Completing a pension application form towards the end of service is one of the most important pieces of discharge administration a service leaver will need to complete, particularly if you are going to receive immediate pension benefits.
It is critical that you fully understand your pension entitlements and how the options you select on the AFPS Pension Form 1 (Pen Form 1) will affect the benefits you receive. A tick in the wrong box can have profound consequences which may not be reversible. Your individual circumstances and the timing of your discharge will determine the options available to you.
If you are eligible for the AFPS 15 Remedy (McCloud) and are leaving with immediate pension benefits, you should expect to receive a Remediable Service Statement (RSS) prior to your discharge, which will detail the benefits available and your remedy options. We recommend that you should request a pension forecast ahead of your discharge, ideally before submitting your Notice to Terminate. This will ensure that you are fully aware of what pension benefits to expect when you leave. All serving personnel are entitled to a ‘free’ forecast once every 12 months and can obtain one by submitting an AFPS Form 12 to Veterans UK.
There are two ways to complete the Pen Form 1. It can be completed on JPA or downloaded from the Gov.uk website and then sent via post to Veterans UK. The latest version was amended in September 2023. If using the paper version, use the form directly from the Gov.uk site to ensure the latest amendments are captured.
Completion of the Pen Form 1 is not required at a set time before the discharge date. However, it is important to note that it must be completed and submitted to Veterans UK before your final day of service.
Immediate Pension Benefits?
The first part of the form is straightforward and requires your personal details which should be automatically populated on the JPA form. The next part of the form is where you indicate whether you are eligible for immediate pension benefits. If you are leaving with a Resettlement Grant or an ill-health Tier 1 lump sum only from the AFPS 05 and/or the AFPS 15, you need to indicate you are not entitled to immediate benefits. If you are going to receive an immediate pension and/or Early Departure Payments (EDP), you need to state that you are claiming for immediate benefits.
AFPS 15 Remedy (McCloud)
In the remedy section, you need to state your eligibility and current situation regarding your RSS. If you have received the RSS and are ready to make your remedy election choice, you will need to make your election on the Pen Form 1. It is extremely important that you understand how your legacy pension benefits compare against those provided by the AFPS 15 before making this choice.
Which Pension Scheme?
Here, you need to select which pension scheme(s) you are a member of. All those currently serving are active members of AFPS 15. If you have served for a longer period, you may also be a member of a legacy scheme which you will need to indicate. As an example, if you joined as a member of AFPS 75 and were then transferred to AFPS 15, you will need to select the option, ‘AFPS 15 with 75 accrued rights and Royal Gibraltar’.
Commutation
The next sections are the most critical. Here you will indicate what commutation choices you wish to make. There are various options depending on your scheme(s) and it is important to understand the difference between resettlement commutation and inverse commutation.
Resettlement commutation on AFPS 75 means that you will have the option to receive an increased tax-free lump sum at discharge in return for a reduced taxable pension until you reach 55 years of age, when it will revert to the full rate.
The only commutation option for AFPS 05 is inverse commutation on the pension. This option would be available to you if you are a member of that scheme and are at least 55 years of age at the point of discharge. Inverse commutation means that you will have the option to surrender some or all of the AFPS 05 pension tax-free lump sum in return for an increased annual taxable pension. Those leaving with an AFPS 05 EDP rather than pension do not have any commutation options on that scheme at discharge.
The Inverse Commutation option is also available on the AFPS 15 EDP lump sum at discharge. It is here where mistakes may be made. If this option is taken, it means that you will give up the entire AFPS 15 EDP tax-free lump sum at the point of discharge in return for an increased taxable annual EDP income from discharge until State Pension Age (SPA). There are some benefits to this, but it is most often the case that individuals prefer to receive an increased tax-free lump sum at discharge and a lower annual taxable income, particularly if they will be going on to seek further employment.
Early Payment of Pension – CAUTION!
As you may be aware, the AFPS 05 pension would normally be payable from 65 years of age, and the AFPS 15 pension from SPA. However, both of those pensions can be claimed from as early as 55 years of age.
In the AFPS 15 section on the Pen Form 1, there is the option, ‘I am between age 55 and 60 and wish to receive an Early Immediate Pension (Actuarially Reduced) payable from discharge’. For those who are in that age bracket, ticking this box will have a significant effect on your AFPS 15 pension. The pension that would have been available to you at SPA will instead be payable to you at discharge but will be paid at a reduced rate. If taken at age 55, the reduction will be almost 50% and it will remain at that reduced rate for life. This will also remove the ability to create the tax-free lump sum when the pension commences at SPA. Again, this may be an attractive option for some leavers, but it is important to fully understand the consequences and the tax position before making that choice.
If any of these AFPS 15 Remedy and/or commutation options are taken, it is extremely unlikely that they can be reversed after your discharge. This is entirely at the discretion of the pension scheme administrator.
It is our firm recommendation that all members consult us when completing their Pen Form 1. A simple 5-10 minute telephone call to our enquiry service means that you can complete the form under the guidance of one of our consultants. You can find the number for our enquiry service in the members area of the FPS website.
Members can of course also seek our guidance in any aspect of their remedy and commutation options ahead of completing the Pen Form 1.
05/09/2024
