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Topical Pension Issues

How to keep an eye on your pension!

We  get a number of questions about why the figures contained in the DBS/Veterans UK sponsored Benefit Information Statements (BIS), the pension forecast and the Pension Calculator differ; quite naturally this causes a fair amount of confusion.

In this Pathfinder article we set out the difference between the three sources of financial information and what each tells you.

Benefits Information Statement (BIS) have been landing on doormats for about four years now. The first BISs were sent out in August 2015 to those with birthdays in that month. Thereafter, all serving individuals should have received a fresh BIS annually, shortly after their birthday, in order to keep track of their pension benefits. The purpose of the BIS is to provide you with a concise statement of your pension earnings earned up to the date that the BIS is produced and offers you the opportunity to identify, and get corrected, any errors in the data that makes up your pension awards throughout your career, rather than try to sort out a mess at the point of your retirement. If you have not been receiving your BISs, contact DBS and let them know.

The BIS is a snapshot of the worth of your pension as if you were leaving service on your birthday that year and the spouse or civil partner benefits which would become payable if you were to die in service at that point. If you are a member of more than one scheme, the BIS separates the benefits clearly so that you can see which pension benefits results from membership of which scheme. It also tells you the Normal Pension Age for each scheme and the date on which you could expect to draw the benefits if you were to leave the Armed Forces on your birthday that year.

The Forces Pension Society welcomes the introduction of the BIS – anything which raises awareness of pension benefits, their value and your wider benefits under the scheme, has to be a good thing – but please remember that the BIS does not give the entire benefits picture. For example, a BIS does not show benefits transferred in from other schemes, the value of any Added Years or Added Pension purchased, or the impact of divorce-related orders (Pension Sharing, Earmarking or Attachment Orders) on the pension.

The BIS also does not mention the benefits payable for dependent children or unmarried partners. The reason that these are omitted is that the eligibility rules for children under AFPS 75 differ markedly from those of AFPS 05, AFPS 15 and RFPS, so to include such statistics would make the document too complicated, and discourage the owner from reading it all, which would defeat its aim. In respect of unmarried partners, only the newer schemes (AFPS 05/RFPS/AFPS 15) give these individuals entitlement to dependant’s benefits from your occupational pension scheme membership. There are qualification criteria which determine the eligibility of the unmarried partner and, if they are met, their entitlement is exactly the same as that stated for a spouse or civil partner. The qualification criteria require that the couple must have been living together, that they are free to marry or enter into a civil partnership should they so wish (in other words your partner is not already married to, or in a civil partnership with someone else!). There must also be evidence of financial dependence or interdependence – for example, a joint bank account, a joint loan agreement or joint tenancy agreement. This list is not exhaustive and there is something you can do to help with the eligibility decision. If you complete an AFPS Form 2 nominating your partner for any lump sums which may be due from the pension scheme in the event of you death, you are demonstrating your intention to provide for them in the longer term. It only takes a couple of minutes to complete the form but – a note of caution – keep the form under review in order to make sure that it reflects your wishes or the wrong person could get a rather large lump sum!

When you receive your BIS, you must check it for correctness. The BIS will only be as accurate as the data used to compile it and you are responsible for auditing that data. The information used to compile a BIS is taken from your service record on JPA and, if you find an error, you should raise it with your Unit HR. It may well be that the anomaly can be sorted out by your Unit HR – if not, they will pass it JPAC for investigation.

So, in a nutshell, the BIS, whilst a useful tool and much to be welcomed, does not offer a forecast of benefits payable at an exit date in the future. It will not, therefore, contain the full picture and should not be used for financial planning, but be looked upon as one of the tools available to help you understand your position.

The Pension Calculator has been around for over 10 years and, over those years, has undergone many improvements. Its accuracy depends entirely on your ability to input data that is meaningful and, like the BIS, it has some limitations. For example, if you have benefits in AFPS 75 it will assume that your rank for pension is the rank that you have told it you hold. The problem is that under AFPS 75 rules your rank for pension is:

For Officers – the highest substantive rank held for two years or acting rank held for three years, or
For Other Ranks - the highest paid rank held for two years in the last five.

Where an individual has more than one year of the two or three required, a proportionate uplift in the pension is applied.

The Pension Calculator cannot deal with this – it will always assume that the rank qualification criteria for the award of an AFPS 75 member has been fulfilled in full. The Pension Calculator cannot deal with split service, transfers in, Added Pension/Years or Pension Sharing Orders. The message here is that, once again, the Pension Calculator is a terrific tool in many respects, but it is not fool proof, so be very wary about conducting any financial planning based on the output.

The Formal Pension Forecast is a written pension forecast calculated using your pension-related details as held by DBS and the actual rules of the scheme or schemes in which you have accrued benefits. Everybody is entitled to one free formal pension forecast a year and to get it you must apply on an AFPS Form 12 – emails and telephone calls will leave you empty-handed. If you leave the Armed Forces with preserved or deferred pension benefits – that means that you cannot draw them immediately – you can still keep an eye on the current value of your pension by requesting a formal pension forecast on an AFPS Form 14. AFPS Form 14 is available on the internet and AFPS Form 12 is available on both the internet and on JPA. Once your forecast has been received you do need to check it – and, if you are a member of the Forces Pension Society, you can send it to us and ask us to check it for you. Please note that, if you require the pension value for divorce purposes, you need to apply for that using an AFPS Form 2 (CEV). The standard forecast is often not accepted by the court and making a second application can build in delays.

So to sum up, you have three methods of pension monitoring available to you – the BIS, the Pension Calculator and the formal pension forecast. All are useful in their own way but of the three the best one to rely on for financial planning is the formal pension forecast – but you will notice at the bottom of the forecast even that contains a disclaimer!

This article was written for the January 2020 issue of Pathfinder Magazine which you can read here

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