Pension.....Win???? Al R maybe help?

[downsizer]

I must be getting something wrong here, but on the pensions calc if I buy £6500 of extra contributions my lump sum goes up by ~12K and my annual income by ~2k.....:ooh:

Ground trade, 20yrs on 75, 2 on 15, leaving at 22.

What's going on here, am I missing something really obvious?

[Voxpop]

I have answered this on e-goat. The factors about cost had not been received when last I discussed this. We will push again.

[Courtney Mil]

What a great advert for the state of UK Mil leadership that people have to come to PPRuNe and EGoat for military pension advice.

[Just This Once...]

It is disappointing that key facts regarding the new pension have yet to be published even though the scheme has gone live. The details on extra contributions should have been made available well ahead of the schemes launch so that members could have made an informed choice ahead of implementation.

As it is I guess there are precisely zero members making extra contributions due to the lack of information or a published method to make payments. I find it hard to believe that any other pension scheme would be able to behave in this way.

One hopes that they will make a special provision to allow for additional contributions from the beginning of this tax year, even though the start has been missed. The recent release of information on actuarially reduced pensions taken ahead of state pension age is welcome though.

[downsizer]

JTO

The forms are available on the DBS website as I have just discovered and the tax year window for this one is ticking. They can be bought monthly or in a lump sum it seems.

After running the numbers through the calculator, I plan to invest the maximum allowed of £6500 (before that figure gets cut by HMRC), ASAP. I can't seem to see a downside....

[Al R]

Downsizer,

Does this relate to factors surrounding AVC? Have I got this wrong, you're suggesting £13k contributed, then £12k back in 2 years and a further £2k pa each year, from 2 years time?

[Sandy Parts]

My guess is there is an error in the calculator that isn't taking into account you only having 2 years left in which to make these 'avc's'?
I'd be surprised if the figures output aren't as a result of paying an 'avc' throughout your service and they should be 'factored' for the percentage of your service you have actually contributed for i.e 2/22
I added money to my AFPS75 pension via AVC and there were detailed tables I had to use to work out the actual 'return' I was getting on my investment. As I was on PAS to 55, I expected to easily recoup my investment over the remaining 15 or so years of contributions. However, SDSR redundancy changed that. I suspect I might possibly get back what I invested if I live long enough. I'd be wary in your case of signing up until holding a written confirmation of pension benefit from the additional contribution. You could always start a SIPP and plough some into that (equal to your 40% tax payment)?

[downsizer]

Al

This regards buying extra pension under the '15 scheme. It states the maximum lifetime amount you can add is £6500, set by the government. this can be added monthly from wages or if you wish as a large lump sum.

If I add the £6500 in one tax year, on the pensions calculator, my lump some on exit jumps by circa 12k and my annual incomes rises by 2k per annum....:ooh:

So essentially for a 6.5k investement, I get 12k back plus an extra 2k a year for life....

[Guest_22]

My situation is I leave aged 38 at my AFPS 75 IPP, with 129 days on AFPS 15, following 16 years service. If I make a single £6500 Added Pension in tax year 15/16, the most you can contribute to the pension, according to the pensions calculator my numbers are:

If I don't take commutation, the pension jumps £7k per annum at SPA.
AFPS 15 commutation lump sum, payable at SPA: £1488 jumps to £29 345
AFPS 15 commutation pension at SPA: £223 jumps to £4401.
(I leave out the AFPS 75 commutation as that doesn't change with the Added Pension.)

As downsizer says, I cannot see the downside of making this investment as long as I see a few years after 70. Could someone also clarify what would happen with my pension for my wife having done this if I were to die before SPA?


Edited: not an AVC, it's Added Pension and you can only invest £6500 (currently unless HMT increase the allowance) total extra into the pension.

[Just This Once...]

As much detail as I can find:

Added Pension

As a member of the Scheme you can pay personal contributions in order to purchase Added Pension to increase either your retirement benefits and/or dependants’ benefits. You can choose to pay either a lump sum or fixed monthly payments over a scheme year. This is a contract between you and the Scheme Administrator. You will need to take out a new contract for each scheme year that you intend to purchase Added Pension and any Added Pension contracts taken out part way through a scheme year will cease at the end of the scheme year and will be shorter than 12 months. A new contract will need to be taken out at the beginning of the next scheme year. Only one Added Pension contract can be taken out per scheme year.

The amount of Added Pension you purchase will increase annually in line with the Consumer Price Index (CPI) in each subsequent scheme year until the pension comes into payment. The amount of Added Pension a member can purchase throughout their public service career will be subject to Her Majesty’s Treasury (HMT) limits. The total amount of Added Pension that can be purchased over your public service career will be capped and from 2015 is £6500 but could be subject to change in the future.

You may cancel your Added Pension contract at any time but you will only receive a proportion of the amount of Added Pension you would have received had you paid the full contributions. If you leave the Armed Forces before you have completed 2 calendar years qualifying service, you will receive a refund of your personal contributions, less any relevant tax charges.

From FPS:

Currently, the maximum amount of extra annual pension that someone can benefit from is £6,500 per year. This sum is set by Her Majesty’s Treasury and may alter. The minimum amount you can pay towards Added Pension is £300 per year as a lump sum or £25 per month. We have not seen the factors yet but, as a rule of thumb, about £1000 paid at the age of 30 buys an extra £100 of annual pension for the member. The factors, when available, will cater for the variables such as your age when you start to pay for Added Pension, whether you pay monthly or by lump sum and whether you buy Added Pension just for yourself or yourself and your dependants.

[Voxpop]

The quote is the best information that MOD could give me when I wrote the article. We are still trying to get sight of the factors.

[Onceapilot]

Oh boy!

It seems to me that there should be some sort of restriction that would stop the Gov/MOD changing all the rules before personel are able to react to them.:rolleyes:

OAP

[Melchett01]

As it is I guess there are precisely zero members making extra contributions due to the lack of information or a published method to make payments. I find it hard to believe that any other pension scheme would be able to behave in this way.

JTO,

AVCs have been suspended for AFPS 15 - or that's what has been publicised so far. I mentioned it on one of the other threads a couple of weeks ago as a heads up as I only stumbled on it by accident rather than being actively informed.

Essentially, they believe the new scheme offers as standard the same benefits that people were previously buying under the AVC scheme, barring extra years service (what I pay in to), so any one formerly buying enhanced death in service and widow benefits will no longer be able to do so under 15 scheme. The extra years, unless I've misread it, will continue , but I don't know when that will open up again.

Of course I stand to be corrected and there could have been further changes in the past 2 weeks we weren't told about!

[Just This Once...]

You are correct in part (ie Death In Service) but the 'Added Pension' is new for AFPS 15 and the text I quoted above is from the AFPS 15 Scheme. The Pension Calculator has been updated recently to cater for the new 'Added Pension' option, but with little supporting detail (despite the efforts of the Forces Pension Society).

[downsizer]

Melch, AVCs are out in 15, but you can buy Added Pension. I guess it's largely a name change, but who knows...:{

[Melchett01]

Thanks for the update chaps, the PPruNe virtual SHQ to the rescue once more.

If Carlsberg did SHQs ...

Edited to add:

Just had a look for the Added Pension bits in light of other posts. Now it might be me bring a bit thick after a long day, but how bloody complicated have they made it?!!!! I had the added years AVC under AFPS 75 and the aim was simple - if you joined up after 21, pay a bit extra each month and at the end you will qualify for a full pension if you stay til 55. Simples. It bridged the gap between the earliest you could start accruing pension rights and the point in time you joined.

That doesn't seem to be an option here, you now appear to have to guess how much to put in to bridge the gap. Where's the option to say I want to pay enough to ensure I retire on a full pension as I would have done under the simple AFPS 75 AVC arrangements? Is there nothing they can't bugger up or make insanely difficult by tinkering?????:hmm:

[alfred_the_great]

Does this change if you spread the £6500 over more than 1 year? I've got 4 years to my IPP, so spreading the load might make it less of a pinch this tax year, but I'm not going to pass it up!

[downsizer]

ATG

It didn't when I did my calcs. I tried a load of permutations from 6500 now, several k per year for several years, and 6500 in the tax year I leave, all the same result.

Best to check your own numbers though....

[The Old Fat One]

What a great advert for the state of UK Mil leadership that people have to come to PPRuNe and EGoat for military pension advice.

actually Courtney, I suspect the MOD/RAF are in the clear on this one. Employers (as in all employers) have to be very careful to limit their pensions guidance to a functional description of the pension arrangements, how they apply, how they work etc.

They cannot give specific advice on what options you should take (for example in respect of AVCs or the like) since only a pension qualified financial adviser (as in, permitted by the FCA) can give such advice.

For example, I was recently tasked to find a suitable pension for a small company as part of the ongoing statutory auto enrollment program. No problem - I found two (neither of which was NEST, AL R :)). I was then asked to compare and contrast the two and do a presentation to the employees with my recommendation. I told the MD to foxtrot oscar as I was simply not authorised to give this level of advice, and to do so would be to expose the company to deep doo doo.

In sum, if you read the literature that these big schemes dish out it is all pretty descriptive...and not at all prescriptive.

[Voxpop]

Here is what I put on e-goat. The article sets out the position for all three pension schemes.

"At the link below you will find an article I wrote on AVCs etc. If you are still on AFPS 75 you can still take out AVCs should you so wish. If you are still on AFPS 05 you can still buy Added Years. If you have transferred to AFPS 15, it is Added Pension (so a specific amount of extra money - not linked to rank or pay scales). It is the Added Pension factors that we haven't been able to get from MOD (but are on the case).

http://www.pathfinderinternational.c...125c-412220849

[alfred_the_great]

downsizer - VMT

[Just This Once...]

So essentially for a 6.5k investement, I get 12k back plus an extra 2k a year for life....

Rereading your post has me wondering if one of us has the wrong end of the stick. As I understand it the £6500 is the maximum you can receive or 'add' to your final pensions when in payment. It is not what you invest.

What is unclear is how much you have to invest to receive the full £6.5k. Using the indicative figures mentioned earlier it could require a £65,000 investment to receive the extra £6500 per year.

I'm sure someone will step in if I have this wrong as I am less than clear on the costs of this scheme.

[Al R]

Tofu,

There are, in my opinion, many superior options to NEST out there. And you're right.. auto enrolment legislation forbids an employer from telling/implying/suggesting (an employee) that investing in a pension is a good or bad idea. SME don't have the money, resources, time to focus on yet more red tape and this is yet another bureaucratic burden that many can ill afford. I agree with the sentiment though. If a civvy worker earns approaching £1m in a lifetime but ends up with just £25k in a pension, something's wrong.

At present the initial NEST annual charge is 0.3% but there's an additional annual 1.8% also applied to cover various other blah. Younger workers are invested (by default, they can switch) to target returns only greater than inflation plus 3% and costs. In essence, the people who run NEST are more afraid of faint hearted 20 somethings leaving NEST because they don't understand that you take risk in the early years in return for your fund to buy units with high volatility cheaply to get traction.

Most of them being inappropriately invested into a short term bias strategy is wrong for them - we sometimes forget that capacity and inclination for investment risk works both ways. There are lots of really good options out there, if you haven't already done so and by way of information, the Scottish Life/Royal London proposition is well worth looking at. It invested heavily in NEST-esque infrastructure 5 years ago.

The RAF took the tri-service lead in a brilliant impartial and objective financial education presentation which was on the go a few years ago - but it withered on the vine when those who got it going were posted. I know it was a brilliant programme, I did most of the presentations :E. The content was superb and generated entirely by the Consumer Financial Education Board (which re-rolled into the hideous Money Advice Service).

The suitability or otherwise of AVC/added pension depends entirely on the numbers - after that, they stand or fall based on the merits, or otherwise, of an AVC in principle. The biggest single issue I have with AVC is that the scheme member, usually the husband, has all the retirement savings in his name, and his wife has none. Consequently, the tax liability in decumulation (ie; when you're on the beach) is a shocker for the alpha male whilst the personal allowance for 'the wife' goes untroubled. It's vital to start planning early, absolutely vital.

Right or wrong, I started personal pensions for my three eldest when they were teenagers (with financial input from their grandad's gifting strategy!). Now, in their mid twenties, it's up to them but the spectre of working until north of 70/72 is a bleak one. Bear in mind too, that unless you hit AFPS normal retirement age of 60, deferred benefit legislation kicks in which means any deferred AFPS 15 benefits are already, automatically and statutorily tied, by default, to the state retirement age.

So, if your state pension shifts to the right and you stage in at 71, so too, do your AFPS 15 deferred benefits. In other words, you get the state pension at 71, you get deferred AFPS15 benefits at 71. That represents a huge legislative risk and a massive planning black hole. Personal pension benefits too, will be pegged to it, but drag by ten years. That will affect anyone currently under 40 or so. In terms of Downsizer's quandary, it'll be interesting to see the numbers for what are, essentially, '15 AVC.

[downsizer]

JTO

Rereading your post has me wondering if one of us has the wrong end of the stick. As I understand it the £6500 is the maximum you can receive or 'add' to your final pensions when in payment. It is not what you invest.

What is unclear is how much you have to invest to receive the full £6.5k. Using the indicative figures mentioned earlier it could require a £65,000 investment to receive the extra £6500 per year.

I'm sure someone will step in if I have this wrong as I am less than clear on the costs of this scheme.

Ahh, ok, it could be that.

When you run the numbers the calc says "Benefit Purchased", with the maximum being £6500. I assumed the "Benefit Purxhased" was the purchase "price", so £6500.

So you are suggesting to get £6500 of "Benefit Purchased", it may cost you a lot more....? Which kind of makes more sense, I did think it was too good to be true....

[Sloppy Link]

Now a member of the Reserve Forces Pension Scheme, can I top this up?

[Voxpop]

Only by commercial AVCs and Stakeholder pensions, I am afraid. The scheme was written knowing that FTRS contracts were for (normally) limited periods only so there was no point tying people into contracts through to age 55 or 60.

[alfred_the_great]

Had an email today informing me that the pension calculator is incorrect: in effect you have to pay in £100k to get a £6.5k increase in pension.

Hopes dashed and all!!!!

[Just This Once...]

I was hoping for something closer to £65k, not £100k!

[battlecruiser]

Also received via email confirming pension calculator errors:


‘Online Pension Calculator

An error/misunderstanding has been identified on the online pension calculator over Added Pension. The contractor will attempt to hide this function until it can be rectified and checked through further User Trials. The issue is that personnel are inputting the value of ‘money they would like to invest’ rather than ‘pension they would like to buy’. This is producing figures that would require an additional £100k of investment by the individual. Personnel wishing to purchase Added Pension are advised to contact Vets (UK), details can be sought through the link below:

http://defenceintranet.diif.r.mil.uk/Personnel/Military/Remuneration/Pages/Remuneration.aspx’

As the Added Pension fields on the pension calculator are taking longer to hide/ remove than hoped, we have produced the following lines to take on the issue and would appreciate it if you would push these out via your individual comms chains as soon as possible. An Ops bulletin has also been placed on JPA, see link below:

http://defenceintranet.diif.r.mil.uk/Organisations/Orgs/HOCS/Organisations/Orgs/DBS/MilitaryPersonnel/JPAPortal/Library/Bulletins/Pages/1504-001.aspx


Lines to Take for Service personnel wishing to purchase Added Pension contracts under AFPS 15

· Personnel are advised not to forecast their Added Pension benefits using the pension calculator. The calculator can, however, still be used for producing standard pensions forecasts. Currently the most advisable route for obtaining an Added Pension quotation is via DBS Veterans UK, using AFPS Form 6.

· Although the pension calculator is providing accurate forecasts for Added Pension, the fields relating to Added Pension are presented in a manner that is easy to misinterpret, and it is apparent that many personnel are becoming confused.

· The main area of confusion relates to the amount of Added Pension that can be purchased. The £6500 is a HM Treasury limit relating to the maximum amount of Added Pension that the member can receive each year in retirement; it does not relate to the amount of contributions that a member may make. For example, to benefit from an additional £100 of Added Pension each year in retirement, a typical member may have to make contributions equal to anything between £1000 and £2000 (the calculations are different for each person depending on their circumstances, this is an indicative example only). So, for a typical member to accumulate Added Pension which provides an extra £6,500 per year in retirement (the maximum amount), they may have to make contributions throughout their public service career in the region of £60,000 - £120,000.

· Personnel intending to purchase Added Pension should first request a quote from DBS using AFPS Form 6. Only when personnel have received the quote and they wish to take out an Added Pension contract for that year should they complete AFPS Form 6A. The link to the form that should be used to obtain a quote is below:

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/420457/afps-2015-form_6.doc

· A revised DIN, setting out the details of purchasing Added Pension in clear terms will be issued imminently.

[Wander00]

No wonder those that can want to take the money and run......and I thought it was bad 7 years ago!

[Sandy Parts]

is that contact the same DBS Forces Pensions who were on strike / work to rule recently? May affect turnaround of your personal quotes if so?