Last month in the June 2021 issue of Pathfinder we looked at how pensions are abated on taking up further military posts.
This month we examine what happens to AFPS 05 and AFPS 15 Early Departure Payment (EDP) and Resettlement Grants (RGs) -both of which are only payable to Regulars - in the same circumstances.
First the EDP. The criteria for receiving EDP are:
- AFPS 05 – at least 18 years relevant service and at least age 40 on discharge (the 18/40 Point).
- AFPS 15 – at least 20 years reckonable service and at least age 40 on discharge (the 20/40 Point).
EDP benefits are not paid to those discharged with a pension in payment. A member leaving with an ill-health (Tier 1) lump sum only, who meets the EDP criteria, will received EDP benefits instead of the Tier 1 lump sum.
Individuals meeting the AFPS 05 criteria and leaving before age 55 will get EDP benefits. Medical Officers and Dental Officers (referred to as MODOs) are normally excluded from this Scheme. These EDP benefits comprise a tax-free lump sum normally worth three times the preserved pension (PP) and an income normally worth at least 50% of the PP – I use the word ‘normally’ deliberately as, if the member’s pension is subject to a Pension Sharing Order, the value of the EDP benefits is linked to the value of the benefits before the pension is shared! For every year served beyond the 18/40 Point the income increases by 1.667% of the value of the PP.
Here is an AFPS 05 example:
Alex joined the Royal Navy at age 24 and left at age 52 on 31 March 2021, having given exactly 28 years Reckonable Service (RS). He transferred to AFPS 05 as a result of the Offer To Transfer but was not transferred to AFPS 15 due to his age. His Final Pensionable Pay (FPP) is £50K.
His PP is £20,000 and his PP lump sum is £60,000. His EDP lump sum is £60,000 and his EDP income is £13,334 (50% of the value of the PP plus a further 16.67% for the 10 years served beyond the 18/40 Point= 66.67%). At age 55, this income will increase to £15,000 (i.e. worth 3/4 of PP) and pick up all the Consumer Price Index (CPI) increases which have occurred since he retired.
If Alex takes on a Regular or Full Time Reserve Service (FTRS) post (including Additional Duties Commitments) his EDP income stops and restarts when he leaves again. If he is aged 55 or over when he leaves again, his EDP income will restart at £15,000 plus CPI adjustments.
Part of Alex’s EDP lump sum may have to be repaid on undertaking this further service – how much depends upon how long it has been since he left. His £60,000 EDP lump sum is equivalent to 120% of his FPP - so, 438 days’ pay. So, if he joined 180 days after leaving with his EDP in payment, he would have to repay about 60% of the original lump sum – that would be about £35,000!
An AFPS 15 member leaving the Regular Armed Forces before age 60, who meets the 20/40 Point criteria will leave with an EDP – and this includes MODOs. This scheme pays an EDP lump sum of 2.25 times the AFPS 15 deferred pension (DP) and an EDP income of at least 34% of the DP. At the 20/40 Point, the EDP income is worth 34% of the DP. For every year served beyond the 20/40 Point, the value of the income increases by 0.85% of the DP.
Under current rules most of you will have been transferred to AFPS 15 and will be leaving with benefits from your ‘old’ scheme and AFPS 15. As you know, you will, in due course, have decisions to make about whether to stay in AFPS 75/AFPS 15 or AFPS 05/AFPS 15 but this example is based on the situation as it is now:
Carol had given exactly 22 years RS when she left at age 40 on 31 March 2021. The first 16 years would have been as a member of either AFPS 75 or AFPS 05 for which she would have been awarded:
- If AFPS 75, an Immediate Pension based on 16/22 of the 22 year rate of her rank for pension; OR
- If AFPS 05, PP benefits and an AFPS 05 EDP based on her 16 years in that scheme.
Her AFPS 15 DP (payable at her State Pension Age) was £3,200. Her EDP lump sum was £7,200 and her EDP income was £1,088.
If Carol enters into an FTRS commitment, or re-joins the Regular Armed Forces after a break of 5 years or more, she keeps both her AFPS 15 EDP income and lump sum.
If she re-joins the Regular Armed Forces (remember, only Regular service counts towards EDP benefits) with a break of less than 5 years she has a choice to make, and one month in which to make it. Her AFPS 15 EDP choices are:
- To keep her EDP benefits but they will not be recalculated when she leaves; or
- To repay her EDP lump sum and see her EDP income stop. If she leaves again before age 60, they will be recalculated based on her increased service and pension earned. If she is age 60 or over when she leaves, she will not be entitled to EDP benefits – instead, her AFPS 15 pension is payable immediately.
It is important to remember that these AFPS 15 provisions DO NOT dilute AFPS 05 and AFPS 75 rules. Had Carol been an AFPS 05 member, her AFPS 05 EDP income would stop and she could have to repay any ‘unexpired’ portion of the EDP lump sum (dependent upon the length of the break in service) just as in Alex’s case. Had she been an AFPS 75 member, her AFPS 75 pension lump sum would be unaffected but her AFPS 75 pension would be subject to the abatement rules explained in last month’s article
Turning now to RGs. RGs are paid to Regulars who leave before any other terminal benefits are payable and transferees have protected rights to the RG for their ‘old’ scheme.
- AFPS 75 members – Officers must give at least 9 years RS after age 21 to qualify for an RG of £16,597 and Other Ranks must give 12 years RS after age 18 to qualify for an RG of £11,344.
- AFPS 05 and AFPS 15 members – members must give at least 12 years’ service to qualify for an RG of £11,651 (but we acknowledge that, as AFPS 15 has only been around for 6 years, it could be a while before AFPS 15 RGs are awarded).
The RG is a tax-free lump sum designed to help you settle into civilian life so, if you re-join quickly, you could see it clawed back. The necessary breaks in service are:
- AFPS 75 requires a break of 31 days before taking up Full Time Reserve Service (FTRS) employment (this includes Additional Duties Commitments) and 121 days before re-joining the Regulars. If you do not observe the break, the RG is clawed back in part or in full if you re-join the Regulars, or in full if you join the FTRS.
- AFPS 05 requires a break of 31 days before taking up FTRS or Regular employment. If you do not observe the break, the whole RG is clawed back.
You can re-qualify for RG in certain circumstances – but that is for a future article!
Finally a word of reassurance for those of you thinking of joining the Part Time Volunteer Reserve (PTVR). Neither EDP benefits or RGs are affected by PTVR service – your lump sum and/or EDP income are safe!
Read the previous article Rejoining...Does Abatement Really Matter
If you are a member of the Forces Pension Society and have any questions on this topic or any other pension-related issue, contact us on firstname.lastname@example.org.
Author: Mary Petley, Forces Pension Society – for July 2021 Pathfinder