagement takes them beyond 2015.

[Al R]

The writing might not be on the wall just yet, but is that rattling the sound of someone rummaging around in the pen drawer?

End of non contributory AFPS? - Echelon Wealthcare (http://www.echelonwealthcare.co.uk/end-of-non-contributory-afps/)

[Melchett01]

Yet more totally incoherent ramblings from an incompetent and out of touch political class.

If they want people to invest in their futures, then they could do worse than stop buggering about with pensions every 5 minutes just to satisfy some bizarre liberal notion of anyone with a pension must be rich and therefore can be fleeced :mad:

[Al R]

Yet more totally incoherent ramblings

Phew. I thought you were talking about me then.

And, agreed.

[JliderPilot]

I too was just outside the 10 years and after adding it all up chose to leave. Had to take a hit for the PVR reduction in the pension though.

[Melchett01]

It isn't helped by the rumours coming out of the Treasury that the 50K annual limit might be reduced further still to 30 or 40K.

It might be the only time that specialist pay being non-pensionable is a benefit, otherwise a large chunk of the RAF from SNCO upwards, who in financial terms are very ordinary, could find that far from benefitting from their pension, actually get a tax bill each year.

[Onceapilot]

How can anyone have confidence in financial planning for retirement when the goalposts move so far and so fast? You might well find the savings (sacrifices) you made are wiped out by changes to taxation or new pension "rights". The "piss it up against the wall and then rely on the basic pension and the welfare state" argument is reinforced by changes that undermine confidence.
Watch out for tax on lump sum soon!

OAP

[Al R]

We always HAVE had pensions change, and the attractiveness of that change has ebbed and flowed and been linked to the economy at the time (2006 heralded brilliant change for instance, and benefited many people). Just as the military has always closed down units and made men and women redundant and sometimes grown quickly again. And just as the militay pension has improved and declined over time, and it might well continue to do so - who knows? In my working life though.. I doubt it!

Its easy to focus on the headline items such as the revision of annual and lifetime allowances and how much tax free cash you'll get (if that changes). And yes, its easy to suggest blowing it all whilst you're young and relying on the basic state pension.. but I wonder.. can you rely on that, and when will you be drawing it? And when HMRC revised the lifetime allowance a year ago, the uptake of people wanting to protect that, was marginal. But don't forget, even if annual allowances ARE changed, there is still provision to carry forward 3 years previous unused allowance. Dropping a lump sum in a while back, when the market was in a dip, will serve many people particularly well.

The simple truth is; we are living longer, we all want to be able to retire earlier in comfort and the state wants more of our money and p*ssing it against the wall won't change any of that. However you save and however you invest, identify what your end game is and identify the time-lines, make sure you have a diversified strategy and approach, make sure you buy quality products and make sure you stay on top of things.

[Onceapilot]

Hi Al,
I really do think good provision for old(er) age is important. My impression is that there is a huge element of luck as to how much of our financial planning might be grabbed back by politicians in the near future. I am sure you see the negative effect that these constant changes will have on motivation for financial planning. In today's situation the government only want you to get the (lower) pension that is being designed for your job. If anyone decides to invest privately, you might find the regulations are changed to claw back any "good deals" that you invested in for so many years. I think we see this developing now (reductions in lifetime allowance for example).
There is no magic cure. However, surely it is in the best interests of the pension companies to lobby for stability in pension provision?

OAP

[Al R]

Hi

You're right to the extent that one half of this current g'ment in particular, is obsessed with more people having a similar income in retirement.. and they aren't obsessed with making sure that amount is particularly high. Pensions can be fabulous force multipliers; I'm seeing one of my few civilian clients at lunchtime and they're using their pension to buy their business premises for instance.

But its not just a pension that you can use (although I keep saying 'If your partner doesn't use her annual allowance, then use it'!). You should diversify and keep your options open; the sooner you start, the more chance you'll have of success - higher risk funds/onshore or offshore bond for instance? It all depends on individual needs and aspirations.

Pension companies do lobby, frantically, but the issue is, much of society sees anyone in financial services as well.. bankers. Anyway, thank you for the inspiration. I say that because this morning's blog was done especially with you in mind.

Top 10 YouGov consumer thoughts on retirement planning - Echelon Wealthcare (http://www.echelonwealthcare.co.uk/yougov-consumer-thoughts-on-retirement-planning/)

[Al R]

Melch,

Re: cutting the annual allowance, on the surface of it, chopping tax free cash and/or chipping away at annual allowances are obvious candidates for George Osborne raising cash. What might the impact on ‘us’ be (I know I’m no longer in – old habits, etc) if the annual allowance was cut? If the annual allowance was reduced from £50,000 to say, £30,000, it would affect servicemen and women in final salary linked schemes but only if they have already built up substantial benefits; in other words, officers in middle/senior manager equiv positions. This is because those in final salary linked schemes have a contribution that is based on the increase in value of their pension benefits each year, and not just what you put in each year.

And that is why it unfairly affects those on final salary scheme and I imagine that the Pensions Society will be acutely aware of this. A similar claim that civilian employees in similar salary positions with a SIPP or personal pension and defined contribution occupational schemes who are ‘catching up’ on unpaid contributions from earlier years would also lose out is a red herring. There are very few civvy employees who can afford to save £30,000+ a year into a pension anyway. The net effect on SP is that once again, there is uncertainty in something they have little control over, and an increased possibility that their futures are no longer as certain as they once thought.

Another option is to reduce the amount that can be taken tax free at retirement – currently 25% of the accumulated fund. It would create uproar if individuals who had planned their retirement expecting to be able to take the tax-free sums suddenly found that it was taxable, especially so as more and more people post 55 still have mortgages to find deposits for. At a time when the g’ment is introducing auto-enrolment into occupational pension schemes – and has just published the paper that I mentioned yesterday on pension invigoration' to encourage higher pension saving – I think that any draconian measures would only serve to distance people from retirement planning.

Having said that, it might be that because these measures create so many problems for those in final salary schemes, that once the AFPS coup de grace IS finally administered, the only sound from the Officers Mess will be one long sigh of relief..?

[Onceapilot]

Al,
I, and most others below state retirement age, have recently suffered two considerable blows to our future income. Firstly, the raising of the state retirement age has cost my wife and I approx £25,000 that we will now NEVER get. Secondly, the Government had no qualms about changing the RPI to the CPI pension correction factor. You will be well aware of the possible damage this has done. There was uproar about this but it has been imposed on us all.
Sorry to be negative, and I support your advice, but I don't see that anything positive on this will come along for decades.

OAP

[Al R]

Yup, I agree with you. For some, financial planning these days is as much about mitigating the eroding effects of legislation risk as it is getting ahead of the game - but there are many more conventional issues which harm savers but which are masked by headline screamers.

The dilution of aspiration is relentless, its a depressing time thats for sure - I started my kids planning for their futures when they were 16, and via pensions as well, because I fear for their long term futures. CPI/RPI increases won't be around forever - we'll see an end too, to the triple lock - because we simply won't be able to afford it.

Politics and messageboards don't mix but when you read that the EU is demanding 'x' billions more from us, you gotta ask.. why? And if we do agree, what standard or value is next to go.. where else can a few more quid be eeked at our expense? I read that a local community broadband service was funded by the EU. WHY?

[Melchett01]

What might the impact on ‘us’ be (I know I’m no longer in – old habits, etc) if the annual allowance was cut? If the annual allowance was reduced from £50,000 to say, £30,000, it would affect servicemen and women in final salary linked schemes but only if they have already built up substantial benefits; in other words, officers in middle/senior manager equiv positions. This is because those in final salary linked schemes have a contribution that is based on the increase in value of their pension benefits each year, and not just what you put in each year.

Al,

That is exactly my concern, but the way the issue is being presented in the press is clearly a carefully worked influence op to portray anyone with a decent pension scheme as being rich. The government happily leak these rumours about 30,40 or 50k limits, figures which are generally above the average wage. Given the tough times we are living in, many people hear them or read about them and automatically jump on the bandwagon that if you can afford to put 50k in a pension you must be rich and therefore can be fleeced.

But the way the government is presenting these leaks is disingenous at best. They fail to mention that to get a 50k increase in your pension pot doesn't actually equate to a 50k cash injection. Because of this factor of 16 (I think that is the correct figure) you have multiply your contributions by for a given input period, it probably only takes a cash input of 3-4k to reach that 50k limit. So all of a sudden, a 50k increase is actually not the stuff of multi millionaires, its actually the stuff of your average man on the street working hard in his career and occasionally having a bit of luck with a promotion and a pay rise. And this is clearly shown on the HMRC's own website where they run through examples of how easy it is to hit a 50k pension uplift.

And that is what niggles me most. The government are being very selective in how they present this issue. They know they can whip up a frenzy with a carefully worded leak or press statement, knowing full well that the vast majority of the population will simply read the headlines without understanding the mechanics behind it. And once the outrage bus is trundling down the road, hey presto, the Chancellor now feels he has a mandate to hit the average man in the street once again. It's little short of mob rule through ignorance.

So drop the annual limits to 30k by all means, but in doing so Cameron, Clegg et al shouldn't be surprised when said outrage bus does a u-turn and runs them over as very ordinary people suddenly find they have been caught up in a revenue raising scheme, originally designed to hit the top 1 or 2% of earners. And this amongst others is one of the very reasons that I won't touch a pension with a barge pole outside of the AFPS that I'm a member of through work. A totally incoherent pensions policy with too much red tape, too much uncertainty and a deck stacked so far in the government's favour it's just not sport. I'll stick to other means of providing for my old age where I at least stand a fighting chance.

[downsizer]

What is this 30k/50k limits you're all talking about?

[Stuff]

It's the amount that you can put into a pension each year free of tax.

HM Revenue & Customs: Understanding the annual allowance for pension schemes (http://www.hmrc.gov.uk/pensionschemes/understanding-aa.htm)

[Roland Pulfrew]

Al R

This is probably a bit of a stupid question, but as "our" pension pots are as I understand it, theoretical, is this not a tax on something that exists only on paper? As I understand it I cannot ask the Treasury for my pension pot to take it invest elsewhere because it is actually funded from the tax revenue at the time it is paid. If it doesnt actually physically exist, how can you be taxed on it?:confused:

[Al R]

Roland,

I have done some examples which might help demonstrate how your tax could be calculated, and also, here is an old (wordy, sorry) blog entry about AFPS which might be useful. Yes, AFPS is unfunded, but you can in principle, take it elsewhere. Would you be mad to do so? Generally, yes, although not all client needs are prescriptive.
.
Want to transfer out of AFPS into a personal pension? - Echelon Wealthcare (http://www.echelonwealthcare.co.uk/transferringoutofafps/)

First though, tax on a 'mythical' pot. As you may know, the Treasury cut the annual allowance from £255,000 to £50,000 in April of last year, and at the same time cut the lifetime limit from £1.8m to £1.5m. Whilst it had the scalpel and red ink out, it also decided to increase the factor for valuing final salary benefits from 10 to 16. And it is that final Reg that is causing the problems for those being promoted to, invariably, Sqn Ldr to Wing Commander.

Once you have the promotion under your belt and your income smoothes out, the problem tends to go away, but in the year when you get that big hike, you may have a problem. The problem can be mitigated by using previous unused annual allowance (currently, you can capitalise on any unused allowance from the previous 3 years by calling it forward) and you can have it taken out of your final pot in some instances.

HMRC does have an online calculator but using it for AFPS is problematic because many SP have switched from 75 to 05, or been commissioned and the rate at which you build up your pension pot (the'accrual rate') has changed during your membership of the scheme. It also has issues with taking into account the lump sum. Thoughtfully though, you won'thave to pay an annual allowance tax charge due in a tax year if you die or retire and start getting a pension or lump sum from all your pension pots due to severe ill-health.

Bear in mind as well, that following a pension share on divorce there is a pension debit orcredit attached to your benefits which may affect you either way (in other words,you might get a tax break/swipe when your financial settlement is sealed by the court).

To calculate any taxcharge, I’ll use two examples; and assume we’re looking at someone who is a member of AFPS05 (1/70th accrual), has served for 24 years and firstly, gets a promotion and 10% pay increase from £60,000 to £66,000. The second example will consider the same person who is promoted and receives a new salary of
£72,000.

Example 1

First, the opening value of your benefits (ie; the amount of money that might be needed to provide the expected benefit, in other words, a notional ‘capital' or 'pot' value) is determined as follows. First, calculated by dividing the number of years of service at the start of the year in question by the accrual rate of AFPS05 and then multiply by the starting salary (24/70 x £60,000 = £20,571).

The closing pension entitlement is then calculated. If pension accrual continues, then the annual pension will rise to £23,571 (= 25/70 x £66,000) as a result of the extra year's service and the pay rise in the 25th year. The increase in annual pension entitlement is therefore £3,000. This is then multiplied by a factor of 16 (it used to be 10..) to give a deemed contribution of £48,006 (in other words, 2k under the annual allowance – good news).

However, because AFPS also gives you a separate lump sum in addition to your pension without having to give up pension, next, add the amount of the promised lump sum to that amount. To keep things simple and for the purposes of the examples, I’m going to leave that bit out, but remember, it is very important.

Example 2

Lets look at the second scenario. If you got a promotion from that 60k, to 72k, then, as before; first the opening pension entitlement. Situation no change - it is still £20,571 (24/70 x £60,000). Next, calculate the closing figure (this one is different); £25,714 (25/70 x £72,000). Next, subtract the opening balance (£20,571) and you have £5,143. Multiply that by the new factor of 16 and you end up with an annual contribution of £82,288. In other words, with that promotion you are exceeding the annual allowance by £32,288 and remember too, to add any lump sum.

Although SP don’t have the uncertainty of fluctuating investment and annuity rates to contend with, it does seem unfair that someone who has a final salary scheme that rises by a relatively modest £5,143 is exposed to a tax bill (many clients put that into their personal pension and the contribution is calculated far more benignly) - hence my comment earlier about Forpen fighting the case.

Once you’ve worked that out, the contribution can be tested against your annual allowance of 50k, taking account of unused allowance from the previous three years, and any charge due can be determined. The unused allowance is also useful for making contributions into your personal pension (if you have one) - and particularly useful for someone reaching retirement with capital to spare and who has less need for liquidity than he has need for income in retirement and wants to be as tax efficient as possible.

Generally, as ever, take specific advice that you trust to see if any of that applies to you.

[SOSL]

I retired in 2004

Received a lump sum within 2 days - paid off the mortgage, renewed the double glazing and all the guttering and down pipes etc, bought a second car - job done, set up for life.

Now living quietly on the pension.

I am a happy bunny.

Rgds SOS

[Al R]

You're lucky. But what of the future?

Low hanging fruit finally ripe enough but don't shoot the messenger (http://www.echelonwealthcare.co.uk/low-hanging-fruit-ripe-enough/)

[Melchett01]

Well the Autumn Statement is now only hours away. Are we all ready to bend over and take another bat where the sun doesn't shine whilst the feckless blow their cash on cigarettes and Sky tv and the rich pay their accountants to come up with schemes to avoid paying any tax?

At the moment it just seems to be a tax bill on promotion to certain ranks. What are the odds that will change and we end up getting a tax bill every year thanks to having a half decent pension if they do cut the limits to 30k?

Talk about potentially disincentivizing a huge chunk of the country from wanting to get on in life. Tomorrow could be the day that finishes off pensions in this country ... and potentially finishes of the Conservative's chances of being re-elected for another decade.

[Al R]

It could well do, yes - the net effect will be similar to a Sqn Ldr/Wing Commander who sees their implicit AFPS contribution rise significantly in the year of promotion. I could be wrong, but in days of yore wasn't aircrew retention pushed by increasing the flying pay component (which wasn't pensionable) and flatlining salary (which was)? If you go onto PAS then your entire income is pensionable which means that Deliverance's implicit contribution to Deliverance's Final Salary 'pot' is also going to reflect that. Keep one ear out for pension contribution tax relief mentions in the Autumn Statement today.

[AdrianShaftsworthy]

It doesn't get any better outside the mob. Spare a thought for the long term BA Fo's eventually getting a chance to sit in the LHS. £100,000+ plus tax bill anyone?! :ugh:

[Melchett01]

Keep one ear out for pension contribution tax relief mentions in the Autumn Statement today

Al - as a personal point of clarification, is it tax relief or the annual allowance? I was under the impression that it was cutting the annual allowance to 30k that would cause many people on a final salary pension the problems?

[Al R]

Yes and no. You are right, but I was referring more to the levels that you will gain tax relief up to - but I could have been clearer. With that in mind, the amount that you can put into a pension each year has gone down to £40,000 (from £50,000) and there will be an implication to many reading this. He has also reduced the lifetime allowance to £1.25 millions which will have an impact on those at the higher echelon.

Ed Balls seemed wrong footed with much of the speech.

[Melchett01]

With that in mind, the amount that you can put into a pension each year has gone down to £40,000 (from £50,000) and there will be an implication to many reading this.

For a government made up of multi-millionaires, this government has a strange notion of what constitutes wealthy.

Oh well, if they want to tax me more heavily just because of my pension, then I just draw the spending in elsewhere to compensate. You can't have it all Mr Osborne.

[Al R]

My summary.

George Osborne - 2012 Autumn Statement to Parliament (http://www.echelonwealthcare.co.uk/george-osborne-2012-autumn-statement-to-parliament/)

[Melchett01]

It looks like HArgreaves Lansdown have also done some analysis on the impact to middle earners. I can't get at their site through IGS, but the Daily Mail are quoting the following from H-L in response to Treasury claims that the reduction in annual allowance to 40K will only hit those earning 150K+

Hargreaves Lansdown said that someone earning £55,000 with 20 years service on a 1/60th final salary scheme - in which they are given 1/60th of their final salary for every year of service upon retirement - would be given a one-off tax charge of £12,768 on their pension contributions if their salary was to increase by £10,000 during a calendar year.

Assuming that is correct, you have it in black and white. Any one getting promoted to wg cdr or possibly even flt lts whose pay suddenly jumps will potentially be faced with a tax bill in excess of 10k for their efforts. Someone please remind me why we all bother :ugh:

I don't know why Osborne is worried about extending austerity to 2018. He won't be Chancellor past 2015 after today's performance. :mad:

[Al R]

Melch,

Yes, the main impact of these changes for AFPS Scheme members on the cusp of career greatness may be that middle/senior ranking officers who receive promotions that push an increase in their pension contribution above the annual allowance, may be liable to tax charges.

But a couple of years ago, HMRC included a facility for previous unused allowances to be carried forward (to mitigate getting a shock by getting a large tax bill as a result of getting a relatively modest pay rise/promotion). Under the rules, unused annual allowances for the previous three tax years could be carried forward and added to that year's £50,000 allowance (now 40K, of course) allowance.

Although I haven't read the full detail, I have certainly not seen anything which mentions that the carry-forward guidance has been removed (however, someone who gets two quick promotions might be in a sticky situation). Importantly, remember that this facility is also available to personal pension contributions as well, and offers an all-round useful opportunity to maximise tax relief on a large contribution to retirees which would not have been possible under the previous rules of a couple of years ago.

As these changes do not happen for almost 18 months, it'd be a useful idea for anyone who thinks they may be approaching the annual allowance to anticipate making use of the carry-forward rule before the legislation comes into effect (to make the most of pension contributions).

Seeing as you're already mad, best not read all about the hypocrisy here then.. ;)

Pages - MPs' pay and pensions background (http://parliamentarystandards.org.uk/payandpensions/Pages/MPs-Pay-and-Pension-Background.aspx)

[Easy Street]

Al,

Do unused annual allowances have to be registered each year to be usable in future, or can they be assessed retrospectively?

[Al R]

No, you don't have to register in advance (or bank on an ongoing basis) an intention to use unused allowance.

[Just This Once...]

The new pension calculator was supposed to be ready by Jan 2013. By the end of 2012 things changed a little:

A revised Pensions Calculator, incorporating both accrued rights and benefit entitlements under the new scheme, will be developed once the final design of the new scheme is agreed. On current planning assumptions it is anticipated a revised calculator will be on line from April 2013.

Having logged on to the current calculator today it now says:

A revised Pensions Calculator, incorporating both accrued rights and benefit entitlements under the new scheme, is currently being developed. On current planning assumptions it is anticipated that the revised calculator will be on line from June 2013.

Given the uncertainties for the flt lt PAS offers this rolling delay is not good.

[Willard Whyte]

Plenty of well paid jobs for ex-military types on the other side of the wire.

If I can get one anyone can!

[Bob Viking]

JTO.
As one of the Flt Lts with a PAS offer on the table, and someone who has always rather fancied the PAS life, I can safely say that there is no way in hell I will accept until the pensions calculator is available and the RAF can decide what its position is regarding FRIs. I'd be fascinated to know how many of the other Flt Lts in a similar position are likely to accept.
It is pretty piss poor on the part of the RAF really.
BV :(

[Melchett01]

The new pensions calculator is out on trial - had a very unofficial play with it today. It looks similar to the current calculator right the way up to the final screen when it suddenly gets complicated as it gives you a break down of what you get from the various schemes.

The AFPS 15 payments are classed as EDP & EDP lump sum in a way that is similar to the AFPS 05 scheme.

But what about the numbers I hear you cry? Well, it was only a quick play, so I may have misunderstood or made a mistake, but the initial indications are that those of us fortunate enough to bank an AFPS 75 pension before change over will be better off in the long run.

Assuming I don't get promoted again and leave as a sqn ldr in 2030, I would currently get around 26.8k / yr and a 80.5k lump sum on the 75 scheme.

On the new scheme, when I leave at 55 (2030) I get 16.5k pension and 49.5k lump sum from my 75 scheme PLUS an 8.5k EDP and 42.9k EDP lump sum giving a total pay out at 55 of 25k 'pension' and a 92,4k lump sum - more if you opt for commutation.

When I hit 60, the AFPS 15 deferred pension appears to kick in with a total defered pension of 19.1k. Given that includes the 8.5k initial EDP at 55, I reckon that is an uplift of around 10.6k at 60. If I'm correct, then the combined 75/15 scheme means the following to me:

Leave RAF at 55 - total annual payment c. 25k (-1.8k on 75 scheme for 5 years)
AFPS 15 kicks in at 60 - total annual payment c 35.6k (+10K on 75 scheme from 60)
State pension kicks in at 67 .... if you believe the govt!

In summary, initial indications appear to show that there may well be some of us, albeit a minority, are better off by clinging on to the bitter end as a result of banking the 75 pension before change over and then accruing a new scheme at a 1/47 accrual rate on a relatively high 'starting' salary. I think, and I stress the word think, the new scheme might give me a total pension as a sqn ldr from 60 onwards that is closer to the pension that I might expect as a wg cdr on the 75 scheme.

I do hope I've got it right and I don't review it tomorrow and the numbers suddenly look worse!

[Al R]

Melch,

Interesting, thanks - does it allow you to play around with commutation?

[Melchett01]

Al,

It did give figures for maximum commutation, but only set against the AFPS 15 pension. So whether that means no further commutation of the AFPS 75 element of the pension?

Interestingly, it also allowed you to select 'growth factors', I assume to reflect what CPI might do - I might be wrong on this, but they were set at 0%, 1.25%, 2.25% and 3.25%.

But most interesting of all, the chart has a sliding bar underneath that allows you to automatically recalculate your pension if you leave early so you don't have to go through the rigmarole of putting all the numbers in again. Wouldn't it be interesting, if say in a couple of years time, once NEM were sorted out, that bar moved to the right as well as the left, allowing to you recalculate you pension if you extend past 55 to 60. Just a thought!

[Al R]

Melch:It looks like HArgreaves Lansdown have also done some analysis on the impact to middle earners. I can't get at their site through IGS, but the Daily Mail are quoting the following from H-L in response to Treasury claims that the reduction in annual allowance to 40K will only hit those earning 150K+

As the biggest player of the business model that it does superbly well, H-L is going to be sweating on HMRC's recent decision to tax (non ISA and non pension) fund rebates. H-L is.. 'prudent' when it comes to passing on opaque rebates.

Watch out for tax claims on the likes of supermarket loyalty schemes and cashback credit cards..

edit: Thanks for your answer, interesting.

[high spirits]

Melchett,
Are you PAS already and is that what you based your calculations on? Second question. How many years and days is it based on? I worked out slightly less on 75 scheme, but it may be due to number of years and days before my 55 point.

[Just This Once...]

I've been playing with the calculator too but I don't think it is working correctly. If it is there will some massive surprises!

I ran figures for my own circumstances and noticed that the 'frozen' element under the old scheme did not remain fixed. In the AFPS75 case my pension went up by £100 a year or so, adding an unexpected £1000 or so to the '75 element which is then added to the AFPS15 bit. Total for PAS sqn ldr at 60 was £47k.

When I did the same for AFPS05 the smaller AFPS05 element increased by a hefty sum each and every year post 2015. It would be a hell of a shock if this was true as for a PAS sqn ldr this made the total pension around £58k!

If you leave before 60 the picture is considerably less rosy; with no sign of the promised actuarially reduced AFPS15 pension at 55 on the calculator and no abatement figures published this may not be good news.

[Melchett01]

Had a chance to play with the new calculator in a bit more depth this morning than yesterday and after my initial optimism, the small print and complexity of a hybrid system means that individuals will potentially get caught out if they aren't fully aware of how it works and what their entitlement is. So as dull as it sounds / is - read the small print, get under the bonnet of the new scheme and learn how it works before you jump - it will be very easy to make a decision based on incorrect knowledge / understanding.

That said, having run some more numbers, it does still appear to be the case that if you can bank a AFPS 75 pension before scheme transition, then you stand a good chance of benefiting. This seems to be the case both if you leave at an option point or if you stay for a full career.

The down side is the pension is now effectively staged and your initial pension will be lower on the hybrid scheme than it would be on the 75 scheme. However, assuming you live to state pension age, that is when you will find yourself suddenly sitting pretty with a fair old pension coming in. By way of illustration, and based on my current situation and using numbers from the calculators and assuming you serve to 55, retire as a top level Wg Cdr and live to 80 (seemed a reasonable set of assumptions for a mid-ish 30s sqn ldr on a standard pay scale):

AFPS 75:

Annual Pension: 36,344 x25
Terminal Grant: 109,032

Total received by 80 = 1,017,632 (averages out to 40,705 / p.a)

AFPS 75/15:

Annual Pension 55 - 60: 22,389 x5
Annual Pension 60 - 67: (22,389 + 10,475 EDP) x 7
Annual Pension 67 - 80: (22,389 + 10475 + 13,139 defered pension) x13
Terminal Grant @ 55: 67,167
EDP Lump Sum @ 60 53,133

Total received by 80 = 1,060,332 (averages out to 42,413 / p.a)

So based on my situation, I will be slightly up overall but my payments on the new scheme will be staggered so that I get less than the 75 Scheme in the early years, but once I hit 67 (my forecast state pension age) then I get a significant boost to my income and will, at that stage, be able to afford to hire that nubile young nurse to look after me in my dotage.

However, the staggered income is also a down side. I'm sure there will be plenty of people who won't make it to their state pension age when the big uplift happens, so the Govt will save a pot of cash that way. Also, the way the Treasury have been tinkering with the tax bands, I would guess that a fair number of people who managed to benefit from banking a 75 Scheme pension will consequently find themselves suddenly paying higher rate tax as a pensioner which might come as a bit of a shock. This might be an issue in the year the EDP lump sum is paid out as well.

If you decide to leave early, as Just This Once pointed out, your numbers are considerably lower; if I were to take my option at 44, I would be looking at a total over the period to 80 some 300k less than if I served a full career. If you PVR rather than taking an option, the figure will be reduced even further. But then again, that always was the case on the 75 Scheme and the numbers still play out over the period to age 80 as more or less breaking even.

I guess all this means you now, more than ever, have to do your homework and try your best to work out what the new scheme will give you, whether you like the odds of making it to state pension age where you will eventually get quite a nice sum of money and how to configure your tax arrangements to minimise your tax liabilities in old age ... do you really want to be doing a tax return as a 70 yr old?! (Al R / Voxpop - I'll take a cheque or a slab for that blatant bit of IFA / FPS promotion!)

[VinRouge]

my bet is that by state pension age, if you are recieving those sums, you can say bye bye to the state pension. how long before it gets means tested for income? its the only real way of sorting out the countries fiscal problems, especially looking ahead to the demographic issues we face of a smaller workforce supporting a larger retiree population.

[Herc-u-lease]

Melchett,

Would you be so kind as to provide a link to the new calculator, or if on the intranet give some directions please. Spent about 30 mins this AM trying to find it.

TVM

H

[Melchett01]

Herc-u-lease,

I don't think it's on general release yet. I happened to get sight of what I think is a beta version (it had some weird IP address rather than the usual gov.uk address) that's being used for testing through one of the HR bods and was allowed to play with it at work.

Apparently it is supposed to go live in a couple of weeks. Whether they will have the old / new calculators running side by side I don;t know, but I have spent the morning printing off calculations from the current calculator so I can at least do a side by side comparison when the new one does go live and they drop the old one.

[Just This Once...]

Having had another play today I found I got different figures than yesterday with AFPS05/15 but still suspect that they need tweaking to be correct; but it is a beta test.

The CARE element surprised me a little as the 1.25, 2.25 and 3.25% buttons on the calculator really didn't make much difference to the final pension - a few £100 here or there but no significant change from the 0% figure.

[Al R]

Melch,

Thanks - useful. Is there any mention of the annual statement (can you click to order one for instance?) and annual and lifetime allowances?

You make a good point about the total that the fund will pay you pover the course of a lifetime, but if you peg it prematurely, that amount gets slashed. There was a report out a few days ago, it'd be interesting to see the life expectancy of military veterans in retirement compared to their civvy counterparts.

That factor (and the pension income gap) makes serving until 60 more desirable for some (and essential for others?). It is one of the few instances too, which make the option of considering objectively the pros and cons of moving a final salary scheme 'pot' into a personal arrangement, slightly less 'nuclear' and slightly more pragmatic.

RPSM09104610 - Technical Pages: Member benefits: Lump sums: Serious ill-health lump sum: Conditions for payment (http://www.hmrc.gov.uk/manuals/rpsmmanual/rpsm09104610.htm)

Serving until age 60 a step closer? - Echelon Wealthcare (http://www.echelonwealthcare.co.uk/serving-until-age-60-getting-closer/)

My local Tesco now sells Keo; will that do you?!

[Just This Once...]

Hi Al, no button but we will all get an annual statement as a matter of course.

[Bob Viking]

Just a quick question for those in the know. I have been playing with the pensions calculator and I'm trying to work out what level I need to enter to calculate how much I will get if I serve 5 years as PAS. I would transfer to PAS on 3 Oct 2015 (if I were to accept). So the question is what level of Flt Lt would I need to enter if leaving on PVR after 5 years on PAS after serving a previous 16 years?
BV:O

[Just This Once...]

Bob, the calc does not work for future PAS, but in your case you could work out the pre-PAS bit, re-run it as a wg cdr at appropriate level to work out the 2015 to 2020 bit of AFPS15 (ignore the '75 element for the wg cdr calc) then add your pre-2015 flt lt figure to the post-2015 wg cdr figure and Bob's your… well err.

Hope this helps, if not send me your details and I will have a go for you.

[Bob Viking]

Thanks for your reply. I'll give it a go. Although it appears to me that it at least tries to do PAS calculations since it asks the questions about PAS and dates and then the level to which you're on. If not for PAS what is all that about?!
I can't see me wanting to stay until 55 but the extra few years to serve the minimum RoS for PAS might work out quite well for me.
BV:ok:

[Just This Once...]

Hi Bob, it is for PAS and it does work for those on PAS; where it falls down is for future PAS.

I was told V12.1 would allow for future PAS but apart from a small wording change it does not appear to work.

[artyhug]

Bob it does future PAS transitions, or at least did last time I looked.

You can enter the date of transition and to decide on the level of PAS attained you'll need to download the PDF of this years pay review.

Total up your pre transition pay, basic and flying pay and look for the nearest PA level that doesn't reduce your pay. Work out how many full years you'll serve as PA and add to your start level and hey presto that's the level you'll leave in or pension purposes.

Caution all the above may not be true!

[Just This Once...]

All sounds credible and that was the intent with V12.1; my fat fingers have yet to make sense of it though. When I try it it does not give me the option of entering the current career stream flt lt / sqn ldr rate at transition and only gives current PAS levels.

[artyhug]

I'd need to have another look and currently my hangover is preventing any possibility of that. I can't remember needing to put in any details of pay levels at transition only at exit.

[SAR Bloke]

Whilst talking about PAS, does anyone know what happens if you transfer to PAS now but haven't done your 5 year qualifying period by the time the new pension comes into force? Does anyone know if the calculator gives correct figures in this instance?

[Just This Once...]

Presuming you are on AFPS75 you get the daily PAS pension supplement for every day served on the old scheme to the day of transition. From that point the entire salary is used for the AFPS15 calculation.

Whilst this quote is listed on the calculator:

5. Those specialist groups that attract pension supplements will have their supplements based on actual days served up to the point of transition to AFPS 15 - in accordance with current rules for their specialism.

I am not entirely convinced it works correctly for all scenarios.

[Onceapilot]

Gentlemen, do not forget that if you are on AFPS05+PAS, your pensionable salary is the greater of:
the largest taxable amount earned in 12 months within the last 3 years of service, increased by the percentage that CPI exceedes pay rises since:ok:.

OAP

[Jumping_Jack]

Don't assume that you will automatically serve till 60 (if that is what you want to do). My understanding is that service to 60 beyond the 55 year point will be on selection (by Manning).

[Bob Viking]

Thanks for the replies guys. Essentially it appears that you can select your Flt Lt level by simply working out how many years you have spent as a Flt Lt. The addition of my basic salary plus enhanced rate flying pay plus 5 years PAS takes me to the same level as the number of years I have been a Flt Lt. Maybe it's just a coincidence in my case.
The crux of the matter for me though is what the hierarchy decide to do about retention. CAS' christmas message mentioned about some work centred around pilot retention. I'd like to think that any work will be complete before people have to make this years decision on whether or not to accept PAS. We all know it was not exactly over-subscribed last year (I was one of those who refused it) and certainly in my case an FRI may help to tip the balance. I've been criticised on this forum for being greedy before but I'm afraid it really is all about the money for me now! The kids need shoes you know.
BV

[Willard Whyte]

It has to be a bout quality of life too Bob.

I'm convinced that more 'fun' will go further than money in retaining folk.

Training routes, and dets, in N. America and Europe might break the defence budget bank quicker than a substantial pay rise though.

[Bob Viking]

WW.
I guess I'm just fortunate enough to have good Q of L right now so I can put up with it for a little while longer. I may be in the minority though.
BV