Topical Pension Issues
AFPS - Tracking Changes
Are you keeping track of all the issues that have had an impact on the Armed Forces Pension Scheme in the past five years, and the likely changes that are to be implemented in the next five years?
Here are what I consider to be the most important headings:
Changes That Are Already In Place
- a. Introduction of the new AFPS05 Pension Scheme and the rules surrounding the opportunity to transfer to the new scheme.
- b. Change to the age that Pension Credit members can receive their portion of pension in respect of a Pension Sharing Order following divorce.
- c. Changes to the rules on the eligibility to receive Resettlement and Life Commutation to those who apply after leaving the Armed Forces.
Changes Effective from April 2011
- d. Changes to the rules regarding qualification requirements for the award of an immediate pension for those on AFPS75 who are made redundant, together with a change to the amount of Special Capital Payment payable.
- e. A reduction of over 80% in the Annual Allowance a pension can increase by in value in a given year, before an Income Tax liability is due, bringing many more serving personnel into an area of taxation that they would not normally have expected to be part of.
- f. The change of prices index used to increase pensions in issue or deferment from the RPI rate to the CPI rate.
Expected Changes by 2015
- g. Reduction in the Life Time Allowance from £1.8m to £1.5m.
- h. The introduction of a brand new pension scheme that is not a final salary pension scheme.
As you can see, quite a radical shake-up in a world where the mere mention of the word ‘pensions’ is often sufficient to induce deep sleep, or at the very least, a roll of the eyes in a heavenly direction. But ignore these things at your peril. Over 80% of the UK population have no form of income in retirement other than their Occupational/Private pensions, and/or their State Pension (which is also undergoing some major changes in the next five years or so – but I don’t have time to touch on that here), so it is in your interest to know how all of these changes are going to affect YOU.
I have a strong suspicion that many of the younger readers will, if they have got this far, look at the list above and think that perhaps just the new pension scheme of the future might affect them, but I would be inclined to disagree. The change in the index to be used to increase a pension once it is in payment will mean that the average Sergeant will receive over £200,000 less in pension receipts in his life time (assuming he lives to an age of 85), on the assumption that there is an average difference of just 1% between the RPI and CPI indexes. This year alone there is a difference of 1.5%!
There is never a better time to get to become more knowledgeable your pension scheme and, the changes that lie ahead, so you will be better prepared to take the correct administrative line – unlike many who buried their head in the sand when offered the chance to change to AFPS05 and elected to stay on the old pension scheme, who now find themselves several thousands of pounds out of pocket with no opportunity to change matters.
So, do yourself a favour and get ahead of the game. Joining the Forces Pension Society would be a good start. Members have access to deep pension expertise that is independent of the Ministry of Defence, so there is no ‘party line’ when it comes to responding to your enquiries, you’ll get a full response, ‘warts and all’. You can join via our website at www.forpen.co.uk , or the Society on 020 7820 9988.
