Many of you will be leaving the Armed Forces with preserved or deferred benefits (so, benefits which are not payable immediately) and be wondering whether to transfer them to your new employer’s pension scheme or leave them where they are. In this article, we take a look at the transfer rules and highlights the need for financial advice before committing yourself.
Looking first at when preserved/deferred benefits are normally payable:
- AFPS 75 preserved pensions (PPs) are payable at age 60 for the proportion earned up to and including 5 April 2006 and age 65 for pension earned after that date. The part payable at age 65 may be claimed at age 60 at a reduced rate.
- AFPS 05 PPs are payable at age 65. *
- AFPS 15 deferred pensions (DPs) are payable at the member’s State Pension Age (SPA). *
*These benefits may be claimed at any age from 55 but at a reduced rate.
Turning now to the transfer rules:
- Only PP/DPs may be transferred out. Once a pension is in payment, it may not be transferred out.
- Armed Forces benefits may not be transferred to an overseas scheme or a Defined Contribution scheme (AFPSs are Defined Benefit (DB) schemes).
- Transfers to other public sector schemes must be done within 12 months of being eligible to join the new scheme.
- AFPS benefits may be transferred out until one year before the normal age to draw them. Remember to check whether your new scheme has time limitations for accepting transfers.
The transfer process is straightforward:
- Find out what you have built up in your scheme by writing to Veterans UK asking for a ‘statement of entitlement’.
- Ask your new scheme administrator what the value of your AFPS benefits will buy in their scheme. You are not committed to the transfer at this stage,
- If you decide to go ahead, apply to Veterans UK for a transfer value payment, specifying the scheme to which the transfer should be made. Once the transfer agreement has been entered into you cannot change your mind.
- Once you have transferred out, you will have no rights or benefits remaining in AFPS.
In reaching your transfer decision, one of the things you should consider is the age at which benefits are payable in your new scheme – there are others (for example, indexation arrangement and family or ill-health benefits) but the following is just to get you thinking. Most public sector schemes will feature a Normal Pension Age (NPA) and DP age of whatever the member’s SPA is. The exceptions are the Police and Fire Service schemes which, like AFPS 15, have an NPA of 60 and a DP age of the member’s SPA. Were an AFPS 75 member to transfer their PP into scheme a scheme they could have to wait up to 8 years longer to enjoy the benefits of the pension savings earned as an AFPS 75 member.
We are NOT saying that it is always wrong to transfer out of an AFPS. For example, most schemes have a two-year qualifying period which must be served for the scheme to pay out ill-health or family benefits, and transferring benefits in from elsewhere could mean automatic qualification. We ARE saying that, if you are considering transferring out, you should take financial advice so that you understand all the implications.
Finally, a little good news for those of you who plan to take up public sector employment. If you do so within 5 years of leaving the Armed Forces, you will qualify for benefits in your new scheme automatically by virtue of the continuity rule and you do so without transferring any benefits form AFPS.
