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National Insurance Modification Rule

We have received a number of enquiries  from members regarding reductions in their Armed Forces pensions under the “National Insurance Modification Rule”. 

We thought that it might be helpful to explain what this means for anyone who receives a letter from Equiniti Paymaster on this subject.  The Rule states that:

If you are receiving an Armed Forces Pension that includes reckonable service before 1 April 1980 your pension is liable for reduction when you reach State Retirement Age. This reduction affects all public sector pension schemes and for the armed forces the rate of deduction is based on £0.87 for each year. The rate of your basic pension, that is before any increases are applied, will be reduced by £0.87 for each whole year of your reckonable service before 1 April 1980. The reduced pension is then uprated by the pension increases accrued since discharge and the reduction is applied to your armed forces pension when you reach State Retirement Age.”

The reason for this abatement goes back to when the National Insurance Scheme was made compulsory for all employed persons in 1948. When flat rate benefits were introduced under the National Insurance Act 1946, the Government took the view that, to avoid over-provision of pension benefits, account should be taken of State benefits. It requires all employers with occupational pension schemes to modify their schemes to take account of the contributions and benefits payable under the National Insurance Scheme, to prevent two pension benefits being paid for the same period of service. The Armed Forces Pension Scheme was therefore modified and the basic pension of a service person who entered the service on or after 1 July 1949 was to be reduced when they reached State Retirement Age. The Ministry of Defence must comply with this legislation and reduce pension benefits in accordance with the State Legislation.

February 2022

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