Pension abatement - is it legal?

[Fintastic]

So, I was wondering:

Would any other employer get away with reducing your pay and pension, simply because you decide to leave their company before retirement?

Do any other ppruners have any knowledge of challenges to this? I'm trying to find a legal basis to potentially challenge this procedure in the future, if and when I decide to finally pull the plug. Please comment or pm me if you have any useful info. Thanks👍🏻

[fabs]

For what it's worth. I'm ex RAF, I now pay into a company pension. If I leave before age 55 my pension is abated. If I leave between 55 and 62 it's reduced.

[Al R]

In respect of the pension, if your pension terms are part of your employment contract, if you accrue benefits each year or after a certain age, and if your normal retirement age is clearly spelt out in your contract, then doesn't it stand to reason that any revision of terms is foreseeable if you pull the pin, and therefore fair? Which part of the current pension contract do you think is unfair?

[Aynayda Pizaqvick]

I think you will have very weak legal grounds to challenge that. Military pensions have been abated for as long as I know, so whether you have signed something specifically stating it or not, continuing to work for the MOD for years knowing that effectively says that you are happy with those terms.

[Just This Once...]

The PVR abatement is not universal. On AFPS75 it only applied to officers and effectively only to those who left pre-IPP. During the tweaking to Pay 2000 ahead of JPA the abatement was quietly extended to all officers who PVR'd post-IPP (the old RAF 38/16 point) but before full pension, albeit on a sliding scale.

I always considered it particularly parsimonious to abate pensions for those who were not bound by an RoS and had serviced many years beyond their original engagement. Indeed, it was another factor that fuelled the IPP pinch-point when the services were actively seeking more flexible terms.

If PVR abatement was reasonable and proportionate why was it limited to officers only....

The newer pension schemes are more reasonable in this regard, although I hear of transitional issues where PVR abatement has been applied to those leaving on AFPS15 terms, but had prior service on AFPS75. A particularly unsavoury application of the pick-and-mix pension rigging that carries forward the disadvantages of a scheme, but not its benefits.

[The Old Fat One]

AR is the acknowledged - and qualified professional - forum expert on this stuff, so I would defer to him 100%.

Which part of the current pension contract do you think is unfair?

If you answer his question in a detailed fashion, I'm sure you will get a detailed reply.

One thing though...I am always amazed at the utter disconnect on pensions reality demonstrated by service (and other public sector) personnel on the wider state of UK pensions.

Would any other employer get away with reducing your pay and pension, simply because you decide to leave their company before retirement?

Your rhetorical question (my bold) implies corporate sector. If you think there are any mainstream corporate employers that offer pension schemes even half as good as a military one (when looked at holistically), you are living in la-la land.

I don't mean to offend, or pick a fight...but that's the reality and has been for a long, long time.

My wife retired from the board of a 53000 strong UK PLC a few years back. Her pension is less than half my Sqn Ldrs pension, despite the fact her salary was more than double.

sorry for the thread divert, but this comes up a lot an it bugs the hell out of me.

[radar101]

I agree with TOFO. I worked with the RAF as a Civil Servant after retiring from the RAF and it used to bemuse me that my blue suit colleagues would say " If I got that job in civvie street I would be earning ..." I used to point out that to equate to their RAF pay they would need to earn 20+ % more to allow them to pay into a comparable pension. The non-contributary aspect of service pay makes the cost of such provision invisible to the average serviceman.

[Onceapilot]

I may be wrong but, does this thread refer to the pension abatement to keep total payment of RO or FTRS personel below their previous pay level? If so, yes it is a bad scheme IMO. On TOFO's point about previous Service pensions, yes they were better than some but, do not forget that the Police had a 50% full pay pension earned in 30 years. The police would also be likely to serve that long if they wished, whereas it was very unlikely that a low ranking serviceman could serve beyond 22 years, or age 38 for a JO, giving approx 30% and 24% of full pay for those cases.:ooh: What's that? Oh yes, the Police tax-free lump sum was 4X pension as opposed 3X for the serviceman. Officially, the Police pension was far better because their job was "dangerous".

OAP

[Willard Whyte]

I currently pay (salary sacrifice) in to a company final salary pension. It accrues in sixtieths to a maximum of 40/60.

The full amount of accrued sixtieths is payable if one leaves at age 62 (and older, obviously), up from 60 until April this year. One can work as long as medically fit, although by the state of some of my colleagues that's a fairly laxly enforced rule...

If one leaves between the ages of 55 and 62 it is abated, if one leaves before 55 nothing is payable until 55 is reached.

There are a couple of exceptions to the above 'nothing until 55' rule: forced retirement due to ill health, or if one has accrued 30+ years service by the time one leaves.

[m0nkfish]

Al R,

Thats funny because I still have the Pam Air leaflet I was given when I agreed to serve my PC. It clearly states I will be on AFPS75 and get my pension at my 16/38 point. Of course, I actually leave with accrued rights on AFPS75 and the rest of AFPS15 which has reduced my benefits quite noticeably. Agreeing T&C's didn't seen to stop the MOD moving the goalposts without my permission!

The reality is that the MOD pensions system is a total joke and a big push factor for a lot of people. We are now on our 3rd scheme with a 4th looking likely leaving people uncertain what they will actually be entitled to when they finally leave. How the government can expect people to plan for their retirement whilst constantly changing the terms and conditions is beyond me. Forcing people on AFPS75 and 05 onto the new scheme was a big mistake. What the Armed Forces need is a completely independent body that manages their pay and pensions to stop career politicians from constantly meddling.

I feel better now.

[Voxpop]

I had a feeling that the government had been taken to court over abatement and won, so I asked my colleague at FPS HQ. His answer is as follows:

The law that allows employers to retain an abatement clause in their pension scheme still stands. What did happen four of five years ago was that the Government relaxed the rules that compelled schemes to have an abatement rule in place, but stressed that such a relaxation was within the gift of the employer/scheme’s trustees as to whether to remove the abatement or not. The movement behind this relaxation came from industry which was struggling to persuade those who had reached their occupational pension scheme’s normal retirement age to return to their employment where their skills were desperately needed.

The Government did not apply the relaxation rules since it did not have an issue with persuading people who had been awarded their occupational pensions, to re-join its ranks and so all public sector pension schemes retain the abatement rule – except those public sector schemes that came into force on 1st April 2015, which do not have the abatement rule as part of the those schemes’ structures. As ever the rule change, when applied to the Armed Forces pension schemes, is not retrospective, or indeed applicable to any of the other schemes – just the new AFPS15 scheme.

[Onceapilot]

Thanks Voxpop. If I understand that correctly, the Gov rubberstamps its own rule to reduce the effective pay of those with a pension from the same employer. It is not far off from means-testing your normal pay, really!!:oh: B'astards

OAP

[ShyTorque]

I left at my 38 point and twice afterwards the RAF tried to "tempt" me back into my old job, once as a high readiness reserve (pilot) and on the second occasion into full time aircrew service. As a reservist they expected me to fly back to UK from the far east once a month at my own expense, they would only pay motor mileage from Heathrow Airport to Odiham. The second time I was informed my pension would be abated. Seriously, what planet are they on?

[Lima Juliet]

Yes, it's legal and yes people have unsuccessfully contested it...

https://www.pensions-ombudsman.org.uk/wp-content/uploads/p00960.doc

https://www.pensions-ombudsman.org.uk/wp-content/uploads/p00290.doc

As for AFPS15, it actually works better than previous AFPSs as you accrue faster without significant career averaging (as most people stay within one rank during their time).

LJ

[Al R]

Monkfish,

You won't get any arguments from me about how military pensions are monitored and mismanaged. It was clear from outset the existing scheme would transition very, very quickly. And unless AFPS 19 (my name) is honest, we'll have an AFPS 25. The new scheme monitoring system is risible, a generally poorly qualified but very well intentioned sub committee reporting to a civil servant with overall authority who rubber stamps everything anyway. I struggle to sometimes keep up with pension legislation. How can someone who does it as a secondary duty cope? I don't mean to undermine it, but straight talk is needed, we are talking about the financial futures of hundreds of thousands of people - this is no time to pander to sensibilities.

In the real corporate world, it would not be allowed to happen. The set up makes the BHS trustee/owner debacle set up look positively watertight. I have zero faith in how the future of AFPS is being mapped out, it is a failed process. Should there be a federation holding the MoD and the trustees to account? You bet. I am working with former pensions minister, Steve Webb, next week, about overturning a situation which affects some deferred scheme members - a situation which should not have gone unchallenged, let alone allowed to happen.

You refer to AFPS 05 and 15. Currently, the government can simply change the scheme rules via secondary legislation - in effect, it passed a law to say it can change the law without too much hassle. It is correct to point out that abatement will not apply to service in AFPS15. But it's a moot point in many ways anyway. The Pension Ombudsman has very recently decided (this year) that the employer of a member with a Protected Pension Age should 'provide information about the possible adverse tax consequences of becoming re-employed after starting to receive (a) pension'.

If members have a Protected Pension Age (can retire before age 55, such as Mil) they can only take their benefits as authorised payments if they satisfy at least one of the additional following requirements:

1. Must be at least a six month break in employment
2. There has been at least a one-month break in employment and either the new employment is “materially different” from the previous employment or the scheme rules provide for abatement – that is, reduction of the member’s pension to reflect his earnings.

If neither condition is met, the member will lose his Protected Pension Age and all pension benefits paid will be treated as unauthorised payments anyway.

AFPS 05 of course, doesn't offer a pension income, it offers an EDP stream. What is the role of the income stream? Twofold, well.. three. To compensate for having to buy a home and for the loss of a career early on in life, and to provide income in retirement. I have to say, and this will be contentious, I can't have too much sympathy if you get to 55 or so, and are still making good money. The money has to come from somewhere, it's public money after all.

On the plus side, if you have a notional income of, say 25k from your pension, your HMRC relevant earnings to top up your retirement income with (for instance) personal pension contributions is reduced. If though, a larger component is salary instead of pension income, you can save more and get more tax relief. This is because pension income is not deemed to be relevant for the purposes of claiming tax relief. In essence, there's always a way to lawfully overcome any downside. Everyone's needs and circumstances are different, I'm just buying a floating hotel for a client, for instance, using a quite complicated pension scheme/ltd company set up.

Final point - I wasn't aware that abatement was a device used in industry.

[Onceapilot]

Al R

As always, a good reply. Yes, I think you are contentious to say I can't have too much sympathy if you get to 55 or so, and are still making good money. The money has to come from somewhere, it's public money after all.
IMO there is a UKGov led misconception that Service pay and pensions are some sort of national benefit scheme. This should be stamped out, but unfortunately HMGov continues to pervert its responsibilities as an employer.:oh:

OAP

[Al R]

You won't get much dissent from me about that.

The problem is this, and I know this from chatting with various envious policy makers looking for low hanging fruit. The military pension is intended to compensate for factors which politicians and various policy makers see as (increasingly) no longer relevant. If you already have a home (and may have a mortgage already paid off by the time you leave), if your transition into your second (identical) career is seamless, then (and being brutally objective) why is there a need to draw benefits under the guise of a protected pension age at all, which is only protected (mainly) for those two reasons?

This is their thinking, and the logic is, at times, irresistible. I look at it and sometimes think, maybe it's better to take the short term hit and keep the long term benefit. The Cridland report on policy developments for the state pension is an indicator of thinking. If premature access to a state pension will only be achieved for those challenged financially, but with an actuarial reduction, it's going to be increasingly indefensible to support changes to abatement. I guess you have to pick your battles.

Interestingly, Steve Webb indicated this week that the basic state pension age will have to be revised again, earlier than expected, to seventy. I, and a few others, were amazed that it already hadn't been done. Maybe we have just been exposed to the rumour for so long. I imagine my kids will be drawing theirs at ages between 72/73 for the eldest and 75 for the youngest.

[Onceapilot]

The basic state pension is doomed, unsustainable. As I have said, it will be means tested before long and then become a directly personal-wealth related payment for those with next-to-no wealth. "They can't do that", well they have already done pretty much that with the qualifying age and years of subscription changes, making it means tested is just another small step, won't even be in a manifesto!:oh:

OAP

[mahogany bob]

Going back a bit - 20 years !! - our big winge was that specialist aircrew flying pay ( about a third of our total income ) did not count towards our pension although NI contributions were paid on it ?
Rumour had it that an appeal via a (European ?? ) court was pending ?

Never did hear the outcome - can anyone remember that far back and shed some light.

[Yellow Sun]

A group; of which I was one; put some cash in the pot to obtain counsel's opinion on the merits of a potential test case. Unfortunately the advice was that likely outcome would not be in our favour. In a nutshell, it was MoD's train set and they could make the rules. So, that was that.

YS

[mahogany bob]

Thanks for that info - would welcome a comment from Al r on what seemed to be a gross injustice!

[Voxpop]

I am posting this is on behalf of the General Secretary of the Forces Pension Society:


The Forces Pension Society does not often intervene in pensions discussions here, but we are the people who know what we are talking about on pensions issues and sometimes we regard it as our duty, where readers may have been misled, to set the record straight.

The long post from Mr Rush about pension arrangements is misleading in a number of ways. Most important it gives the impression that it is only the Armed Forces pension schemes AFPS75 and AFPS05 that applies an abatement ruling to its pensions in payment where the recipient rejoins the Armed Forces in either a Regular or Reserve mode – it is not. Those same basic rules apply to all public sector pensions in place prior to 1st April 2015. For example at the following website link of ‪www.civilservicepensionscheme.org.uk/media/94833/whatisabatementsep2014.pdf‬‬‪ ‬it states quite clearly that:‬‬

If you have:

•a Civil Service pension, or have
•taken an annual compensation payment (ACP)

and subsequently take a job with an organization that is cover by the CSP arrangements, you may not earn more, by way of ‘re-employed’ salary and pension, than you were earning before you retired. Where your new salary and pension exceeds your previous salary, we deduct the excess from your pension. This is known as ‘abatement’.

We may also abate your:

• pension if you opt for partial retirement, or
• Salary (rather then pension) if you had a Compulsory Early Severance package that included a reserved rights top-up payment and subsequently take a job with an organization that is covered by the CSP arrangements. This is because the top-up payment includes and element of pension.

And it's the same across all schemes.

As to the Pensions’ Ombudsman’s decision that Mr Rush refers to, it is a pity he did not also quote the following Ombudsman’s adjudications made this year in respect of the abatement of pensions:
a. PO – 6549 given in May 2016 in which he refused to uphold a complaint that a Fireman’s pension should not be abated.

b. PO – 8171 of June 2016 and PO 12738 of July 2016 in which he refused to uphold complaints that overpaid pensions should not be refunded because an abatement calculation was not correctly conducted when the two individuals returned to teaching after having left and had their pensions put into payment.

In other words these points have been tested and the tests have not shifted the terms of the original policy. What good was the Teacher’s Union or Fire Brigades Union in these cases? It is quite wrong to suggest that if only we tried harder and had more experts on our side we'd knock these skittles down - retrospective changes to established schemes rarely if ever happen. But we do intervene where it makes sense to do so.

For example there was the decision given on 19th June 2014 where the Pensions Ombudsman ruled in favour of a Mr Alberry when he complained that the DBS Veterans UK were failing to correctly apply the abatement rules in cases where a Pension Sharing Order was issued during a period of further service where a pension had been abated. Mr Alberry is a member of our Society and we assisted him throughout his appeals process to a successful conclusion. I would not classify that as the work of an amateur organisation.

Mr Rush is completely wrong to state that the AFPS05 pension scheme does not offer a pension – of course it does. If an individual leaves the Armed Forces at age 55 or over with AFPS05 benefits, they are payable immediately on exit. If the individual leaves before age 55 but aged 40 or over with at least 18 years’ service under their belt, then they have entitlement to an Early Departure Payment (EDP) lump sum and income stream based on the actual pension earned; such pensions being deferred but payable at age 65. I am not sure from where Rush gets the idea that one of the purposes of the EDP income stream is to buy a home; the primary purpose of the EDP scheme is to encourage serving individuals to serve to age 40 and leave with a decent compensation package because the employer has no further employment for you at that point, which is exactly the same primary purpose of the old AFPS75 pension scheme – encourage serving personnel to carry on to complete a minimum of number of years’ service.

This is all important and serious stuff and we are the organisation that knows its way round the issues. Should anyone need help with this just join us and you will get the best help there is.

[Al R]

Hello John,

I did not remotely give the impression that it is only AFPS which grants abatement - in fact, I suggested that I wasn't aware it occurred "in industry", thereby implying there was a difference between public and private. Of course it isn't confined to AFPS. But that's what we were talking about.

I answered not with specific circumstances in mind, I did not offer anything other than to offer a thought how abatement might play out in the future. I referred to John Cridland who will steer state income thinking. Coincidentally, he spoke yesterday at an Eversheds event and remarked that pension spending was set to increase from 6.1% in the mid 2020s to 7.6% in just two decades, and that savings must be made. He further noted that we have consistently got our expectations of life expectancy wrong and that we need to address the generosity of our various schemes. He asked if there had to be trade offs, more pertinently, he asked whether a single state function has utility today when job structures and market now have so much variety and flexibility. In those circumstances, I stand by my thinking.

You seem to agree with me in respect of my point about AFPS05 and a pension. Although I referred to two or three of its aims, you seem to try to debunk me by referring only to its 'primary' aim - which I never mentioned. We all know there is a 'pension trap', but I referred to two or three of the reasons why we had a military income stream, and one of the reasons is, to be able to buy a home on demob. Maybe you speak with more retiring clients than I do, but I certainly used my AFPS75 income to pay for my home (maybe I'm in a minority of one). I also specifically referred to it as an EDP income stream, and until NRA is reached, that's what it is (and that's what HMRC classifies it as).

Have I ever classified the work of FPS as amateurish? I may have done, the various committees that FPS sits on, but that is a tangible difference. I may too, have referred to some of the participants as amateurs, but that is what they are. And it's not being demeaning, it's a fact. And I wasn't alone either, in thinking that CAC was sub standard and unsuitable for its task. So did Mary Burt in one of the releases afforded to us under legislation when it looked at the lack of scrutiny given by the committee (upon which FPS sits) to c.2010 dramatic pension changes that no one was told about. Why did FPS allow it to proceed/slip through?

Your final point touches upon the problem. One has to pay to join a society to get basic information. This is wrong. There should be a fully functioning Federation doing the job. It is no secret that I think the society has wavered in its priorities these past eighteen months or so, and that, prior, it very badly let down some retirees. I'm going to explore many things next week, relating to that particular issue, and I have secured the services of the actuarial team at one of the UK's largest life companies which is keen to help. It is no secret either, that I think the new system offering oversight of pension scheme changes is grossly inadequate and verges on the criminally irresponsible.

Finally, it's been over twenty seven years since anyone referred to me as 'Rush'. Forgive what might come across as amused pique, but given that I also contribute towards your handsome salary, might I suggest that a little courtesy may be in order.

Edit, not thirty two years.. twenty seven.

[Union Jack]

Going back a bit - 20 years !! - our big whinge was that specialist aircrew flying pay (about a third of our total income) did not count towards our pension although NI contributions were paid on it? - Mahogany Bob (Mr)

One could always go back 40 years to when I believe AVCs (now Added Pension vide https://www.raf.mod.uk/community/news/additional-voluntary-contributions/) were introduced and could have ben used to good effect.:ok:

Jack

[Lima Juliet]

Well said Al

I have never been a fan of the FPS since some poor advice I got. Here is one of the threads explaining my issue and also that of others:

http://www.pprune.org/military-aviation/510013-ftrs-abatement-index-linking-commutation-55-a.html

I'm sure they must be doing good for some people, but for someone who was not afraid of getting their head into the rules and regs then they didn't really offer anything of value to me.

By the way I agree an EDP is most definately NOT a pension - it's a payment. Big difference!

Best

LJ

[SirToppamHat]

Just out of interest, what are the pension arrangements of our starred officers?

Whenever I see arrangements for us mere mortals, their arrangements, like those of the SCS are 'dealt with separately'.

[Lima Juliet]

:rolleyes:

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/296282/20130430_SeniorOfficersPensionBenefits_2013_May.pdf

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/304994/senior_officers_pension_benefits_14.pdf

[Bigbux]

If you have:

•a Civil Service pension, or have
•taken an annual compensation payment (ACP)

and subsequently take a job with an organization that is cover by the CSP arrangements, you may not earn more, by way of ‘re-employed’ salary and pension, than you were earning before you retired. Where your new salary and pension exceeds your previous salary, we deduct the excess from your pension. This is known as ‘abatement’.


You should talk to the NHS about that. They seem to have no qualms about re-employing former Chief Execs on inflated rates - regardless of pensions or pay-offs.

[mahogany bob]

Union Jack - re AVCs

Did that - with Equitable Life - who subsequently defaulted on their ' guarenteed ' payments!