Pension News
AFPS 75 Life Commutation Retrospective Changes to the Rules.
The Government (not MOD) has made retrospective changes to the rules concerning Life Commutation for those on AFPS 75. These changes have not yet been promulgated by MOD, which remains engaged in seeking to overcome this change on behalf of those affected. However we believe those on AFPS 75 should be aware in case it may affect their financial planning. The story goes like this:-
People who left the Armed Forces before 6th April 1996, and who had entitlement to commute part of their pension under Life Commutation and Resettlement Commutation, were allowed to amalgamate those two entitlements into one lump sum, providing at least 50% of their pension remained payable as a pension.
On 6th April 1996 the rules changed to allow people to commute under either Resettlement Commutation or Life Commutation but not both simultaneously. However people were still able to take advantage of commutation under both schemes providing they took Resettlement Commutation at the point of retirement, and then at age 55 (when the Resettlement Commutation had been repaid and the pension restored in full) took Life Commutation. In 1996 entitlement to Life Commutation could be exercised at any point between date of exit and the 90th birthday.
A large number of officers (because it was predominately officers who took advantage of this) left the Armed Forces taking Resettlement Commutation at the point of exit, knowing that at age 55, with Resettlement Commutation repaid, they could take Life Commutation. In many cases the Resettlement Commutation figure was the smaller of the two amounts at the point of exit, but knowing the larger sum was to be theirs at age 55, this choice was a conscious decision taken as part of their personal long term financial strategy.
The Finance Act 2004, implemented on 6th April 2006, states that pensions, once in issue, cannot later be commuted into tax-free lump sums. Following lengthy negotiations between HMRC and MOD, it appears that HMRC are now insisting this rule is followed to the letter, although MOD continues to argue on our behalf. The present consequence is a retrospective change to the rules of entitlement to Life Commutation of pensions for those who have already left the Armed Forces, and who may have structured their long term financial positions to embrace this.
This new rule flies directly in the face of well established Government policy that changes to public sector pension schemes are not made retrospectively. This retrospective change could have a major impact on many veterans’ lives.
At the Government’s insistence MOD has been forced to implement this change. However there has been no indication that ex-Service pensioners with entitlement to Life Commutation, and who have not yet exercised their right, have been or are being informed they no longer have that entitlement. The Forces Pension Society has no idea how many people this might affect, although one or two very concerned members have already made contact with us.
You have been warned.
