We are often asked if there is a ‘best time’ to leave the Armed Forces. The answer is ‘yes’, and in this article we set out the key pension-related factors to consider – they are not the only ones, as your own personal circumstances may override them. First, it is important to know what is payable when so that you don’t miss out.
Officers who give 16 years’ Reckonable Service (RS) from age 21 qualify for an Immediate Pension (IP.) Those who leave before having given 9 or more years’ RS qualify for the tax-free Resettlement Grant (RG) currently worth £17,219.
Other Ranks who give 22 years’ RS from age 18 qualify an IP. If they leave before IP but having given 12 or more years’ RS, they qualify for the tax-free RG currently worth £11,769.
Personnel who leave before IP will receive a preserved pension (PP) to be claimed at age 60 for pensions earned up to and including 5 April 2006, and age 65 service after 5 April 2006. The part payable at age 65 can be claimed from age 60 with actuarial reduction (so, at a reduced rate).
Those who serve to age 55 receive a pension straightaway. Those who leave before age 55, and have given at least 18 years’ service and are at least age 40 qualify for Early Departure Payment (EDP) 05 benefits. Those who leave with more than 2 years RS but before age 55 also receive a PP payable at age 65, at which point the EDP income stops.
Those serving to age 60 are entitled to their pension straight away. Those who leave Regular service before age 60 having given at least 20 years’ service and are at least age 40 qualify for AFPS 15 EDP benefits. All personnel who leave before age 60 with at least 2 years’ RS qualify for a deferred pension (DP) payable at their State Pension Age, at which point the EDP income stops.
AFPS 05 and AFPS 15
PPs/DPs may be claimed from age 55 with actuarial reduction and doing so will not affect any EDP benefits in payment. Regulars leaving with more than 12 years’ service but before qualifying for EDP are entitled to a tax-free RG currently worth £12,088 unless they are leaving with an ill health pension.
What is there to consider?
AFPS 75 pensions are calculated on the basis of rank for pension, length of RS and the Pension Code in force when the member leaves. The Pension Code is revised each time there is a pay rise so it might be worth delaying your discharge until after 1 April. Let’s say, for example, the 2024 pay rise is 4%, someone leaving on 1 April 2024 would get a pension 4% higher than someone who left on 31 March 2024. What a difference a day can make!
For AFPS 05 members who are approaching age 55, there is the question of whether to leave with a pension straightaway or leaving a little earlier and receiving EDP benefits for 10 years, followed by the AFPS 05 PP at age 65. Why might you want to consider this? Well, if you leave with an EDP you receive a lower taxable annual income for 10 years BUT you will get two tax-free lump sums each worth three times the pension you have earned – one on discharge and the other when you draw the pension. This is particularly advantageous to members with Pension Sharing Orders (PSOs) as, whilst the pension itself is calculated taking the PSO into account, the EDP is calculated as if no PSO existed …. and, no, it does not affect the “ex’s” entitlement!
Next, you need to think about Pension Increases (PIs). Armed Forces pensions, once awarded, are adjusted in April each year by CPI and this constitutes the PI. The first PI is paid on a sliding scale depending upon when in the year (which runs from 1 April – 31 March) you leave. The earlier you leave in that period the more of the increase you will receive in the following April. Put very simply, those leaving in the first few weeks of April will get the full PI the following April, those leaving in October will receive about half of the PI the following April and those who leave in the last couple of weeks of March will get no increase in the following April. The full increase is paid in subsequent years. This applies whether the pension is paid immediately or not. The proportion of the first PI you receive can make a big difference to your cumulative pension if CPI is high in the year you retire.
Finally, those of you who were in service on 31 March 2012 and still in service on 1 April 2015 will, in due course, have a decision to make about whether you want to count your service between 1 April 2015 and 31 March 2022 in AFPS 15 or your legacy (old) scheme. You will be sent a Remediable Service Statement by Veterans UK detailing your election choices to help you decide. You will need to consider the figures carefully, and take account of the features relating to each scheme that may suit your personal circumstances. For example, AFPS 15 provides pensions to unmarried partners and allows nomination, which AFPS 75 does not.
*Figures correct at time of writing