How good do you think your pension is?

[D-IFF_ident]

I just joined the Forces Pension Society (you can do the same - visit http://www.officerspensionsoc.co.uk )

Included in the most recent copy of 'Penant' - the society magazine - is a comparison of how the AFPS compares to some other pension schemes:

Net Pension at Retirement (% of final salary)

Armed Forces - 48.5% (at retirementage 55;34 yrs service) *Does not include additional pay - actual % may be less*.
Fire/Police - 52.8% normal retirement age 55; max pension at 30yrs).
Civil Service - 50.0% (at retirement age 60; 40 yrs service)
Teachers - 53.3% (as Civil Service).
Parliament - 53.3% (notional retirement 60; 33 yrs service).
Airline (typical) - 53.3% (normal retirement age 55; 33 yrs service)

Widow(er)'s Pension on Death in Retirement (% of final salary)

Armed Forces - 24.25% *Does not include additional pay - actual % may be less*
Fire/Police - 33.33%
Civil Service - 25.00%
Civil Service from 2002 - 33.33%
Teachers - 25.00%
Parliament - 41.67%
Airline - 33.33%

Death in Service Benefit Payment to Survivor

Armed Forces - 1.5 x Representative salary
Fire/Police - 5 x salary on duty; 2 x salary natural causes
Civil Service - 2 x salary
Civil Service 2002 - 3 x salary
Teachers - 2 x salary
Parliament - 3 x salary (4 x salary recommended)
Airline - 4 x salary


Suddenly my pension doesn't seem as fantastic as I was told it is... :rolleyes:

[ShyTorque]

Unsurprisingly, it looks like the Parliamentals have it more or less all their own way.

The only disadvantage is the "death in service" payments because they may possibly die without anyone noticing!

ShyT

[RRAAMJET]

Same problem in the US: doesn't matter how much armed forces pay is, the pension can't compete - especially with the airlines.

eg: US "big3" major carrier with 30 yrs

Lump sum $3 million
plus: 40% final av. earnings (~$90k/yr)
plus: 401k lump sum
plus: travel benefits

no wonder the fast jets have empty cockpits....

[only1leftmate!]

It seems that the only advantage of the military pension is that it can be payable at age 38 (although at a reduced rate of 28%). However, you do have to leave to get it! :(

[BEagle]

As something like 25% of my take-home pay is Flying Pay, then the true pension figure is NOT 48.5%, I reckon that it's about 37.1% after service to age 55.

That is the simple fact which the Armed Forces Pensions people are still failing to grasp. No wonder that our 'excellent' pension scheme is not enticing people to stay in!

The argument that Flying Pay rates are set at the level they are because they're not pensionable is absurd; if they weren't set at these levels in the first place, then there'd be even more of a retention crisis.

'They' MUST wise up and realise that the pension rates MUST be based on the best of the the final 3 years' salaries - INCLUDING Flying Pay!

[ 15 July 2001: Message edited by: BEagle ]

[Scorpius]

A colleague informed me that he will receive no less than £52K (pension of £7K)at his 16/38 point - that is after maximum commutation ofcourse. So where is the incentive to stay in when you get a wedge like that?

[rotor tree]

Agree with most things said so far - Pension is not that good at 55, but they pay you to leave at 38. £50k at 38 will buy me the Boxster I want and leave me spare change! No surprise that take up of options is about 85% at the moment. :rolleyes:

[fobotcso]

I urge you not to commute a single penny of your pension, however attractive the thought of all those beer tokens is. Statistics show that you are going to draw your pension for a very long time - perhaps as much as 50 years after retirement.

An index-linked half-size pension is not enough to live on comfortably. But an index-linked full pension could be enough especially with a little top-up.

To commute is to gamble. Work out how much you are gambling; £200k? £500K? Probably more. Are you really going to gamble on that scale? I didn't and after 13 years I'm very, very glad I didn't.

[Didntdoit]

But fobotsco - beg to diff.

Officer X leaves RAF at 38/16 point, is entitled to retired pay of £12k pa and a terminal grant of £37k. He/she can commute £26k, at a cost to retired pay of £3k pa. Here the 'rub' :

the amount of SRPcommuted will be deducted from your 'Pension'... but only during the period between your 'New Exit Date'... and your 55th birthday. On that date, the abatement (sum commuted) will cease and any Pension Increases will come into payment.

Maybe I'm reading this wrong, but to a simpleton like me, Officer X gets a loan of 25 g that he/she pays back with money that he 'gets for nothing'. Given that Officer X is likely to be in full time employment with someone who, in theory is paying him as much, if not more, than the Govt did, I cannot see a downside. Also, if Officer X lives for 2 score and 10 past his/her 38/16 point, he/she only has to 'slum it' for 17 of those years.

People, please tell if I read this wrong. :confused:

[fobotcso]

DDI, by all means differ, 'cos there are (at least) two sides to this. During my resettlement the two Forces Banks did a good job of presenting the arguments for and against commutation but the final decision for an individual depends solely on that individual's circumstances.

If you know:
a. how long you are going to live
b. what is going to happen to interest rates until you die
c. what is going to happen to the Stock Market until you die
d. and several other personal factors regarding marriage, divorce, children etc

then its dead easy to arrive at the correct answer for you about pension commutation.

If you really need capital to start that business that is going to make you rich, then commute the lot. But
don't imagine that when you get to 55 you are going to get the same pension and increases that you would have got anyway.

Yes, at 55 your pension, which was frozen on retirement, is reset to the age 55 figure but that is now less than
the full pension because when you commuted you took a pile of money out of the pension fund. The Index Linking now works on that lower pension figure. So annual 3% (say)commpound increases on £20,000 will be a lot less than on £25,000 as time passes.

If course your widow's pension is completely unaffected by commutation. So if you know you are going to die soon after retirement, then commute the lot to give her the extra capital as well as the half-pension.

When you say "given that Officer X is likely" and "in theory". You more or less prove my point that it is a gamble.

It's along the lines of "given that the other guy is likely to have a pair of sixes" and "in theory the next card in the deck is going to be a seven or a heart so I should win that handsome pot with two sevens or a flush." :(

Enjoy the Capital Sum on Retirement with Hoiday/Retail Therapy etc. You've earned it. But if you spend the commuted capital on anything that doesn't bring a guaranteed return greater than inflation (after tax), it will dribble away leaving you to regret it at your leisure. I've heard that regret expressed many times from those who did just that.

Of course if you're stinking rich anyway and Dad is going to leave you that Estate and Pile in Scotland, take the money and run! :D

[ 16 July 2001: Message edited by: fobotcso ]

[D-IFF_ident]

fobotsco,
What is this 'pension fund' you speak of? I was led to believe that ours is a non-contributory pension scheme where the treasury pays money direct to eligible people without the requirement for a fund and, therefore, fund managers etc.

I also note that the latest recommendation for non-contribution was for an abatement of 6%, but the AFPRB chose to maintain an abatement of 7%.

Is there any requirement for Best Practice under IIP?

[cheese]

fobotcso and didntdoit.
I believe you chaps are getting your life communtation and resettlement communtations mixed up.
With resettlement commutation you do indeed get your money back at 55 (no real downside, particularly if you take net present values into account).
With life commutation you don't get any of it back, and therefore do nmeed to consider the things that fobotcso talked about. This type of communtation has been progressively phased out.

:confused:

[onehunglow]

resettlement com is a must if you intend to work and be taxed at higher rate. eg leave at 38 . resettlement com of say £20k. cost off pens = say £30k until 55 (£1765/yr)(exact figures depend on indiv case). But of that £30k you would only get £18k (at 40% tax rate) if you didn't commute.

In effect as long as you keep working and pay tax, resettlement com is a v. cheap loan!

Be warned however: if you rejoin the ressetlement loan is then paid out of taxed pay.( = v. expensive loan!)

[fobotcso]

DII, of course it is a contributory scheme - but notionally so. That is why it is subject to the same Inland Revenue rules as any other Pension Scheme because you are notionally deemed to have benefited from tax relief on money that you have notionally contributed. If there wasn't a Pension Scheme, you would be paid more. It is valid, therefore, to speak of taking money out of the "fund".

Cheese, I'm not confusing two schemes, I was writing only about Life Commutation, of course. Resettlement Commutation came in after I left and I have no experience of it. Sounds like you guys have got a (financial) perk that we didn't have.

I hope that one day all Specialist Pay will be counted as Pensionable. If it is, I doubt it will be back-dated and that will make yet another improvement in your conditions of Service over your predecessors. But make no mistake, we think you work hard for it and are worth it. So good luck to you!

[Flatus Veteranus]

Commute or Not to Commute? That is the question! It is a highly personal decision and should not be taken without independent advice from an accountant or similar. I did not commute and have not regretted it so far, even though there has been a record bull market since I retired. Some say that "long wave" is now ending and we are in for a prolonged bear market, which would disfavour commuting. Look hard at the advice you are given and try to assess how "independent" is your adviser. Mine was one of the major banks (formerly RAF Pay Agents for names A-M). He suggested (in 1983) that I should commute sign on as a "name" at Lloyds. I thanked him for his trouble, ignored him, and some years later got down on my knees and thanked that deity that looks after drunks and pilots. Others were not so lucky. There is a once-wealthy retired wing commander around, who used to own properties in London, fine cars and private aircraft, who now lives in a council flat and rides a bike. His humour and lack of bitterness when he told his story on TV a few years ago made me very proud of my old Service. I believe he was 208, but before my time.

PS I believe my "independent adviser" was a Lloyds agent who was being paid commission on each sucker recuited.

[Didntdoit]

I was not confused at all. Officer X was only offered figures on RCS - Life Comm is no longer an option.

With respect fobotsco, your original advice was not to commute anything at all. The dangers of being out for 13 years, eh? Times have moved on. Looked at the housing market lately - £30k may not be a bad deposit (investment) on property, but IMHO, more is better.

Whether or not RCS is a better perk than Life I know not, although, my experience thus far has been that when things change, they are not always in the Serviceman's favour. FV and others are right - the decision is very much a personal one. I would very much like a Lexus or a.n.other Gucci toy, but will be looking to close that gap on the housing market, I think. More a case of me deciding where I want to settle, as opposed to the Firm telling me where I can afford.

I'll get me coat (may rain later)!

[ 17 July 2001: Message edited by: Didntdoit ]

[amyoungz]

I know that a group legal action was being contemplated several years ago under EU legislation which (it was alleged) made it illegal not to include all 'regular remuneration' (i.e. including Flying Pay) in pensionable pay. Does anyone know ehat happened to this? <img src="confused.gif" border="0">

[The Mistress]

Calm down dear heart.

The man who led the action will answer all your questions just as soon as he's finished his cup of coffee and dug out the relevant paperwork.

Won't you P?

[BEagle]

Hi TM - 'twould be great if P could rekindle the fire on this! For there are some of us who have now learned that those 2-3 years younger will be entitled to a pension based on 100% of pay at retirement than we old ******s will! Which would be an enormous increase over what I can expect in a few years' time!

Sorry to hear that the report into the Carterton Flyer proposal was somewhat disappointing - keep up your efforts P!