How Full Time Reserve Status will affect your pension
Many of you will leave the Armed Forces with Armed Forces Pension Scheme (AFPS) or Early Departure Payment (EDP) Scheme benefits in payment.
In this article, Mary Petley, of the Forces Pension Society, sets out the impact that Full Time Reserve Service (FTRS) could have on them.
If you are leaving with a pension, you could see it abated if you take up another Military post. The abatement rule applies if your rate of pay (ROP) in your new post plus your pension exceeds your old ROP, plus inflation if appropriate and, if it does, your pension will be reduced for the duration of the new Service. This does not mean that the new ROP can never be more than the old – it can – but the pension will stop.
Let’s have a look at a few simple examples. I have used AFPS 75 cases, but the same principles apply to AFPS 05 if the pension is already in payment.
‘A’ leaves with an AFPS 75 Immediate Pension (IP) of £12,000. Their pay on their last day of Regular service was £42,000. They take up an FTRS job on the same ROP. As the new ROP is equal to the
old, the pension stops.
‘B’ leaves with an AFPS 75 IP of £12,000. Their pay on their last day of Regular service was £42,000. They take up an FTRS post with a new ROP of £30,000. Because the new ROP plus IP does not exceed the old ROP, so no abatement is necessary.
Many AFPS 75 members commute in order to ‘buy’ a second lump sum and pay for it from pension before tax – so it is important to make sure that there is sufficient pension remaining in payment to pay for it! If there isn’t, the repayments are taken from pay after tax, making it more expensive. Pay rises do not result in the abatement calculation being revisited but promotion or taking up another engagement do.
EDP benefits
Turning now to EDP benefits from either AFPS 05 or AFPS 15. EDP benefits comprise a one-off lump sum and then an annual income payable until preserved/deferred pension age. AFPS 15 EDP benefits are unaffected by FTRS service but, with an AFPS 05 EDP, the EDP income stops until you leave again. However, the scheme requires that any ‘unexpired portion’ of the lump sum be paid back. Let’s say the EDP lump sum was equivalent to 12 months’ pay, and an FTRS begins six months after receiving it, 50% of the lump sum will have to be repaid.
Finally, if you are leaving with a Resettlement Grant (RG), there must be a break of 31 days before joining the FTRS (longer for some re-joining the Regulars) to avoid it being clawed back!
If you are a Member of the Forces Pension Society and have any pension-related questions, contact us on: pensionenquiries@forpen.co.uk
If you are not a Member but would like to learn more about us, visit: www.forcespensionsociety.org
