If you are leaving the Armed Forces with an AFPS 75 Immediate Pension (IP) or an AFPS 05 pension in payment, or with Early Departure Payment (EDP) benefits you need to understand the impact that further service could have on them.
First, the pension abatement rules. AFPS 75 and AFPS 05 rules say that if you leave Regular service with a pension and take up a post which would entitle you to pension benefits under another Service pension scheme your pay in your new post plus your pension cannot exceed your old rate of pay (ROP), plus inflation if appropriate, without your pension being affected. This does not mean that the new ROP can never be more than the old – it can …but the pension will stop. Abatement lasts only for the period of further military employment.
AFPS 15 does not contain such a rule but that does not dilute AFPS 75 or AFPS 05 rules – pensions under those schemes will be abated even though your new service will be pensionable under AFPS 15.
The AFPS 75 IP is paid after 16 years’ service from age 21 for officers or 22 years’ service from age 18 for Other Ranks (OR)– this means that the pension could be paid as early as 37 for an officer and 40 for an OR, leaving plenty of time for further military service. AFPS 05 pensions are not normally paid before age 55, so fewer AFPS 05 members will see their pensions abated, as few will take on further military posts after that age – but there could be implications for their EDP benefits.
Let’s have a look at a few simple examples. I have used AFPS 75 cases but the same principles apply to AFPS 05 members. I am assuming 1 April 2020 retirement dates and I have used the 2019/20 Pension Code plus 2% as the 2020/21 Pension Code was not yet available. Under the rules at time of writing, the final 5 years of service will have been as AFPS 15 members, with the IP based on service prior to transfer:
Tommy leaves with an AFPS 75 IP of £10,454. His pay on his last day of Regular service was £42,000. He takes up an FTRS job on a Full Commitment in the same rank. As his new ROP is equal to his old ROP, the pension stops. His position would not alter had all of his service counted in AFPS 75.
Michael leaves with an AFPS 75 IP of £9,180. His pay on his last day of Regular service was £38,000. He takes up an FTRS job on a Limited Commitment on a ROP of £32,000. Because his new ROP plus IP totals £41,180 his pension is abated by the £3,180 by which this total exceeds his old ROP. Had all of his service counted in AFPS 75 his pension would be £13,529 and his abatement would be £7,529.
Susan leaves with an AFPS 75 IP of £11,274. Her pay on her last day of Regular service was £44,000. She takes up an Additional Duties Commitment (ADC) post (so, part time) in the same rank. Her new ROP is £24,000. Because her new ROP plus IP is less than her old ROP no abatement is necessary. Her position would not alter had all of her service counted in AFPS 75.
Des leaves with an AFPS 75 IP of £13,667. His pay on his last day of Regular service was £36,000. He joins the Military Provost Guard Service (MPGS) as a Private and his new rate of pay is £24,000. Because his new ROP plus IP is £37,667, his pension is abated by the £1,667 by which this total exceeds his old ROP. Had all of his service counted in AFPS 75 his pension would be £13,950 and his abatement would be £1,950.
Freddie leaves with an AFPS 75 IP of £10,454. His rate of pay on discharge from Regular service was £45,000. He joins the Part Time Volunteer Reserve (PTVR). He would have to earn in excess of £34,000 for the abatement rules to kick in. Were Freddie to be sent on an operational tour, the abatement rules do not apply, so no problem there.
Annual pay rises do not affect the abatement calculation but promotion or taking on a fresh commitment does. The calculation is done with reference to ROP on the last day of Regular service, plus inflation.
Abatement lasts only as long as the further military service. If, on leaving this further service, an AFPS 75 member is aged 55 or over, the pension is restored at its original value plus any Consumer Prices Index increases which have occurred since the original pension award.
So does abatement matter? It is – or should be – a major consideration for AFPS 75 members thinking about commuting. Commutation gives members the opportunity to ‘buy’ a second lump sum and pay for it from pension before tax. It is the fact that commutation reduces the individual’s tax liability that makes it attractive to many people – so it is important to make sure that sufficient pension remains in payment to pay for it! If there isn’t, the repayments are taken from pay after tax.
Finally a word about Early Departure Payment (EDP) Scheme benefits from either AFPS 05 or AFPS 15. EDP benefits comprise a one-off lump sum and then an annual income normally payable until age 65 for AFPS 05 or the member’s State Pension Age for AFPS 15. EDP benefits are not paid to those discharged with a pension in payment.
If you leave with an AFPS 05 EDP and re-join the Regulars or FTRS, the EDP income stops until you leave again. So far, so good, but the AFPS 05 EDP Scheme requires that any ‘unexpired portion’ of the lump sum be paid back. So, for example, if the EDP lump sum was equivalent to 12 months’ pay, and the member re-joins or takes up an FTRS post 6 months after receiving the lump sum, 50% of the lump sum will have to be repaid.
If you leave with an AFPS 15 EDP the position is entirely different. If you re-join the Regulars with a break of less than 5 years you have a choice to make, and a one month in which to make it. The options are:
- To keep the EDP benefits but they will not be recalculated when you leave again; or
- To repay the EDP lump sum and stop the EDP income. If you leave before age 60, EDP benefits will be recalculated based on your increased service and pension earned. If you are age 60 or over on discharge, you will the AFPS 15 pension but no EDP.
If you are a member of the Forces Pension Society and have any questions on abatement or any other pension-related issue, contact us on pensionenquiries@forpen.co.uk.
If you are not a member but would like to join, click here
Author: Mary Petley for the September issue of Pathfinder
