Our Contributary Pension Scheme

#1
Listening to an interview this morning (with a Government Rep?) on the Radio 4 "Today" programme about 0720Hrs 7 Sept. I heard the claim that the Armed Forces Pension Scheme is non-contributory. There was no suggestion the Pension Scheme was under threat, but as I understand it the claim it is non-contributory is only superficially true.

I think this is how it works: The Armed Forces Pay Review Body fixes pay rates by comparison with equivalent civvy employment. The rates are then increased by the X-Factor; but then they are reduced by an amount to
take account of the fact that the pension is notionally non-contributory.

It is true that no deduction for pension contributions is shown on Armed Forces pay statements; but it is also true that the cash has already been deducted at an earlier stage in the accounting process.

Am I right?

I do believe it is in the interests of the Armed Forces to have these facts kept before the public as the national debate progresses.
 
#2
X-factor 20%
Minus 7% Armed Forces Pension Scheme
Equals 13% X-Factor
"but it is also true that the cash has already been deducted at an earlier stage in the accounting process."
Answer Yes, see above.
 
#3
Yes, that is essentially correct. It is non-contributory because when the AFPRB makes its recommendations for pay it has already deducted a percentage equating to the value of the pension. That value has moved over the years and will be in their report. A couple of figures from memory are 9% and 7%, but I have not checked.
 
#4
I was astonished to hear Lord Hutton state that this morning! I assume that he was badly briefed by his civil servants or that he didn't read his brief!

Our salary was abated (reduced) by 8% to pay for our pensions but that was reduced to 7% a couple of years ago (in other words, we received a small increase (1%) to our salary) because of, I think, the growing impact of the (poorer) 2005 pension scheme on the average soldier.

Litotes
 

OldSnowy

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#5
It is true that no deduction for pension contributions is shown on Armed Forces pay statements; but it is also true that the cash has already been deducted at an earlier stage in the accounting process.
(My bold)

Hmm, now there'es the rub. AFAIK, at no stage within the government or MOD accounting process is there a time when the 'cash is deducted'. It just does not happen. Given that the money is not actually 'taken away' at any time, then the statement is essentially correct. If that's not the case, just try and opt out of the scheme, and get the extra 7% in your wages!

Oh, and last time I checked, the actual value of the contributions to the AFPS was around 30%. It is simply a pension that money could not buy anywhere else. Don't be surprised if, as soon as things cool down in the warmer places of the world, this is looked at very closely indeed.
 
#6
(My bold)

Hmm, now there'es the rub. AFAIK, at no stage within the government or MOD accounting process is there a time when the 'cash is deducted'. It just does not happen. Given that the money is not actually 'taken away' at any time, then the statement is essentially correct. If that's not the case, just try and opt out of the scheme, and get the extra 7% in your wages!

Oh, and last time I checked, the actual value of the contributions to the AFPS was around 30%. It is simply a pension that money could not buy anywhere else. Don't be surprised if, as soon as things cool down in the warmer places of the world, this is looked at very closely indeed.
My bold,

I think it will come earlier than that:

Reading the same forum on Sky and the private sector are baying for the blood of the public sector!
 

vauxhall

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#7
Listening to an interview this morning (with a Government Rep?) on the Radio 4 "Today" programme about 0720Hrs 7 Sept. I heard the claim that the Armed Forces Pension Scheme is non-contributory. There was no suggestion the Pension Scheme was under threat, but as I understand it the claim it is non-contributory is only superficially true.

I think this is how it works: The Armed Forces Pay Review Body fixes pay rates by comparison with equivalent civvy employment. The rates are then increased by the X-Factor; but then they are reduced by an amount to
take account of the fact that the pension is notionally non-contributory.

It is true that no deduction for pension contributions is shown on Armed Forces pay statements; but it is also true that the cash has already been deducted at an earlier stage in the accounting process.

Am I right?

I do believe it is in the interests of the Armed Forces to have these facts kept before the public as the national debate progresses.
We at the Forces Pension Society heard the Today programme too. We are currently studying the interim report and will include a clear reminder of the correct position regarding contribution/abatement when we respond to the report's recommendations.
 
#8
Listening to an interview this morning (with a Government Rep?) on the Radio 4 "Today" programme about 0720Hrs 7 Sept. I heard the claim that the Armed Forces Pension Scheme is non-contributory. There was no suggestion the Pension Scheme was under threat, but as I understand it the claim it is non-contributory is only superficially true.

I think this is how it works: The Armed Forces Pay Review Body fixes pay rates by comparison with equivalent civvy employment. The rates are then increased by the X-Factor; but then they are reduced by an amount to
take account of the fact that the pension is notionally non-contributory.

It is true that no deduction for pension contributions is shown on Armed Forces pay statements; but it is also true that the cash has already been deducted at an earlier stage in the accounting process.

Am I right?

I do believe it is in the interests of the Armed Forces to have these facts kept before the public as the national debate progresses.
I agree. Although it was strictly speaking correct to refer to armed forces pensions this morning as non-contributory, that only tells half the story. I believe that it needs to be explained at every opportunity that a deduction is nevertheless made from what personnel would otherwise be receiving.

I did mention that background to a BBC researcher this morning, and also recommended that they speak to the Forces Pension Society, who are very much on the case as you can see.
 
#12
I was astonished to hear Lord Hutton state that this morning! I assume that he was badly briefed by his civil servants or that he didn't read his brief!

Our salary was abated (reduced) by 8% to pay for our pensions but that was reduced to 7% a couple of years ago (in other words, we received a small increase (1%) to our salary) because of, I think, the growing impact of the (poorer) 2005 pension scheme on the average soldier.

Litotes
But surely both those under 75/05 received that 1% and therefore made it a mute point.

Because I'm a sad twat I worked out what the financial outcomes for AFPS 75 with commutation, without commutation and AFPS 05. At age 75 there those on AFPS 05 would have received £55k less than those on AFPS 75 without commutation (for WO2, higher band, inc 9, 22 years service).

No wonder they were pushing so hard for us to switch.
 
#13
But surely both those under 75/05 received that 1% and therefore made it a mute point.

Because I'm a sad twat I worked out what the financial outcomes for AFPS 75 with commutation, without commutation and AFPS 05. At age 75 there those on AFPS 05 would have received £55k less than those on AFPS 75 without commutation (for WO2, higher band, inc 9, 22 years service).

No wonder they were pushing so hard for us to switch.
Assuming we live this long!
 
#14
There is a similar thread running on PPRUNE:
Final-salary Pension under threat! - PPRuNe Forums

It has a link to the Forces Pension Society:
Pensions explained - The Forces Pension Society

This quote is from that page:

“Did you know, for instance, that although Armed Forces Pension Schemes are usually considered to be non-contributory, the salaries of all Service people are abated by an amount agreed by the Armed Forces Review Body to take into account the value of the pension? This is currently 4%, a not insignificant amount and is a contribution about which you, the contributor, have no say.

There are two Armed Forces Pension Schemes running:

AFPS 75 - favours short service and has a poor dependants package
AFPS 05 - favours long service and has a good dependants package”

The document detailing the method of valuing our pension is this one: Comparative Valuation of Armed Forces Pension Scheme Report 2006
- http://www.ome.uk.com/Document/Default.aspx?DocumentUid=73D087FC-86B9-476C-835B-F35D76E6FF1B

The 2007/8 AFPRB (36th) Report details how this will be implemented and when it will be revalued (2012) - Office of Manpower Economics - AFPRB reports

Fortunately during the OTT phase I already knew I would serve over 30 years so I made the jump to AFPS 05. Compared with someone on AFPS 75 with equivalent rank/service I will get a larger terminal grant, slightly less until 65 but then a further lump sum and a pension roughly 20% larger (and at that age I'll probably need it!), but I think I was one of the few for who it made clear financial sense.

They have stated that accrued benefits will be protected if they make further changes, lets hope they stick to that!
 
#16
The pension is indeed counted as 7% when the AFPRB make their recommendations. Am I the only one however that remembers this little snippet from the 2007 AFPRB report?

Pension Valuation.
2.16 ...Our last valuation was carried out for our 2001 Report, when we
concluded that the relative advantage of the military pension over civilian comparators was 7 per cent and we have used this figure in our pay comparability assessment each year.
Followed by:

We conclude that:
• With revisions to reflect changing circumstances, our methodology to
determine the relative pension value and how we apply that value to civilian comparator pay remain appropriate given that the Armed Forces have noncontributory pension schemes;

• The value should be 4 per cent; and

• The value will be deducted from the civilian pay comparisons from 1 April
2007, which will be part of the evidence for our 2008 Report.
The 2008 report made absolutely no mention of this (nor did the 2009 or 2010 reports).
 
#17
I wouldn't worry unduly - previously accrued rights would be virtually impossible to take away from you - legally anyway. The RPI/CPI issue is real worry though.

I recommend to anyone that they join the AFPS - they fight your corner and can give bespoke pension advice.
 
#18
The current valuation is 4% as per the AFPRB 2007 Report. Both the 2008 and 2010 reports state that work on the next revaluation will begin in 2011. The 2009 report also states:

Pension valuation

2.60 In the context of “total reward”, we were asked in the Government’s evidence to further
explain the rationale behind the outcomes from our 2007 pension valuation. Our 2007
Report set out a full explanation of our approach and the supporting detailed
research was made available when our report was published. We subsequently
exchanged correspondence with the Secretary of State on this issue and our Secretariat
provided explanations to both MOD and HM Treasury. We will keep our methodology
under review for the next valuation for our 2012 Report.

I wouldn't confuse accrued benefits (i.e. the value your potential pension has grown to) with future changes to pension terms and conditions. While accrued benefits could be touched it would be a political hot potato for anyone who tried. Interestingly the government has been trying to tie our pay to CPI for some time (a point not lost on the AFPRB), so I guess it was only a matter of time before pensions went that way too.

AFPS 05 was the first attempt to reduce the future pension bill. Given the current financial state we're in its almost certainly not going to be the last, but hopefully I'll be drawing mine before then.
 

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