In last month’s issue of Pathfinder Magazine we explained how the benefits of those leaving with a Tier 1 condition are calculated. This month we will do the same for Tiers 2 and 3, paying particular attention to those with benefits in more than one scheme.
First, the difference between the three AFPSs and how ill-health benefits work in each.
Every AFPS 75 member who is medically discharge is treated the same no matter what their invaliding condition. They receive an index-linked pension straight away, based on their rank for pension, reckonable service and the Pension Code in force when discharged. There is a tax-free lump sum of three times the pension.
For AFPS 05 or AFPS 15 members, the invaliding condition is assessed and allocated one of three Tiers:
Tier 1 – the condition is deemed not to significantly impair the individual’s capacity for civilian work – see last month’s Pathfinder for more details.
Tier 2 – the condition is deemed to significantly impair the individual’s capacity for civilian work.
Tier 3 – the condition is deemed to prevent further full-time work.
For Tiers 2 and 3, an enhanced, index-linked pension is payable straight away.
For AFPS 05 the pension is the pension earned enhanced by:
- Tier 2, the addition of 1/3 of the possible service to age 55:
- Tier 3, the addition of ½ of possible service to age 55. If this totals less than 20 years, the pension is based on 20 years.
AFPS 05 pensions feature an automatic tax-free lump sum of three times the pension.
For AFPS 15 the pension is the pension earned enhanced by:
- Tier 2, the addition of 1/3 of the possible service to age 60 multiplied by the average annual pension earned.
- Tier 3, the addition of ½ of the possible service to age 60 multiplied by the average annual pension earned. If this totals less than 25 years, the pension is based on 25 years, – unless the member joined so late that he could never have given 25 years’ service by age 60. In this case the calculation will be based on actual service plus the possible service to age 60.
AFPS 15 does not feature an automatic lump sum but pension can be surrendered to generate one.
The allocation of the conditions to a Tier can be challenged on one of two grounds:
* That the original decision was incorrect; or
* That the condition has deteriorated in an unexpected way.
If successful, the benefits will be recalculated and back-dated to the date of discharge if the decision was incorrect, or to the date of the request for review if the condition has deteriorated in an unexpected way.
Some of you will only ever have been AFPS 15 members, so let’s look at an example of that first.
Jason joined the Armed Forces on 1 April 2015 and he is to be medically discharged on 31 March 2019 aged 24 with a Tier 2 condition. The pension he has built up to that point is worth £4,000 – making his average pension £1,000 per year. His Tier 2 ill health pension would be worked out as follows:
His actual pension sum earned – £4,000
His average pension (£1K) multiplied by 1/3 of the 36 years (12 years) he could have served to age 60
This gives an annual pension of £16,000.
Jason can give up some of his pension to generate a lump sum. The maximum he could generate is £68,571.43 and if he did so his pension would reduce to £10,258.71.
Most of you will have been transferred to AFPS 15 from either AFPS 75 or AFPS 05 and will have protected rights in your ‘old’ scheme – in other words you are entitled to benefits from both schemes. This is where things get complicated because the benefits from each scheme are adjusted to take account of the benefits from the other.
Combined AFPS 75/AFPS 15:
The AFPS 75 element of the benefits will be calculated as if the member was leaving voluntarily, then enhanced by a proportion of the difference between the normal Pension Code figure for their rank and the Invaliding rate. The pension and lump sum are paid straight away.
The AFPS 15 Tier 2 or 3 element of the pension is the pension is the actual pension earned plus an enhancement, but the enhancement is adjusted to take account of the proportion of total service spent in AFPS 15.
Tommy is a 42 year old WO1 when discharged with a Tier 2 condition. His total service is 22 years, 4 of which were in AFPS 15. His AFPS 15 pension sum is £4,800. His ill-health pensions would be worked out as follows:
The basic AFPS 75 pension would be 18/22nds of the 22 year rate for his rank plus 18/22nds of the difference between the Pension code figure for his rank and length of service and the Invaliding rate. The total pension from this scheme would be about £13,400 with a tax-free lump sum of about £40,200.
His AFPS 15 enhancement would be 1/3 of the 18 years he could have served to age 60 (6 years). He would be entitled to 4/22nds of that enhancement (1.0909 years) as only 4/22nds of his service had been in AFPS 15. The AFPS Tier 2 pension payable would be the pension built up (£4,800) plus 1.0909 times the average pension (£1,200) giving a total AFPS 15 annual pension of £6,109.08. Tommy could surrender some of this pension to generate a tax-free lump sum. The largest lump sum he could receive would be £26,181.77 and if he did so, his pension would reduce to £3,927.27.
Combined AFPS 05/AFPS 15 ill health benefits:
Both schemes pay a pension based on actual pension plus an enhancement to take account of prospective service. Obviously, the scheme will not allow the enhancement to be double-counted so the enhancement for each scheme, once calculated, is adjusted to take account of the proportion of total service spent in each scheme. This sounds (and is) very complicated so let’s look at another example.
Leona is 38 when she is medically discharged with a Tier 2 condition. She has 12 years’ service, 6 of which were as an AFPS 15 member. Her final pensionable pay is £53,000 and her AFPS 15 pension earned to date is £6K.
Her AFPS 05 enhancement would be 1/3 of the 17 years until she is 55 (5.667 years). She gets 12/18th of this (because only 12 of her total 18 years’ service were as an AFPS 05 member) giving an adjusted enhancement of 3.778 years. The AFPS 05 pension calculation would be (12+3.778 years) x 53,000 then divided by 70, giving an annual pension of £11,946.20 with a lump sum of £35,838.60.
Her AFPS 15 enhancement would be 1/3 of the 22 years until she is 60 (7.333 years). She gets 6/18ths of this (because only 6 of her total 18 years’ service were as an AFPS 15 member) giving an adjusted enhancement of 2.444 years. Her AFPS 15 pension earned is £6K plus 2.444 times £1K (her average pension) giving a total annual AFPS 15 pension of £8,444. She could surrender some of this pension to generate a tax free lump sum. The largest lump sum she could receive would be £36,188.57 and, if she did so, her annual pension would reduce to £5,428.29.
Finally a word about breaks in service. Had either Tommy or Leona left and re-joined the Regulars within 5 years with the same prior service as in the examples, then been invalided with a Tier 2 condition after the periods of AFPS 15 membership used in the examples, the ill-health benefits would have been the same as set out above.
Had they left the Regulars and joined the Reserve, and then been discharged with a Tier 2 or 3 condition, their AFPS 75 or AFPS 05 benefits would not be brought into payment, but all AFPS 15 membership would count in the calculation of their AFPS 15 ill-health benefits.
For all of our articles written for Pathfinder in 2018 click here