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Old 9th Dec 2010, 09:05   #1 (permalink)
 
Join Date: Nov 2009
Location: Great Britain
Posts: 163
April 2013 Pension changes.

I am due to leave the service having served a lifetime sentence in 2014. It would be fair to say that my Pension is the best (AFPS05 & PAS) that I could hope for; and I understand the advocates who will be tempted to respond with rhetoric about the Forces Pension Society.

Now that that has been established; I am also fully aware of the pay freeze for the coming 2 years and the no-doubt very conservative (pardon the pun) pay awards that are likely to follow. In short, the package on the plate this day will change little in the less then four years I have left to serve.

To get to the punch line: Is it in my interest to eject before Apr 2013 knowing that there is not much time between then and age 55, or continue en-route until contracted timex in 2014? Of course redundancy could cast its evil shadow and change everything. Either way, the changes of April 2013 have bad vibes attached to them and yet I do not actually know what they are.
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Old 9th Dec 2010, 09:58   #2 (permalink)
 
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Doesn't that depend upon what you plan to do after your exit (at whichever date)? If you leave sooner, you lose the salary you would have gained, offset by any new salary.

I take it from the "life sentence" bit that you wont join the FTRS? I'm sure you are aware that you lose any EDP/redundancy if you do go earlier than 55.
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Old 9th Dec 2010, 10:10   #3 (permalink)
 
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j a j....

No!!!

EDP is what you GET if you leave before 55! He will only lose out on redundancy money if he was elligible to apply for it in terms of age and trade, or is actually made redundant. I would suggest his age will mean neither of these is likely to happen!!

Diablo,

What April 2013 Pension changes are you refering to? I know there are changes in Apr 13 to the redundancy package for those on AFPS75. I also know that the government is talking about public sector workers in general contributing more to their pensions - but was unaware that anything has formally been announced yet?

If nothing has yet been announced then you are not really in a suitable position to consider your alternatives surely (I know, "stop calling me shirely" )
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Old 9th Dec 2010, 12:05   #4 (permalink)
 
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Quote:
but was unaware that anything has formally been announced yet?
Perhaps this is why I do not have a finger on this particular pulse

Rumours were floating around about an expectant exodus of experience once the 'April 13' changes were made public. I fully understand the consequence of leaving prematurely as the situation presently stands. EDP->pension at 55 -> increase at 65 & associated tax free (x2) lump sums versus 55th birthday celebrations with a single lump sum and happy ever after. My concern is that if the pensions process is interfered with at all it will not be in my or anybody elses interests for sure. Hence the question which in short is: Is it financially better for me to be an established former serviceman before April 2013. If no formal announcement has yet been made then clearly I am too far ahead of the game, but seeking the associated pulse if any rumours are out there. I have noticed in recent months that rumour on this forum is usually followed by fact.

I know one should not wish his life away, but the state of the nation and the service in particular means that 2014 cannot come soon enough. I can already see some evidence of an overworked & unhappy workforce with regards to individuals perception of what they are 'owed' or 'entitled' to, and I suspect that RAFPol will be busy with petty crime in the coming years.
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Old 9th Dec 2010, 12:35   #5 (permalink)
 
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Sign up to the Forces Pension Society.

They are the only people who can offer you accurate advice on your situation.

However, they have just briefed us that you should leave at 54 years, 11 months and 2 weeks to gain the maximum out of your pension.
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Old 9th Dec 2010, 12:54   #6 (permalink)
 
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getsometime in,

If the pension forces society are breifing that then, in all fairness, either:

You did not listen to or understand ALL that they said, or

They are not giving you the full picture, as the situation is not as simple as they seem to state.



At the risk of repeating myself, I will copy an entire comment I have just made on the "About to Pvr - Advice?" thread (perhaps it might be worth the mods merging them?) as it is relevant to this issue.

Here goes....

Ladies and gentlemen,

I offer you the following advice, take it or leave it. Get to know the details of your own pension scheme intimately! By all means take advice, but read the literature (all details are on the defence intranet), use things such as the pension calculator to confirm your findings etc. Take no one persons advice as gospel, but confirm it with your own understanding of your situation.

The two pension schemes really aren't that complicated, but AFPS05 seems to be misunderstood, or simply not understood, by many people. Everyone posting on here is smart enough to understand how their pension works, if you just take the time and effort to research it.

While not criticizing the two individuals involved, who I am sure are well meaning, lets look at the recent advice from Deleted and Nav Attacking:



Deleted He said "...if you were on the AFPS 05 and left 1 day before your 55 point (Officers) you would be thousands of pounds better off over the life of your pension..."

Is this correct, well, basically yes, but with some caveats. First of all, this applies to everyone on AFPS05, not just officers. Without going into the full details it all boils down to the fact that if you leave at 55 you get a single gratuity, there and then, if you leave before 55 you get one gratuity when you leave, and another at 65. Therefore there is the scope to make more money IN THE LONG TERM. This situation doesn't just apply if you leave 1 day before 55, but for 2 days before, 3 days before, etc, with a decreasing amount by which you are better off for each day early you leave. How far back does this work - well it depends on you personal salary and pension, but a rough estimate I worked out would be up to about 3 months before 55 - BUT DON'T TAKE MY WORD FOR IT - CHECK IT OUT YOURSELF!!!

So, why am I even bothering to comment on what Deleted said - well, there is a down side. Although if you leave JUST before 55 you will be better of by the time you are 65 and 1 day, between the ages of 55 and 65 you will recieve considerably less pension (only 75%) compared to leaving on normal retirement at 55. Thus, you gain in the long term, but LOSE IN THE SHORT. This aspect was missing from Deleted's comment.

You have to decide such things as:

Will I live to reach 65 (family medical history) - although I think if you die before 65 your widow (if you have one) gets the second gratuity anyway, but I'm not sure!

Do I need as much money as possible when I retire at 55 or can I afford to wait till 65? (do you plan to work from 55 or retire immediately, etc).

While not wishing to criticize Deleted, I hope I have shown that his comment is more complicated than at first appears. Next.



Nav Attacking

He said "...Best advice given was to leave in Apr not Mar as the pensions uplift is made on 31 Mar therefore pension is worth more!..."

AFPS75 provides a basic set of tables for pension values I believe, of rank against years of service with an amount in the box, at least it did the last time I took an interest in it (I'm on AFPS05). Presumably a new table is produced every year, so by leaving just into Apr, as opposed to Mar, you benefit from using the new table with increased figures. Brilliant, so where is the issue? Well.....

On AFPS05 your pension is based on a % of the highest average salary you have earned over a 12 month period in the last 3 years. So, lets look at two examples, retiring at the end of Mar 2011 (case A) and the end of Apr 2011 (case B). In case A the pension will (if the person in question got a pay rise in Apr 2010) be a certain % of the salary for the period Apr 10-Mar 11. In case B the pension will be a certain % (an almost identical % to case A with only 1 month extra served) of the salary for May 10- Mar 11 and Apr 11. Therefore the person in case B will only benefit from 1/12th of any payrise by leaving at the end of Apr as compared to Mar - AND ALL PAY HAS BEEN FROZEN FOR THE NEXT TWO YEARS!!

Additionally, if you leave in March, case A, and start getting a pension, then it will recieve it's annual inflation update in April, even if the forces aren't getting a payrise. So it would appear that it is actually better on AFPS05 to leave just before April!

Therefore, while the advice given by Nav Attacking has relevence to those on AFPS75, it has little impact, and perhaps even be the exact opposite, for those on AFPS05.


By the way - GIVEN THAT PAY IS FROZEN FOR THE NEXT TWO YEARS, the tabular pension values used for AFPS75 are also unlikely to go up next April, so the advice given (to be fair - passed on) by Nav Attacking may not be relevant in these particular circumstances. In fact, with pay rises frozen it might also be the case on AFPS75 that it is better to leave in March and get your annual inflation rise in April!!

BOTTOM LINE - Take as much advice as you can, but get to understand your own pension scheme inside and out - it is in your own best interest!!


As you will see getsometimein, the comment Deleted made was almost exactly your own - no doubt he was at the same brief, and, as I have said above, while it is correct it does have some major caveats that might effect people depending on their particular circumstances. If the Forces Pension Society are not highlighting this issue then they have gone down immensely in my estimation.

Sorry about the comments reference retiring in Mar or Apr, but it was easier to copy the whole lot from the other thread, and may be of interest to people reading this one!!

Treat the Forces Pension Society as a guide - YOU BECOME THE EXPERT ON YOUR PENSION AND YOUR CIRCUMSTANCES!
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Old 9th Dec 2010, 13:11   #7 (permalink)
 
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Quote:
EDP is what you GET if you leave before 55! He will only lose out on redundancy money if he was elligible to apply for it in terms of age and trade, or is actually made redundant. I would suggest his age will mean neither of these is likely to happen!!
Biggus...isn't that what I said? I made no comment on his eligibility for redundancy, only that if he took it and went FTRS, he'd lose it. I have no idea whether his age/trade would be more or less likely to be made redundant, hence I didn't comment on that. Perhaps I should have left redundancy out of my comment entirely.

Sorry if I missed something, but I felt your 'headbang' was a little unwarranted.
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Old 9th Dec 2010, 13:35   #8 (permalink)
 
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Some sound advice Biggus,

However, there is one small error in your text which is worth pointing out.

You said that:
Quote:
Without going into the full details it all boils down to the fact that if you leave at 55 you get a single gratuity, there and then, if you leave before 55 you get one gratuity when you leave, and another at 65.
Actually, it should read:
Quote:
Without going into the full details it all boils down to the fact that if you leave at 55 you get a single gratuity, there and then, if you leave before 55 you get an Early Departure Payment when you leave, and a pension gratuity at 65.
At the moment, both the Early Departure Payment and gratuity are tax free. However, only the pension gratuity is perhaps protected from tax because it's viewed as a tax-free lump sum of ones pension. It would take a major change of tax law to tax your gratuity, but it would be quite easy for the treasury to start taxing Early Departure Payments! So be warned!
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Old 9th Dec 2010, 14:06   #9 (permalink)
 
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j.a.j,

Apologies, nothing personal, but I am getting fed up with people who don't understand AFPS05 and I was getting a bit frustrated.

What I thought you said was effectively that if you leave before 55 you lose any EDP (Early Departure Payment) which of course is not the case, indeed you get EDP if you leave before 55. What I did not appreciate was that you were saying..."if you leave before 55, TO BECOME FTRS, you lose EDP..." which is another case entirely!

My fault for not accurately reading your post - once again I aplogise unreservedly.....




LFFC - thanks for the correction - nobody is perfect (just ask my wife - or see above!!), and I don't claim to be an expert - just asking people to become more familar with their own pension scheme!
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Old 9th Dec 2010, 14:21   #10 (permalink)
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Quote:
Additionally, if you leave in March, case A, and start getting a pension, then it will receive it's annual inflation update in April, even if the forces aren't getting a payrise.
If you leave on say 1 March and receive a pension of 10,000 in April you will receive the annual pension uplift, say 3% but . . . only 1/12th as only 1/12th of your pension was paid in year 0. So your pension in April would be 10,025.

If you retired on 30 April and April pay had risen by 3% you would expect a pension of 10,300.

The following April the early retiree would receive (assume 3%) 10325.50 but our April retiree would receive 11/12ths of the uplift or 10,583.25.

This discrepancy will follow through for life and was a good reason for switching to a 12 month final salary system.

I stand to be corrected on the math but that is my understanding.

Also it is worth looking closely at the 'best 12 months in the last 3 years'. In one case I was told it was the summation of the 4 best 3 month periods in the last 3 years.

PS, ONLY in the case of a pay freeze would the March retiree gain.
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Old 9th Dec 2010, 14:34   #11 (permalink)
 
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...and we are in a pay freeze until Apr 2013!
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Old 9th Dec 2010, 14:36   #12 (permalink)
 
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Does anyone know if we will still recieve pay point rises, or whether we will have to wait till 2013 to get them backdated?
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Old 9th Dec 2010, 15:36   #13 (permalink)
I don't own this space under my name. I should have leased it while I still could
 
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A pay point change is not a pay rise. With a pay rise the pay point change would increase but without a pay rise you should still get the higher pay point.

Biggus, thank you, that is why I added the postscript as what I said is true in general.
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Old 9th Dec 2010, 15:38   #14 (permalink)
 
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Incremental Progression is unaffected by the pay freeze.
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Old 9th Dec 2010, 15:41   #15 (permalink)
 
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PN,

'05 is calculated over the best 365 day period on the trot. Although, usually, it will mean the final 365 days, you can dredge backwards (useful if you were paid 'acting up' or getting Sub pay). '75 of course, demands you hold the rank for 2 years solid. Also, oft overlooked is the importance of the Pension Input Period which determines how much you can put in, in any one 12 month period. The pension input period is going to be useful for anyone who wishes to defer forward any previous unused Annual personal Alllowance over the 50k ceiling being imposed next April.

One thing that I was guilty of, is that I paid too much specific attention gets paid to the finer details of AFPS, and not enough to the broader picture in general. FPS can offer en masse information to any number of individuals about the potential benefits to committing to a particular course of action, and thats great. But what it can't do, is advise whether that intended course of action is the best for you in the wider sense, or if its going to be beneficial to the life that you intend to lead when you leave the Service. What FPS cannot do is discuss those options with you, in detail, and more importantly, how they relate to your unique circumstances and those of your family.

I could now think of any number of arguements relating to both sides of a case supporting any kind of action.. after all, what is perfect for one person could be horrendous for the next. There is little point in being insightful up to the eyeballs about AFPS if you haven't covered all the other bases and considered some kind of macroperspective, or extracted back from where you want to be, in 'x' years, to where you're at now. I am also a member of FPS, and I think its a good organisation but the world of financial planning does not stop with insight into AFPS. By all means know it inside out, although knowledge about AFPS in itself is not the B All and End All. Sure, its the first stop on the journey because its the biggest component in your retirement armoury, but its not everything.

Finally, and on that note, 120 at Kinloss has arranged for me to deliver a number of Financial Awareness briefings next week, and I am also at Odiham for a few days in January. On behalf of the FSA then, let me allow this quick plug for the events, and to encourage anyone with nothing else better to do, to come along and listen to me bang my gums for an hour or so.
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Old 9th Dec 2010, 18:56   #16 (permalink)
 
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My first post and it is nothing to do with aviation! But this subject did grab my attention over the past couple of years as a recent APFS05 retiree aged 54.

As a previous poster said, it is the most remunerative consecutive 365 days over the previous 3 years that count in determining your pension under 05. Additionally the figures get adjusted for inflation. So this might become relevant for some people under a pay freeze but with inflation marching on. It is in JSP764 Part 1 para 0305, available on the internet or intranet.

I do suggest you get your mind around the JSP if only so you know whether the lump sum and pension/EDP you get are roughly right, as for me Glasgow just gave me the final numbers without explaining their calculation.

Also if you are doing comparisons of retirement dates vs benefits then get your mind around discounted cash flow if you do not already know what it means. Money now is more valuable than money later. But of course whether you need money now is highly relevant.

And finally be aware that the change from rpi to cpi, assuming it happens, does affect the sums. For me a change to cpi will mean the the second lump sum I get in 10 years time will be worth about 10% less in real terms than if rpi applies.
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Old 10th Dec 2010, 08:37   #17 (permalink)
 
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Biggus - no worries m8, perhaps I could have written my post more clearly.
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Old 10th Dec 2010, 15:43   #18 (permalink)
 
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late-joiner,

Top piece of information thanks, you have just made my afternoon!

From the look of the example calculation just after para 0306, on page 1-3-3 (see http://www.mod.uk/NR/rdonlyres/7433E...rt1Amdtno3.pdf ), it would appear that, if you are receiving below inflation, or at least below the pension increase % figure, pay rises then the earliest of your last 3 years salary figure is likely to ultimately be the most productive in terms of pension calculation - an unexpected bonus in my case as some of my last 3 years will include the pay freeze period.

Given that there are no pay rises for the next 2 years, it is good to see that the pension calculation for those soon to leave under AFPS05 will not be as disadvantaged as would originally appear to have been the case!
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Old 10th Dec 2010, 16:44   #19 (permalink)
 
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Biggus (or possibly Al R),
Currently in adjusting the pension figure for inflation, do they use CPI or RPI?

Assuming CPI for the moment, if I understand this correctly, if I left in say late March 2012 having been on PA Level 33 for just over a year, my pension could amount to more as the calculation would use PA Level 32 that I had been on the previous year corrected by inflation?

So putting numbers on it, 75492 (PA Level 33) is outgunned by 76734 (PA Level 32 of 74427 increased by CPI of 3.1% (the September 2010 figure applied to pension calcs for the period April 2011 to March 2012 inclusive))?

In fact, thinking about it further, PA Level 31 of 71928 from FY09/10 corrected by CPI of 1.5% (September 2009 figure) and again by CPI of 3.1% (September 2010 figure) could have been higher if September 2009 CPI was higher, but actually ends up as 75635.

Given that we now have a pay freeze on and CPI is likely (well that's the Government's plan!) to be less in future years, leaving in March 2012 might just be the perfect sweet spot!!
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Old 10th Dec 2010, 17:29   #20 (permalink)
 
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Zedder,

Just reading this:

Pensions increase - HM Treasury

it looks like it is RPI until Apr 2011 (i.e. Sep 2010 RPI figure) at which point CPI takes over. But the bad news is that Sep 2009 RPI was negative, so zero increase was applied - so I don't think you PA level 31 calculation holds....

About to get out my own calculator and do my own sums, but I'm no further ahead than you yet....
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