Our Contributary Pension Scheme

Discussion in 'Armed Forces Pension Scheme' started by archbishbop, Oct 7, 2010.

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  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.

  5. OldSnowy

    OldSnowy LE Moderator Book Reviewer

    (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,

    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!
  7. vauxhall

    vauxhall Sponsor

    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. 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.
  9. :pale: With 2 years to go, i will be watching this space and keeping my fingers crossed!

    Is it time to panic? :pale:
  10. Yup, I think it is!
  11. Thanks Jack!
  12. 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. 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!
  15. That has been blown out of the water by the announcement of the change from rpi to cpi annual increments