Serving? Here we debunk some of the most prevalent myths surrounding your Armed Forces Pension!
Myth: There’s no point taking an interest in my pension – I won’t see any benefits for years
Fact: Wrong! Early Departure Payments (EDPs) are paid when you leave at age 40. No other public or private pension scheme offers this. You get a tax-free lump sum plus regular monthly payments which increase from age 55 and again at state pension age.
Myth: I contribute part of my salary to my pension
Fact: Wrong! Unlike every other public sector schemes, all Armed Forces pension schemes are non-contributory, forming part of your overall benefits package. Plus, added pension contracts allow you to boost your pension.
Myth: High inflation will reduce the value of my pension
Fact: Not true. Your Armed Forces Pension is protected from inflation. Each scheme does its best to protect your pension earnings as they grow during your service. How do they do that?
Read More: How does my pension grow in service?
Myth: I will receive a half pension after 12 years of service
Fact: Not true. But, you are entitled to a Resettlement Grant (RG) which is often mistaken as being a ‘half pension’. The RG is a one off lump sum payment (currently) £12,692 to help you transition to civilan life. You will need to have served as a Regular, and not entitled to an Early Departure Payment (EDP), ill-health award or an immediate pension. If you receive a RG, you will still be eligible to receive a deferred/preserved pension when you reach age 65/State Pension Age.
Myth: I am 38 years old, I joined the Armed Forces in 2003 and I am about to be Medically Discharged on Tier 1 as an OR4, before I reach my 22 year point. I have been told that even though I haven’t reached my 22 year point I will receive an OR9 immediate pension and AFPS 15 EDP lump sum and EDP income.
Fact: That’s not correct, however, as you are to be Medically Discharged, under AFPS 75 you will receive an OR4 (not OR9) ill-health immediate pension (known as a Service Invaliding Pension (SIP)) and tax-free lump sum, even though you have not reached your immediate pension point. In addition, because you will be leaving service before reaching your 20/40 point (i.e. 20 years’ qualifying service and aged 40) your Tier 1 medical discharge will attract a tax-free lump sum payment for your accrued service in AFPS 15. You will also qualify for a deferred pension from AFPS 15 which will be payable in full from your State Pension Age.
Myth: I am being medically discharged and understand that my pension will be tax-free.
Fact: This is not true. Your pension is only paid tax-free if the reason for your medical discharge is attributable to your military service. Attributability is assessed automatically if you leave with a pension in payment and you will be informed by Veterans UK of the outcome between 6 and 8 months after your medical discharge.
Myth: I am a Warrant Officer and will be retiring from the Armed Forces at the age of 48 after 25 years service, having been a member of AFPS 75 and AFPS 15. I have been told that I will receive a second lump sum at age 55, could you tell me how much that will be?
Fact: As a member of AFPS 75 and AFPS 15 there is no second lump sum payable at age 55.
When you leave the Armed Forces you will receive immediate benefits from AFPS 75 and AFPS 15. The AFPS 75 immediate pension will comprise an annual pension and a terminal grant (tax-free lump sum) equivalent to three times the annual pension. You will have the option if you wish to increase the lump sum by taking resettlement commutation, however if you do this your AFPS 75 pension income will be reduced as a result until age 55 (essentially to ‘repay’ the element you commuted). At age 55 the repayment is complete and your full pension is then restored.
In addition to your AFPS 75 immediate pension benefits, because you have completed more than 20 years service and are over 40 years old, you will also receive an Early Departure Payment (EDP) from AFPS 15 immediately on discharge from the Armed Forces. This consists of an EDP annual income and a tax-free lump sum. The EDP income will be paid until you reach your State Pension Age at which point the EDP income will stop and your AFPS 15 pension will be payable (this will be in addition to your AFPS 75 pension which will be ongoing). There is no automatic tax-free lump sum payable with the AFPS 15 pension, but you can opt to create one if you wish by commuting an amount of the pension. If you choose to do this, your AFPS 15 pension would be reduced for life.
September 2024
