A Pension Question

[RandomBlah]

As this is a rumour network, a question to the pension wizards out there based on something that a friend (Admin Officer in SHQ) pased on to me. He stated that at a lunch with an air rank who visited the stn recently, the air rank said the it was highly likely that in 2015 all those on AFPS 75 and 05 would be transferred onto a new pension scheme. My question is that, if this were to occur, would i still be able to start claiming my pension at my 38/16 which falls in 2016, or do you think it would be a case of have the benefits accrued- but you cannot start getting them until you are 55/65?

I appreciate that there are a lot of ifs and buts in this question, but on this forum it appears as though there are a few with a lot of in depth knowledge on the pension schemes.

Thanks

RB

[Admin_Guru]

My understanding is that the system cannot force you into a new pension system at all. They can however persuade you to join by making transition a condition of accepting promotion or an offer of further service.

In the past this has ensured that slowly but surely everybody gets reeled in somehow, however times have changed and offers of extended service are unlikely and promotion quotas are probably going to reduce in line with reduced manning numbers. It will therefore be less effective as there is less bait to dangle.

Therefore my best guess (and this is a rumour forum) is that new recruits will be enlisted/commisioned under new terms of service that include whatever pension model is established, and as stated, the lucky few that get a career reeled in (bribery & corruption) over time.

[The Old Fat One]

Historically, any "earned" pension rights are retained unless given up by personal choice (much as Admin Guru describes).

Two points:

Governments can (and do) screw about with public sector pensions just as much as they like. The future need not look like the past.

There are major reviews in progress on public sector pensions which are not yet complete, so what your mate did (or did not hear) was piffle.

However, I'm not, nor never was, a two star anything, but I will personally guarantee that the military will have a new pension scheme in place within the next 5 - 10 years (as will every other public sector employer)!

[kiwi grey]

New pension schemes

TOFO

I will personally guarantee that the military will have a new pension scheme in place within the next 5 - 10 years (as will every other public sector employer)!

And it'll be 'London to a brick' odds that the new schemes will be defined contribution, not defined benefit, types

[Al R]

It'll still be benefit based, but a benefit based on average earnings over the lifetime of a career, and with a healthy wedge of personal contribution invited. We scorn DC schemes at our peril. A correctly administered and managed Defined Contribution scheme may not offer the absolute certainty and forward thinking security of a Defined Benefit scheme, but that does not always mean that it is automatically the laggard when it comes to performance (which is what many people think). For many people, and for many reasons, a personal DC scheme for oneself or one's spouse/partner is an absolute must as a single component in itself, or as a supplement to any personal financial planning strategy.

[dalek]

I left at 55 in 2002. A friend of mine states that it is impossible now to draw a military pension before the age of 50. I think it is still possible to draw a pension at the 38/16 point. Which of us is correct?

[Al R]

You are.

A private (or personal) pension may not be drawn upon until aged 55.

[dalek]

Thank you AL R.

[SirToppamHat]

Surely it is a myth that we do not contribute to our pension scheme - our pay is abated in order to 'fund' the pension? In effect, we all contribute to the 'pension scheme', by earning less than we would if there were no mil pension. A reasoned argument on the face of it, but many engagements (eg SSCs) are not pensionable at all, yet the rates of pay for FG Off Prune on a 6-yr engagement are still abated - or did I miss something?

Happy New Year to all (except the politicians).

STH

[The Old Fat One]

Surely it is a myth that we do not contribute to our pension scheme - our pay is abated in order to 'fund' the pension?

It's not a myth...it's an inconvenient half-truth.

As your pay is abated you do contribute - in real terms. As this process is largely invisible and cannot be "revoked", you are not seen to contribute. By "revoked" I mean, should you choose to withdraw from the scheme in order to set up a private plan (believe it or not some misguided fools actually did this before better advice was made available) you would not get any restoration of the pay abatement.

Thus it is always possible to argue both sides of the case, depending on your agenda. Far better for all concerned if the contributory element becomes more "real". Of course, the devil will be in the detail ie will the current abatement be restored in advance of formal pension contributions appearing on pay statements?

Time will tell.

[LFFC]

I'm sure that's why Hutton recommended that Armed Forces personnel should not start making pension contributions "at this time".

A quite clever solution for the government this April would be to announce an Armed Forces pay rise despite the public sector pay freeze (good for morale), but to introduce pension contributions of roughly the same amount (good for public spin). Net effect - no pay rise, but in subsequent years the pension contribution could be quietly increased in line with other public sector workers.

[Hueymeister]

Another question....the MOD Pension calculator has me confused...

as a Flt Lt PA pilot who'll be 43 in 2013, having done my 5 yrs on PA, no breaks in service, what would my max commuted lump sum and pension be?

I am confused as others leaving seem to think they'll get a lot less!!!!

[The Old Fat One]

LBL

Correct.

Hence (from my earlier post)

...but I will personally guarantee that the military will have a new pension scheme in place within the next 5 - 10 years (as will every other public sector employer)!

[Admin_Guru]

That differs a little from my calculations using the online calculator. Which is the most reliable source of info? ..especially as the online calculator does include the standard get out clause of dont assume-check.

[ericthered7]

I was not PA spine but the pensions calc worked spot on for me when I left on AFPS 75 in the summer, before this others had told me it was pretty accurate.

[Al R]

Hi Luch,

Thanks for picking me up on that, you are technically correct of course; it isn’t called a pension because some publically funded twonk in Brussels would have a fit. It does however, represent a unique career profile that is rewarded with early departure point payments, (ahem) made on a regular basis.

You make some good points about fund performance, and performance, of course, is key to what just about every investor needs to see – a worthwhile return. A private pension offers benefits that are not just about fund performance (although, with deft and agile management and handling, many adventurous clients will have seen their private funds rise in value by 40%+ in 2.5 years, and that’s not even taking into account 20 or 40% taxation relief uplift via HMRC. They offer flexibility too. If recent plans materialise, a pension may be accessed early in order to allow the fund owner to use the cash to buy a home, or fund a child’s education for instance. The government is now on the verge of taking away the obligation of people buying an annuity by the age of 75 (although the taxation increase to 55% on lump sum death benefits is bad – assuming you have died before tucking into your pension before 75). Horses for courses; everyone has different needs.

I remind all my mil clients (well, the ones who have a partner/spouse that is!) of the value of taking out a pension in the other half’s name (assuming they don’t earn a wage or have a part time job, which many mil spouses tend to have to have). From this April, the annual personal income allowance is going to be £7475 – that’s a good slug of cash that could be going into the family home in retirement, free of tax. Why pay tax on nearly 8k needlessly – why continue to inject (steroid-like) into the (usually) main breadwinner’s flatlining and uncertain public sector pension with inflexible and massive AVCs etc etc, or why keep chucking money hand over fist and needlessly, into some financial black hole, god awful cash ISA, or expensive, underperforming equity based High Street bank ISA if you haven’t considered the options, the flexibility and the benefits of using the (invariably) wife’s tax fee income allowance, and her annual pension savings allowance?

A 30 year old wife could easily hit the personal allowance threshold by aged 60, and that’s a hidden saving by lightening the tax load on the old man’s pot, that most people don’t even consider. I’m not having a go at AFPS (far from it, I have one after all), but don’t get fixated on it. It might be the mainstay of everything that you do and that’s fine, but be aware of your options - all of them - before you commit to a personal financial strategy. For instance, with the demise of CEA, who now needs to fund children’s education via other means for instance? There is little point in having a public pension fund of £400k (any pension fund, come to think of it) if the kids haven’t had the education you wanted for them in the meantime and if you can't provide it, if you haven’t had the home you always dreamt of, and if you’re getting taxed to buggery in retirement.

(That is all a gross over simplification of course, not advice and I'm not having a go at banks!)

[Al R]

Sent in private to someone and possibly worth airing here, possibly not.

Apologies, but in response to someone else by e-mail, I thought that The Pensions Bill 2011, which is just starting its trek through Parliament, had an interesting few lines. Although Hutton suggested not introducing contribution rates for the Armed Forces, is this mention notable I wonder? Especially as the Judiciary pension Scheme is now no longer weapons safe.

http://www.dwp.gov.uk/docs/pensions-...of-impacts.pdf

13. The Independent Public Service Pension Commission’s (IPSPC) interim report published on 7 October 2010 recommends that the most effective way to make short-term savings on public sector pensions is to increase member contributions.

14. The Government has accepted these recommendations, and requires members of public sector pension schemes to increase, or to start making, contributions towards the costs of providing pensions under those schemes, which includes the Judicial Pension Schemes.

Still nothing really worth hanging your hat on, and of course, mil salaries are abated, but ominous words last year from defence minister Andrew Robathan who said it was not really possible to make the military 'a special case'. Softening the target or getting ready to be the bearer of good news?

"Given the economic wreckage left behind by Labour, tough decisions have had to be made to deal with the fiscal challenges the country is facing," he told The Times. "This impact is being felt across all public sector pension schemes."

The next Comparative Valuation of the Armed Forces Pension Scheme is due to report in a year's time or so. However, from previously;

The relative value of the Armed Forces to comparator benefits for officers has reduced from 5% to 4% and the pension adjustment for other ranks has reduced from 7% to 4%.

It is expected that the relative value placed on comparator benefits will reduce over time as a result of changes in the weighting (towards defined contribution schemes) and as more changes to civilian benefits are introduced for both new hires and existing members. This may result in an increase in the pension adjustment at future valuations.

However, other factors which might impact on the comparative valuation (for example changes in assumptions and changes in the profile of the Armed Forces) are more difficult to predict and they could serve to reinforce or offset the changes identified.

It could be that as soon as Afghan is done and dusted, its open season on whatever guise AFPS is in at that time, which in turn might suggest that nothing happens until then. The Armed Forces (Pensions and Compensation) Act 2004 however, was amended to read..

(1) The power of the Secretary of State to modify an armed forces pension scheme may not on any occasion be exercised in any manner which would or might adversely affect any entitlement, accrued rights or pension credit rights of any member of the scheme acquired before the power is exercised unless—

(a) the consent requirements are satisfied in respect of the exercise of the power on that occasion in that manner, or

(b) the scheme is modified in the prescribed manner.

(2) The consent requirements are those prescribed for the purpose of obtaining the consent of members of the scheme to its modification.

(3) In this section—

• “prescribed” means prescribed by an order under section 1,
• “accrued rights”, “entitlement”, “member” and “pension credit rights” have the same meanings as in Part 1 of the Pensions Act 1995 (c. 26).

Perhaps FLt Lt Wales should get lobbying again.

Apologies if they are due, and if clarification has been issued already - I don't intend to be the instigator of unhelpful speculation, rather just getting the topic on the radar as early as possible for some people who need to weigh up as many factors as possible in these uncertain times.