Purchasing "Added Years" of Pension?

[Ginger Beer]

Have any of you learned chaps looked into purchasing "added years" of Pension?

I have considered this in the past (as I joined late) however, I seem to NB that in my case it was expensive. I am now PAS and on the new 05 pension scheme and have decided to revisit the idea. I have joined the Forces Pension Society and have a request in for info but I would like a broad view from the masses too.

Have you any experience of this??

Ginge

[Clockwork Mouse]

Yes, I did it. I joined aged 22 from uni and would not have qualified for the full service pension at retiring age. Expensive? Yes, but at a time when you are being well paid so can afford it. Worthwhile? Yes, because you are buying into an index-linked pension, a rare and beautiful thing these days, valid for the rest of your life. Believe me, when you are retired, every extra penny counts!
The FPS are excellent. Their advice will be worth acting on.

[Ginger Beer]

Clockwork, thanks for that,

Did you do it early on in your career or later?

Thanks

Ginge

[Melchett01]

Took out the added years last year. The hardest part was trying to work out if it would be worth it as the Pay and Pensions people were next to useless in terms of providing sufficient information to enable me to make an informed decision. Moral of the story - FPS are probably the people to speak to.

That said, I joined close to 23 bday; although I was 22 at the time, they base calculations on how many years you can buy from your next birthday, so I was allowed to buy just under 2 years extra service. As a Flt Lt, that costs me abotu £100/month. But it is buying into a pretty safe (for now!)investment and as it comes out at source, you don't miss it after a couple of months.

If you can do it, and don't need to consider spouse / family, then it is probably a good thing to consider. But get professional advice based on your personal circumstances rather than relying on PPrune advice!

[anotherthing]

I think the sooner you do it the better.

I am the opposite of you. I left the forces in 2001 and decided to transfer my pension fund into my new CAA pension. I did it before I qualified in my new job, whilst on the training pay as the way it worked was you bought x amount of years based on what your current salary was, therefore on a lower wage my transferred pension gave me more bang for my bucks.

I believe buying extra years will be the same for you as you have to buy at a price comensurate with the monthly pension contribution which obviously increases with yearly pay rises as it is a percentage of your salary.

[Ginger Beer]

Thanks chaps,

Yes I agree that FPS are the peeps to rely on although it is good to hear your views too.

I am in a slightly different boat as I joined at approx age 24 and am now 44 so I believe from previous discussions on the topic that my cost to purchase added years may be prohibitively expensive however, I suppose I can just purchase what I can afford?

As it stands, if I leave at 55, I will have 31 years service and so I look forward to seeing how much the extra 8 or 9 years will cost me to add in?

When I hear from the FPS I'll post any details that may be of use to others.

Regards

[Pontius Navigator]

GB, I am not sure of the present rules but a full pension was available for service from 21-55. It would seem you would only need to buy 3 years to get a full pension.

[Ginger Beer]

Thanks Pontious,

My understanding is that the new pension scheme AFPS 05 (which I'm in) takes into account all service up to a maximum of 40 years for pension benefit. You are correct though for those on the old AFPS 75 scheme which only counted service from 18 or 21 depending on having a commission or not.

Rgds

[noprobs]

I joined aged nearly 25, on the old scheme. After 20 years, I decided to do something about the missing years, so asked how much it would cost. The answer was "a lot". I opted to buy 2 of the 4 missing years, which then cost me something like £350 a month (a long time ago). However, it then got more complicated when I got to 55 and was offered an extension of service. I served the missing 2 years, and then more. The small print about buying back missing years clearly says that any such payment is not refundable, so I both served and paid for some of the years. However, it was still worth it.

I then compounded matters by first taking maximum life commutation when I left, then joining the RAF Reserve, first on an ADC, then as FTRS. Leaving aside the immediate hassle of my leaving process and the redress that failed to get back all the promised payment, I am still left with having to pay back the commutation, which has proved quite complicated. So the pension is very nice (and rose by 5% this year) but the process of getting it is not simple.

[Ginger Beer]

Noprobs, thanks,

You know how to complicate things for yourself !!

Your quote of £350 pm for buying 2 years extra pension frightened the life out of me. I was expecting high numbers but £175 pm per year purchased (and as you say, that was a while ago) are frightening.

I won't hold out much hope of being able to afford my 8 or 9 years then ? We'll see what the FPS come up with.

Regards

Ginge

[Ginger Beer]

Dear All,

As promised, here is some of the feedback (in general) from the FPS.

For me at age 44 to purchase each added year of pension, it's 3.74% of basic pay.

Therefore, if I want to take my projected 31 yrs of service at age 55 to the maximum of 40 yrs for pension purposes, it'd be - Basic pay x 3.74% x 9 yrs until I leave.

Which is a lot of money however, as with any AVC scheme you are able to claw back your tax proportion i.e. 40% (or 20% for basic rate tax payers). This still leaves a lot of money to pay and you then need to project your final salary using on line compound interest calculators and a reasonable annual inc, say 2.75%.

Once you have a final salary, you can determine the new pension via the Forces Pension Calculator, also available on line, and crunch the numbers.

To claw back some of the outlay, the tax free lump sum is obviously 3 times the new pension i.e. much greater than before and then the increased pension, which is taxable, you'll need to decide how fit and healthy you are/will be, in order to recoup the balance of the outlay. Also bear in mind that the new and larger pension is index linked from age 55 (as before but greater) and the widow benefits etc are all based on the larger amounts.

I'll have to digest it all before deciding to purchase all or some of the missing years. The key point is; The sooner you decide to do this the better, don't wait until you're my age. The younger you are, the cheaper it is and it's probably the only cast iron investment worth persuing these days.

If I can afford it and think I'll live to enjoy it, it'll be money well spent. We'll see.

A point worth noting from Noprobs; Many of us will end up serving past age 55, we may not know it just yet. Once you are committed to this scheme, if you stay past 55 and therefore past the effective 40 yrs of pension, there is no more gain and you still pay the AVC. The only way out is to leave.

Regards

Ginge

[noprobs]

My AVCs did stop after I passed 55, but when I then served time that I had already bought back for pension calculations, there was no refund.