Pension abatement - is it legal?
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Pension abatement - is it legal?
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👍🏻
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👍🏻
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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?
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.
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.
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.
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AR is the acknowledged - and qualified professional - forum expert on this stuff, so I would defer to him 100%.
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.
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.
Which part of the current pension contract do you think is unfair?
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?
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.
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.
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.
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
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
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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.
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.
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.
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.
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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.
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.
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!!
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OAP
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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?
Yes, it's legal and yes people have unsuccessfully contested it...
https://www.pensions-ombudsman.org.u...ads/p00960.doc
https://www.pensions-ombudsman.org.u...ads/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
https://www.pensions-ombudsman.org.u...ads/p00960.doc
https://www.pensions-ombudsman.org.u...ads/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
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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.
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.
Al R
As always, a good reply. Yes, I think you are contentious to say
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.
OAP
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.
OAP
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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.
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.
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!
OAP
OAP
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.
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.
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
YS