AFPS 75 Pension Index linking question

Discussion in 'Armed Forces Pension Scheme' started by headgear, Feb 3, 2010.

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  1. Please help us to settle an argument in the office with the following 2 scenarios:

    Soldier Scenario A

    Leaves forces after a full career of 22 years without cummutating his pension:

    Annual pension = 14650 per year until he's 55
    terminal Grant = 43950

    on reaching 55 years old his pension takes account of all of the accumulated RPI's (15 years worth), and then his annual pension increases/adjusts to the new figure and for then on for the rest of his life he gets it adjusted by the RPI annually

    Same Soldier Scenario B

    Leaves forces after a full career of 22 years cummutating his pension:

    Annual (reduced) pension = 12393 per year until he's 55
    terminal Grant + commutation = 43950 + 16950 = 60910

    on reaching 55 years old his pension takes account of all of the accumulated RPI's (15 years worth),and from then on his annual pension increases/adjusts and for the rest of his life he gets it adjusted by the RPI annually

    My Question

    At 55 which annual pension figure is the one to get adjusted after 15 years of RPI? I assume the soldier who took the commutation effectively catches up with the guy who didn't at 55 years old and both soldiers use the top figure - but really wouldn't be surprised if he didn't! This could be a considerable difference for the rest of your life, somewhere in the region of 2-3000 pounds per year.

    Additionally, can anyone account for the difference between the commutated lump sum and the 15 years of the difference between the annual pension and reduced annual pension? even taking into account tax and NI the difference would amount to an overall loss of approx. 4000 pounds if you commutate.

    Lastly according to the forces pension society we (the armed forces) do contribute to our pension at source, of around 4% however does anyone know where this is actually written down in a JSP or whatever?

    Many Thanks
  2. Headgear,

    I am not a pension expert, this is just my understanding of the pension system.

    At age 55, the accumulated RPI is applied to the full pension amount i.e the pension you would receive without commutation.

    The difference between the commutation/reduced pension and no commutation/full pension is because they are effectively loaning you the pension early (as a commutation lump sum).

    Are you a member of the Forces Pension Society? If you are, they should be able to answer your question as it is what you pay them for.

  3. Give the JPAC enquiries line a call on 0800 085 3600.

    They should be able to deal with this for you. I spoke to them today about my pension and lump sum and they were really helpful.
  4. No, I'm not a member of it yet - I was just checking out their website though to see what you get for your £30 a year (not really sure they re a bit cagey! they talk about health assurance etc and a magazine)but I haven't decided to sign up yet.

    I know I can ask the question officially through the JPA system but I was really hoping some of the older guys could tell us what actually happened to them on reaching 55 as opposed to what the system says happens

    I find it amazing that the pension calculator doesn't fully explain your entitlements and options - you would think that'd be an ideal place to lay it all out and let people start to prepare for the future much earlier.

    Cheers for you replies
  5. I thought it was 7%. Google for and read the Armed Forces Pay Review Board report for last year.

    If I have time, I will try and answer your commutation question.

  6. Just a quick note: the connection to the RPI is worrying you, but shouldn't. If there wasn't any inflation over the period, the figures would be the same, so forget the RPI.

    Use a spreadsheet and compare the cashflows between your two options, bearing in mind that cash today is worth more than cash tomorrow.

    Commutation pays you cash today rather than tomorrow. But the Goverment takes it back!

  7. As already stated at age 55 pension is based on what it would be if commutation had not taken place , increases are (at this time ) based on the inflation figure for September of the previous year although with the present state of the country wouldn't be surprised if this changed any time soon.
    I left , after 22 years Army , back in 84 and must say my pensions plus increases have been paid promptly up to now.
    If I may one piece of advice ensure you notify the mil pension service of any change of address or bank details immediately or this may cause a big delay in getting what you are entitled to .
  8. If I recall correctly when doing the old pension forecasts from UNICOM it stated that commutation would cost you roughly £55 for every £100 that you commuted. So if you commuted £10000, you would only get £4500.

    Both people if they left having served the exact same time and having the exact same career progression would get the same amount per year at 55.

    As said earlier at least when you commute they don't tax it and they can't take it back if you die unlike your annual pension.

    It all depends what you are going to do with the money whether it is worth commuting or not - everyone's personal circumstances are different.

    Surely the Forces Pension Society should be able to give you all this information, which for £30 doesn't seem too much money int he grand scheme of things.
  9. Exactly!

    If you are planning on paying off a morgage or something similar it's worth it.
    If you plan just p1ss it up against the wall, buy car, boat or carboat don't bother.
  10. Hi All,

    Leaving the good old BA in six days as a WO2, slightly concerned that the HOC pinstripes are going to attempt to change the index linking to my BA pension benefits during this financial crisis. Are they able to do this , my gutt feeling is they can do what they want , but can they after you have already EOT'd , any thoughts ?
  11. I was talking about this on a resettlement brief last week and have been told that we will have grandfather rights and that the pension we get cannot be altered when they try to change things in 2015. Anyone still serving after that date will then be on AFP75 or the AFP05(cant remember if this is current one) then will carry on the rest of their pension with what ever comes in on 2015. Even though your into your last few days its worth asking your Resettlement Officer who should give you the info or even give you the number of the financial brief people.

    Good Luck on your moving on.......Im doing it for the second time on continuance and its bloody scarey.
  12. Iron,Thanks for that info, good luck to you also been lucky, trained as a Gas Engineer, got a Job start on company trainining next week.

  13. I was always lead to believe that the AFBRB would always consider 7% for our pensions. I was also told that the terms of AFPS 05 could be amended as they went, whilst AFPS 75 was fixed. Therefore to make a change to AFPS 05 was very easy and could be done. For changes to AFPS 75 to make a change you need to stop the scheme and start a new scheme.

    But with the proposals for the 'career average' pension schemes if you are fairly senior in rank terms, WO2 through to LE and for DE officers senior major and above the hit would not be too bad. This is based on the fact that you would have the majority of career on AFPS 75 followed by a few years on the new career average pension scheme. However the few years on the career avereage would be based on the years you were on that scheme - all when you were actually paid a pretty good wage (WO2 and above = ~ 40k plus). This is significantly better than what the poor sods who will join onto the career average scheme as a tom!

    Sorry for going off track - I really should stop waffling!
  14. Huey,

    Nice one mate, ive been on 75 from start to finish so im not worried, i spoke to a certain WO1 at the Army & Navy this year , hes the senior WO1
  15. and commented that his hardest job in his term would be to get blokes to stop in when they find out what the likes of myself are getting and what they will be should they be lucky enough to EOT 22 +