Military pension

[Chainkicker]

Whilst Beags may be a little extreme in his views of knocked up schoolgirls, I certainly wouldn’t disagree with the general thrust of his opinion. How about prosecuting the slimy oiks that knocked them up for underage sex?? I can’t say I’ve noticed that happening much (Living in Torquay I understand we have one of the highest underage rates of pregnancy in the country).
I would prefer compulsory contraceptive implants for under 18's myself though as opposed to Beags suggestion

Anyway, hopefully back to the topic from now on

Anyone know if the proposed changes to CPI for pension increases would be likely to affect those already in receipt of a pension ?

[LFFC]

It's not a proposal - it's been decided, and it's for everyone!

Budget 2010 - Para 1.43

The Government will adopt the CPI for the indexation of benefits, tax credits and public service pensions from April 2011.

To get a feel for what this means, read this:

The Practical Difference Between RPI and CPI for Benefits

This means that in cash terms benefits would have gone up by 31% since 2000 under RPI, but just 20% under CPI.

Interestingly though, CPI has been greater than RPI for the last couple of years. Long may it continue!

[Scribbly520]

RPI v CPI

The legislation for the increase in public service pensions at RPI is the Pensions Increase Act 1971. The Government will need to amend or repeal this Act to effect the change.

What it means to you depends on when you retired and how long you are going to live. Those that retire late and die early will be affected the least, those that retire early and live into their 90s will be very badly affected.

If we take the last 10 years as a basis, for 8 years the CPI was lower than the RPI. For the last 2 years RPI has been lower than CPI, but that is unusual. However, in the absence of crystal ball, if we take the last 10 years as a typical cycle, the gross loss to someone retiring now at 55 and living to 85 will be 5 times their annual pension in current issue.

The Government has not said whether the uprating of pensions not in issue will be at CPI or RPI yet but my guess is that it will be CPI. If so, a serviceman discharged now at 25 and drawing his preserved pension at 65 will be drawing about 70% of the pension he would have got under RPI. Then, based on a smaller pension in issue, he will still lose 5 times its value gross if he lives to 95.

Given that the UK National Debt is about £20,000 per inhabitant, I think we have been taken to the cleaners.

Do not use these figures to make any financial decisions - they are a quick stab and anyway, no-one knows what the inflation rates will be in 6 months let alone 10 years.

[twoteapots]

Scribbly

Thanks for the gen, very helpful and puts it in perspective. I assume from your title that you are man that knows! Don't think any of us saw this one coming, but once you retire you don't have much of a voice anyway, unless you join ForPen, which I have resisted.

Having retired on my pension 2 years ago I guess I have 2 choices - cut down to 6 bottle of wine a week or send the missus back out to work!

[Al R]

The military pension is an unfunded scheme which is based on 'prerogative instruments' (PI). PIs are not subject to approval, annulment or amendment by Parliament - they derive their authority directly from HM and has a kitty which is drawn directly from the 'Consolidated Fund' (CF), so the amount is safe. The Consolidated Fund (Bill) provides Parliamentary authority to release funds requested by the Government (in this case, to pay pensions).

The annual amount required for each year to satisfy pensions is calculated and voted for in Parliament. It is usually a backbencher who is primed to stand up and propose that the MoD gets a sum of money from the CF each year, to satisfy pensions in payment. No MP is stupid/mad enough to speak against it.

Under the Naval and Marine Pay and Pensions Act 1865, PIs for the RN and RM are by an Order of Council, for the Army it is the Pensions Warrant 1977 and for the RAF it is the QRs (for the Royal Air Force). Of course, the rules can change for new entrants. It looks as if we have enough money in the CF kitty..

<<Use of resources for the year ending with 31 March 2011.The use of resources for the service of the year ending with 31 March 2011 is authorised to the amount of £218,175,405,000.>>

Prerogative Instruments

Consolidated Fund Act 2009 (c. 27)

[aw ditor]

Does the OAP' remain on RPI?

[Al R]

Gorgeous George smugly talked about 'triple joy' which guaranteed that the Basic State Pension would rise by a minimum of 2.5%, or by earnings or 'price inflation, whichever is higher'. But he was a bit sneaky. He said.. 'From next year, with the exception of the state pension and pension credit, we will switch to a system where we uprate benefits, tax credits and public service pensions in line with consumer prices (CPI) rather than retail prices (RPI)'.

CPI tends to be lower than RPI because it excludes household costs such as council tax and mortgage payments. We overlook the fact that inflation is age specific too.. most pensioners do not have to make mortgage payments for instance, but most young familes will be spending more on children's clothes and food (VAT exempt).

His backbench lobby though, seems to have done a good job in making sure he didn't go as bonkers on Capital Gains Tax as he wanted.

[Pontius Navigator]

aw ditor

OAPs are on a win-win-win basis. They will get whatever is higher or a minimum 2.5%. "There will be no more 75p pensions increases".

Given that Mrs PN and I are on about £10000 pa that means a guaranteed uplift of £250pa.

[Al R]

There is not much mention of his commitment that the Pension Credit will have an above indexation increase in April 2011. From then on though, rises would seem extremely unlikely. This might be the calm before the storm.

Although he raised the standard personal allowance from £6,475 to £7,475, pensioners already benefit from a higher allowance starting at £9,490 - which wasn't raised. If he had, it would have eased that higher VAT bill a little.

[Melchett01]

Whichever way you look at it, it's all getting a bit much of a test of nerves regarding the military pensions. If as Fox allegedly said on the Andrew Marr show that they wouldn't be touched because of the nature of the job, retention issues etc etc, they need to come out and say as much formally and settle a lot of nerves.

Equally, if they have decided that despite Fox's statements and the change to AFPS 05 that the AFPS is still too expensive, then they need to come out and say so. But be prepared for the mass exodus of people locking in their accrued rights.

However, having already moved across to the less generous scheme, if they did decide to change the AFPS, I just don't see how they can do it in a way that isn't an administrative nightmare and hugely expensive. From what I can gather, the main way of making pensions more affordable is to either move from defined benefit to a defined contribution scheme, or if you are in a contributary scheme you pay more than you are now or you do a combination of both.

But as we are in a non-contributory defined benefit scheme, how do you guarantee existing rights accrued under one scheme whilst simultaneously moving to another scheme so that individuals have a pension made up of a mixture of both schemes, whilst trying to admininster that mix across both AFPS 75 and 05??? It was bad enough changing over to the 05 scheme, but doing this would surely be a recipe for disaster?

Furthermore, if in guaranteeing existing rights, individuals decided they were better off out of any new AFPS, that could be horrendously expensive. Roughly speaking, a Flt Lt pension is about 11k; based on current annuity rates to buy 11k income / yr would be in excess of 100k - and that's at 75 when you currently have to buy an annuity. How much do you think it would cost to buy an income of 11k / yr with annual increases and uprated at 55, to be paid for the rest of your life from age 38? I have no idea, but I'm guessing an eye-watering amount. If any new scheme was such a bad deal for members that they wanted to move out of the scheme into another scheme, surely it would cost the government more in payments to transfer out guaranteed existing rights than it would to simply pay the pensions?

I'm certainly no expert, not even an amateur, but it seems like trying to fundamentally change our pensions given how complex they are already is going to be a nightmare. Surely, with the move to AFPS 05, the sensible option is to say we can't afford it so from a date to be determined all new entrants get scheme AFPS 12 or whatever and the rest of you remain on your current scheme. Afterall, their 75 liabilities are not increasing any more and will eventually start to taper off as older 75 members die out.

Incidentally, with regard to the new tax rates, it's not just the lowering of the higher rate thresholds that you have to worry about. Increasing the basic rate threshold by 1k at the same time effectively means that anyone paying higher rate tax will have lost out by more than the 1.5K as the basic rate band has effectively be squeezed at either end.

[Al R]

Although AFPS is non contributory in the strictest sense, it has always been an attractive part of the employment contract. If you remove it, what do you replace it with, and I wonder if people would leave though? However bad things do get, things in civvie street are pro rata, invariably always worse anyway.

The g'ment is binning the Annuity at 75 rule by the way. Initially, from 2011, the age at which you have to buy one will go up to 77, but thereafter, it'll probably be done away with completely. You seem like you'd enjoy Citywire. There are more specific tabs along the top, and you can opt into some news feeds if you like.

Citywire - Financial News & Advice, Investment News & Analysis, Best Funds & Fund Performance

[Yeller_Gait]

luchboxlegend,

then the extra payment and gratuity at 65(or if clever at 62)

Care to elaborate on how it is possible to take the second payment at 62?

Also, what is your understanding of the amount of the second payment under AFPS05? I understand it to be 3 times your annual pension, index linked to age 65, can you confirm this is correct?

Y_G

[teeteringhead]

Although AFPS is non contributory in the strictest sense,

... well, up to a point Lord Copper ....

Although the pay chit shows no pension deductions per se, the AFPRB knock a certain amount off their recommendations to equate with paying for the pension...

..so how is that non-contributary?

[Al R]

Luch makes a final interesting point when he talks about annual allowances, and having enough, but 'not too much'.

Lots of military familes obsess to the Nth degree about the main breadwinner's military pension, so that if/when they take up a second career, their worries swing the other way, and they start having to be worried about being taxed too much.

But they overlook that 'even' a non working partner can get 20% tax relief on pension contributions up to £3600 pa. In other words, if a husband puts £2880 into a wife's pension, per year, the State will bump it up to £3600. Where else would you get 20% right now, plus investment growth (DV)?

Then, when you are decumalating, rather than accumalating wealth, you can make best use of 'her' annual tax allowance. Osborne announced the biggest single increase in income tax personal allowances in history yesterday, which will see the amount that can be earned before tax, rise from £6,475 to £7,475 (in April 2011).

Getting obsessed about screwing the military pension down to the Nth degree is missing the point a little and possibly becoming a little target fixated. By default, all military married couples that don't consider banging into a personal pension for the non working partner are missing the point, and the potential advantages.

[Al R]

Teetering Head,

'Lord Copper'?

I said 'in the strictest sense' because yes, in the real world sense, 'we' all know that we pay for it somehow.. 8+% or so, depending on tax status etc. The last AFPRB report that I saw put it at 7%.

[Pontius Navigator]

Originally Posted by Al R

I said 'in the strictest sense' because yes, in the real world sense, 'we' all know that we pay for it somehow.. 8+% or so, depending on tax status etc. The last AFPRB report that I saw put it at 7%.

It was 9% some time in the early 90s and the AFPRB reduced it one % per year to 7% as it was deemed that 7% was nearer the Private sector value. Of course many things have happened in the last 18 years but AFPRB seems to have overlooked (deliberately) that the 7% might be increased again.

Of course the only way that it could be increased would be by recommending a pay rise of, say, 2% but reduced by 1% each year as the non-contributory contribution was increased once more.

[LFFC]

I read the PM's comments that "existing rights will be preserved", with some relief but that only got me thinking about how it would work in practice.

If, as I suspect, all existing members of both AFPS 75 and 05 are transferred to a new, less generous scheme, then how would their rights be preserved? I guess the logical way would be to take the benefit that a person would receive at the change-over point (say 1 Apr 11) and freeze it at that level until they finally retire. If the government are generous, then that pension level would be index linked (at CPI of course) until the person finally retires. The big question in my mind is, at what retirement age would the government let you take that frozen benefit? Will they still let you take it at age 55 or insist that it can't be taken until age 65 - or even 66?

As always, the devil will be in the detail, but I just hope the details aren’t sprung on us at short notice!! Remembering the way that new limitations still keep emerging from the last swap 5 years ago, I'm not confident at all about the future!

[Pontius Navigator]

LFFC, I would be very surprised if there was a compulsory transfer of T&Cs.

Slightly different tack, why wait 6 years before increasing the pension age to 66? Why keep the military retirement age at 55? If we are remaining fitter, longer, then the military retirement age could be increased too.