We deal with over 800 pension enquiries every month from our members. Some of these are straightforward, but some are not: and sometimes in a single case we can see a whole range of complexities which really do test our knowledge to the limit.
Recently we saw a case which wins the prize for intricacy and complexity. If we were devising an examination for new members of our team we would be guilty of being unfairly fiendish by setting this as the test. This is the case of a member who wrote asking for a forecast, as many do, and offered the following history;
• joined the services as qualified medic and served in a five year short service commission 1991- 1996
• left and worked in NHS for five years
• re-joined the services (but a different one this time) in 2002, bringing his NHS pension with him
• Promoted 2006
• Transferred from 1975 pension scheme to 2015 scheme in 2015
• Now on Full Career commission: could go any time up to 2025
Buried away in this story are a number of questions which we had to get to grips with. And after a bit of head scratching we did so. The questions, and our answers, are as follows:
Q1 Can the initial period of Armed Forces service be aggregated (ie added together) with the later period when calculating the final pension award?
A1 It depends! (as we tend to say here rather a lot). Had he originally joined on a gratuity earning commission (as many did) and had the gratuity been paid that would in effect have replaced the pension earning capability of that period of service, so those years would not be pension earning at all. Or did he receive his gratuity and then repay it, and by doing so allow the time to be considered? But in fact it was not gratuity earning and so the years can count: this means that both periods of service count towards the final pension.
Q2 Does it matter that the second period in the Armed Forces was with a different service?
A2 No it does not matter; an AFPS award can move without problem from time with one Service to another.
Q3 How does the NHS pension transfer into our pension scheme?
A3 This is fairly straightforward when transferring between public sector schemes: it is up to the scheme member to decide whether to transfer pension value (in this case for time served in the NHS) into the Armed Forces pension or whether to leave it in the NHS scheme. If he decides to transfer into the Armed Forces – as the member did here – service in the NHS scheme is converted into a ‘transfer value’ (ie a monetary value that can be transferred. This value is then converted into days and years and that period of time is added to the service calculation which applies to the Armed Forces scheme (but see below).This is fairly straightforward when transferring between public sector schemes: it is up to the scheme member to decide whether to transfer pension value (in this case for time served in the NHS) into the Armed Forces pension or whether to leave it in the NHS scheme. Alternatively, had the scheme member chosen not to transfer the pension value earned in the NHS scheme he would have eventually received another pension according to the NHS pension scheme rules alongside his Armed Forces pension.
Q4 How is the MODO Supplement (which uprates the pension of medical and dental officers) applied to the various elements of his career?
A4 This is the most complex. The MODO supplement was introduced on 1 April 1997 and from that day is used to enhance the pensions of all appropriately qualified medical and dental officers. In this case the first period of service (1991-1996) pre-dates the introduction of the supplement so you might think that means no supplement is paid, right? Well, not quite. If someone was getting the supplement for service that continued after 30 March 2008 the supplement will be paid for all service, even service before 1997, but only as far back as 1992.So the supplement will be paid, right?This is the most complex. The MODO supplement was introduced on 1 April 1997 and from that day is used to enhance the pensions of all appropriately qualified medical and dental officers. In this case the first period of service (1991-1996) pre-dates the introduction of the supplement so you might think that means no supplement is paid, right? Well not quite again. In this case although there was service in the 1992-1997 period the member was not serving in the Armed Forces in 1997 when the whole idea was introduced. So it looks unlikely the member’s supplement award will be allowed to reach back to the earlier, initial period of service. That leaves the service with the NHS. That will certainly not qualify for the MODO supplement since that is exclusively designed for Armed Forces service, and the pay/pension arrangements for the NHS will themselves apply to service there – no extra recognition is required for that by the MoD.
Q5 What are the commutation options?
A5 Well, the member has service under the 1975 and 2015 schemes. For service in the 75 scheme the member will have secured sufficient aggregated service to qualify for an immediate lump sum and pension on retirement. As with all such cases where the individual exits prior to age 55, it is possible to increase the lump sum and reduce the pension – there may be good reasons for doing this but it all depends upon individual circumstances.Well, the member has service under the 1975 and 2015 schemes. For service in the 75 scheme the member will have secured sufficient aggregated service to qualify for an immediate lump sum and pension on retirement. But in this case there will also be service on the 15 scheme (time served after 1 April 2015) where again there will be a smaller income stream and lump sum in the form of Early Departure Payments (EDP), but here the opportunity is only to move the other way, by sacrificing the EDP lump sum and, by doing so, receiving a greater EDP income stream from retirement to State Pension Age (SPA). Of course there is then another, final opportunity to commute when the ’15 scheme Deferred Pension award becomes payable and the choice here is between maximising income and realising another lump sum. Again the possible commutation options are numerous – we in the Society cannot tell you what to do but we hope we can set out the options clearly and also explain the tax implications of flexing between income and lump sums – after that it’s your life and it’s your choice, but we will give you the information you need to help you make the decisions that are right for you!
Well, we worked though all of this and advised the member and we believe that he is happy. This is satisfying work for us but we are pleased that not all enquiries are like this!