Across the UK, people of every age will be showing their support for everyone who has served in the armed forces, both past and present, on Armed Forces Day. The day, which takes place on 29 June, will see Britons show their appreciation for the work our military personnel does at home and across the world.
This not only includes providing security and fighting terrorism, as our armed forces also promote peace, deliver aid and tackle drug smugglers across the globe. Armed Forces Day is a culmination of a week-long celebration, which provides a morale boost for serving personnel, veterans and their families.
In recognition for the hard work and potential sacrifices everyone in our armed forces makes, service personnel benefit from the military’s Armed Forces Pension Scheme (AFPS). While this provides very generous benefits, it can also be complicated to understand.
If you’re serving in the forces, or have done in the past, and want to understand the AFPS and what it might mean for your retirement, read on to discover more.
The scheme is paid from the public purse
Anyone who has been in the services, or are currently serving in them, is enrolled into the AFPS, which is one of the largest UK public sector pensions. The scheme is paid for by the Government, which means your pension income is not based on the performance of investments, as is the case with many pensions.
This means the amount you receive depends on:
- how long you were in the forces
- your rank when you left or earnings
- the particular AFPS scheme you belong to.
One of the biggest benefits of the AFPS is that you don’t contribute to the scheme from your income while serving.
In 2015, AFPS underwent significant changes
The pension income you receive will depend on the year you joined your AFPS scheme and how many years you were from retirement when major changes were introduced to it in April 2015. So with this in mind, let’s look at the different types of armed forces pensions and what they might mean for you.
AFPS 75
If you enlisted or were commissioned as a member of the regular armed forces before 6 April 2005, you will have joined the AFPS 75 scheme. You could not join the scheme after this date.
With this scheme, you would be entitled to your pension straight away if you left the services aged 55 or over and had:
- 34 years or more service as an officer
- 37 years or more service as another rank.
If you left before the age of 55 with a minimum of 16 years’ service as an officer, or 22 years’ service as another rank, you’ll also be able to take your pension immediately. If you leave without completing the required years to take your pension straight away, you will become a ‘deferred member’.
This means you’ll be able to access it when you reach the age of 60 as long as you served up to 6 April 2006. If you served after this date, you can access your pension aged 65.
Your retirement income will be based on your final rank and ‘reckonable service’. This is the number of years and days that you served that count towards your pension. It won’t be based on your income when you left the forces.
In addition to your annual pension, you will also benefit from a one-off pension lump sum (tax-free) of three times your annual pension.
AFPS 05
If you served in the armed forces on or after 6 April 2005, you would have joined this scheme. You could also be in this scheme if you transferred your AFHP 75 to this one. The AFPS 05 was closed to new members on 31 March 2015.
Under this scheme, you can draw on your pension straight away if you leave the forces aged 55 or above. If you leave the service before you reach 55 years, you’ll become a deferred member, meaning you’ll typically be able to draw on your AFPS when you reach the age of 65.
Under the AFPS 05 scheme, you may also be eligible for:
- an Early Departure Payment (EDP). This is a compensation payment for a shortened career, and aims to help you financially until your pension can be accessed
- ill-health pension, which is where you access your pension early due to poor health or major injury
- Resettlement Grant. This tax-free lump sum is paid to ex-service people to help them adjust to civilian life.
Because AFPS 05 is a final salary scheme, the amount you receive is based on:
- the amount you were earning when you left the forces
- the number of years you served.
The maximum number of years that count towards your pension is 40 years. When you first access your pension, you’ll also receive a tax-free pension lump sum that’s typically three times your annual pension.
AFPS 15
If you’re currently serving in the armed or reserve forces, you’ll be in the AFPS 15 scheme if you joined after 1 April 2015. If you were already serving and aged 45 or below on 1 April 2012, you would have automatically been transferred into this scheme in April 2015.
Under the AFPS 15, if you leave the service aged 60 or above, you’ll be entitled to a pension straight away. If you leave before this age, you’ll become a deferred member, meaning you can access your pension when you reach the State Pension Age, which in 2024/25 is 66.
If you leave the services before you reach the age of 60, you might also be eligible for an EDP payment, an ill-health pension or Resettlement Grant.
The income you receive from the AFPS 15 uses the Career Average Revalued Earnings (CARE) system. This means the amount you receive is calculated on:
- your average earnings during your career
- number of years’ service.
Your AFPS can be passed to loved ones if you die
As a general rule, your spouse, civil partner, eligible partner or children, can receive your pension benefits when you die. They could include a one-off tax-free pension lump sum and taxable income.
That said, for your pension to pass to a beneficiary, you must have completed two years’ qualifying service as a minimum. Please remember that the AFPS 75 scheme may suspend your pension if your dependent later remarries or cohabits with someone.
As such, you should speak to a financial adviser to understand the options that may be available to you and your loved ones.
Get in touch
While the above is only a guide, and should not be taken as individual advice, it demonstrates how complex the AFPS can be. If you are, or have been, a serving member of the armed forces and would like to gain a better understanding of your individual scheme, please give us a call.
We’ll explain the scheme you’re in and the income it could provide in retirement in clear and understandable language. Just call us on 01527 577775 or speak to one of our advisers, as we’d be happy to help.
Friday 28 June 2024