Topical Pension Issues
Pensions on Redundancy
Armed Forces personnel have been informed by their respective single Service Chiefs that, as a result of the SDSR, there is going to be a programme of personnel redundancies in all three arms. The details of the respective redundancy programmes have yet to be finalised in terms of rank; branch; trade etc. Similarly there has yet to be any announcement of the time-frame over which these redundancies will take place, although the smart money is on three tranches: 2012/13, 2013/14 and 2014/15. Nevertheless, the DINs and promulgations already issued have laid down some of the ground rules that will be followed in terms of Compensation Payments to be made to those who are selected for redundancy, albeit voluntarily or compulsorily.
With two different pension schemes (one Inland Revenue approved and sanctioned by Act of Parliament, and the other not Inland Revenue approved and sanctioned by Royal Warrant and Prerogative Instruments), there are two types of redundancy packages.
AFPS 75 (Old Scheme)
Pension
Unlike previous redundancy packages where those leaving with at least 12 years’ service were awarded an immediate pension on exit, new rules introduced into AFPS75 by Statutory Instrument 2010 No 832 mean that Officers and Other Ranks will have had to complete at least 18 years’ qualifying service from age 18, although Officers have the additional qualification option of completing 16 years from age 21 if that occurs sooner.
Special Capital Payment (SCP)
Those who qualify for an immediate pension and gratuity payable at the point of their redundancy exit date will receive a SCP under the following terms:
3 years or more remaining on their current commission/engagement – 9 Months’ Salary.
2 – 3 years remaining on their current commission/engagement – 6 Months’ Salary.
1 – 2 years remaining on their current commission/engagement – 3 Months’ Salary.
Less than 1 year remaining on their current commission/engagement – pro-rata of 3 Months’ salary (e.g. six months remaining = 1.5 Months’ Salary)
Those who, had they completed their current commission/engagement, would have left the Services with an immediate pension on exit, but their redundancy exit date prevents them qualifying for such an award:
1.5 Months’ Salary for each year of Redundancy Reckonable Service (service from age 18 – Officers and Other Ranks). If such people have completed sufficient service to qualify for a Resettlement Grant under normal circumstances (Officers - 9 years’ qualifying service from age 21, Other Ranks – 12 years’ qualifying service from age 18) then that is payable also.
Those who, had they completed their current commission/engagement, would have left the Services without an immediate pension on exit:
Either
1.5 Months’ Salary for each year of Redundancy Reckonable Service.
Or
1.5 Months’ Salary for each by which redundancy has shortened the commitment for further service – plus 1.5 Months’ Salary
Whichever is the Lower
Plus the Resettlement Grant if appropriate.
AFPS05 (New Scheme)
Pension and Early Departure Payments
These will be awarded, in addition to any compensation package, to those leaving who have fulfilled the criteria for an award under normal circumstances, on their date of exit via Redundancy
Individuals selected for redundancy cannot receive Redundancy Compensation if they are entitled to an invaliding pension payable from the day after their redundancy date.
Compensation Lump Sum (CLS)
There are two types of Service commitments that are relevant to the award of a CLS: Long Service Commitment (where completion of current commitment would have taken the individual beyond age 40 with at least 18 years’ qualifying service, or beyond age 55 with at least 18 years’ qualifying service); Short Service Commitment (where completion of current commitment would have meant that the individual would have exited the Services before age 40, or before age 55 but with less than 18 years’ qualifying service).
Long Service Commitment
Early Leaver An individual who leaves under redundancy terms before reaching age 55 or the EDP 18/40 point will receive a CLS of either:
- If he has completed less than 18 years’ qualifying service 1/8th of his final pensionable salary for each complete year of qualifying service completed (part years count on a proportionate basis).
or - If he has completed 18 years’ qualifying service, but leaves before his 40th birthday, the CLS is limited to 18 times 1/8th of final pensionable salary.
Later Leaver An individual who leaves having completed sufficient qualifying service for the award of and EDP Income Stream and Lump Sum on exit will receive a CLS calculated in relation to the uncompleted period of committed service in one of the following three manners:
- At least 4 Years’ Uncompleted Service
One Years’ final pensionable salary (unless the individual has already completed 40 years’ qualifying service – see (c) below) - Less Than 4 Years’ Uncompleted Service
¼ of a Years’ final pensionable salary for each complete year remaining (part years are awarded proportionately), (unless the individual has already completed 40 years’ qualifying service – see (c) below). - Already Completed At Least 40 Years’ Qualifying Service
CLS is calculated in similar fashion to (a) and (b) above, however, where the portion of uncompleted service is 2 years or more, the CLS is restricted to 6 months’ final pensionable salary.
Short Service Commitment
A person serving on a short service commitment shall receive a CLS based on the lesser of the following:
- 1/8th of final pensionable salary for each completed qualifying years’ service (part years are paid proportionately)
- 1/8th of final pensionable salary for each uncompleted qualifying years’ service (part years are paid proportionately) plus 1/8th of final pensionable salary.
SPCs and CLSs must be paid within three months of the date of ceasing employment through redundancy.
Resettlement Grants are also payable to any individual (Officer or Other Rank) who has completed at least 12 years’ pensionable service on the day of Redundancy.
