Vin Rouge

Your posts on this thread echo my thoughts ref AFPS.

It's possible as a Pilot, to earn large sums outside the mob, that enable you to put a significant amount of money into a workplace pension/SIPP that IMHO can rival the AFPS. I'm not saying AFPS is a bad scheme, but with the current job market It's possible to earn large sums outside the mob.

A "Gash Shag" airline Captain starting salary is circa 125K all in (that's from a good mate - ex Mil aged 40, now decent LoCo Captain who left 3.5 years ago and has just got Captaincy). The Military Flt Lt equivalent will be on less than 80K. He will most likely be a QFI/QWI etc etc etc. An airline equivalent (LTC/TRI/TRE) will be on more than the 125K above. He will also get paid extra for any other additional duties.

Now hypothetically speaking…..

The airline Captain has company pension contributions of 10% (so 12.5K). He chooses to max out his 40K annual allowance and contributes 27.5K (don't forget pension tax relief). His taxable salary is then just under 100K which makes sound financial sense keeping his taxable salary below 100K for income tax purposes. The difference in PAS vs airline salary after contributions is circa 20K - which can be spent as he sees fit.

I've not included contributions as an FO. Equally, I've used 20 years of contributions to keep things simple. Someone leaving age 40 could potentially work for up to 25 years. Again, I've also not included greater contributions (albeit with a tax hit) as a TRI/TRE etc.

20 years of contributions in this example gives an 800K pension pot. This will be in workplace pensions/a SIPP which provides diversification and flexibility that AFPS does not give.

Apologies for a long post. What I was going to ask is does anyone know how to work out how the AFPS contributions made on my behalf compare to my lifetime limit? I just went off on a bit of a tangent....

If anyone sees any flaw's with my calculations... then please shout!

Medic view
 

I nearly got caught in this but was of an age that I could retire and return. The calculation is so complex that you almost need someone with a degree in maths to understand. One year, the calculation showed that I had contributed more than I had earned. I had applied and obtain a discretionary point for providing a service above my basic work. I also moved one step up the salary scale. The contribution into the pension involves something like the difference between last years salary and this year multiplied by 16. This is then added to your own and employers pension contributions. You then pay tax on the pension contribution above £40k. The things that have also caught people especially medics is taper rules. Your salary before tax including your pension contributions plus your employers pension contributions is your total rewards package. Once this goes above £110K (I think) then the amount you can contribute into your pension tapers from £40K. If you are lucky enough to have a total rewards package above £210K then the max you can put into a pension is £10K and you get taxed on contributions above these figures (55%) The problem is that you do not find out the contribution until October of the following tax year! A good IFA is vital.
This is why the NHS is in a mess and needs expensive locums (as reported in the papers today). The vast majority of my Consultant colleagues do not do extra paid work and are asking to reduce the hours they work

VinRouge

I think I have an explanation for both. Firstly, the ‘pension pot’ to which you refer. It isn’t really a ‘pot’ as you have correctly pointed out, it’s more of an IOU from HM Treasury. The scheme is written into UK Law and as we have agreed the pension that you have earned cannot be changed (and as we have learned in the McCloud case it cannot be unreasonably enforced for change without the consent of the scheme member - so AFPS15 should have been an offer to transfer for existing members like it was for AFPS05). There are millions of Govt IOUs in circulation right now, not for pensions but for payments - the Pound Sterling bank note. Have a look at one, in itself worth nothing, but the magical words of “I PROMISE TO PAY THE BEARER THE SUM OF”. This promise is backed by the Bank of England (or regional variations) and is in effect the same as our pensions - the UK promises to pay us the amount we have earned under the scheme underwritten in UK Law. I can remember talking to a Financial Advisor in the Mess in the very early 90s when I was a Pilot Officer, asking him what the Armed Forces Pension was - his answer was one of the best non-contributory pensions you can have and unless the country goes totally ‘belly up’ then they have to pay you (by ‘belly up’ we are looking at a significant hostile takeover by communists or the country going totally bankrupt - both unlikely).

When it comes to the 63.5%, it will vary as it is trying to map AN EQUIVALENT PRIVATE PENSION to the Armed Forces Pension Schemes. So every few years the Government Actuary Department (GAD) value what our pension would cost using several stable private pension schemes (the usual suspects and not the high-risk ones). They then come to a figure of what that would cost the individual if they were to buy that pension as a percentage of your basic pensionable salary (ie. excluding RRP(F), HTD, LSA, etc...). That figure is published as the SCAPE rate and a link follows on the latest valuation done in Mar 19 that is good for the next few years. The last time it was done it, I think in 2016, it was 51.5%.

Here is a link to the latest valuation: https://assets.publishing.service.go...8_Feb_2019.pdf

So that’s it, it can be valued and seen as a ‘virtual pot’, but to challenge it you would have to find flaws in the GAD’s independent processes (good luck with that!) or just accept it is about right by running one of the many pension calculators for private pension schemes - that is what I did and decided it was about right.

You are only taxed if your notional pension contribution goes above £40k. So your basic pay would need to be ~£64k to be above the threshold where you might pay. But there are also many variables to this that mean that some do and some don’t - such as the ‘opening value vs closing value’ calculation (this favours those that take longer to promote). I don’t fully understand it myself, but if your salary in the military starts to approach the mid-high £60ks then you start to be at risk of getting a bill (normally on promotion).

I hope that makes sense? It’s a complex area that I haven’t got my head fully around as I have never had a bill (although I must be close!).

You’re missing the point VinRouge . It is not about what the pension will pay you, it is what the pension will COST YOU. So if the private pension market performance is poor (which it is), then the valuation of what the AFPS would cost the Service person will increase. It’s not about what it pays you, it’s about what it would cost you.