Articles & Guides

CPI and Annual Pension Increases – how they work for each scheme.

Since the Consumer Price Index (CPI) rise for the new tax year came into effect on 6 April at 3.8% now seems a good time for us to remind you why CPI matters to those already in receipt of their pension.

First of all, a reminder as to when your pension is paid for each scheme:

AFPS75: Age 55 for pensions in payment or 60/65 if deferred unless the veteran was medically discharged (in which case the increases are immediate) and are backdated to when an individual left the Armed Forces
AFPS05: Age 55 for immediate pension or age 65 if pension is deferred.
AFPS15: Age 60 for immediate pension or State Pension Age (67/68) if deferred.

So, why does CPI matter?

First, the AFPS 05 pension award is calculated using the best consecutive 365 days’ pay in the last three years, with the two earliest years increased by CPI. This helps protect the member when inflation is high and pay awards are low.
Next, the AFPS 05 Early Departure Payment (EDP) scheme uses the same calculation of pay as used for the pension, so the CPI rate is important.
Thirdly, AFPS 15 Added Pension which has already been purchased increases by CPI each year.
Finally, CPI increases build up from the time you leave the Armed Forces and this applies whether your pension is paid immediately or preserved/deferred until you are old enough to draw it.

These CPI increases are referred to as Pension Increases (PIs). When you retire, your first pension increase (PI) depends on when you leave during the year (1 April–31 March).

If you leave earlier in the year, you get more of the increase the following April.
If you leave later, you get less of that first increase.
After that first year, you always receive the full annual increase.

It’s worth remembering that if CPI is high in the year you retire, the exact date you leave can affect the size of your pension

If you are leaving with an AFPS 75 Immediate Pension (IP) and are not yet aged 55, the PIs are stored for you and become payable at age 55. When the PI is applied (and it happens automatically), it will be based upon your original pension award, not any reduced amount you might be receiving due to Resettlement Commutation.

If you are leaving with a preserved/deferred pension, all the PIs that have occurred since your discharge will be added prior to the pension coming into payment. Once your pension is in payment, PIs will be applied each April thereafter.

If you leave with EDP in payment on AFPS05 and AFPS15, and you leave before age 55, the CPI increases are also stored until you reach age 55 at which time you will start to receive them.

PIs are applied early in only three circumstances:

If the pension is an invaliding pension.

If a preserved pension is paid early because you are unable to work full-time due to a mental or physical disability which is deemed will continue until your preserved/deferred pension age.