You may be in your last couple of years in the Armed Forces but it is not too late to improve your pension benefits
Mary Petley, of the Forces Pension Society, sets out the basics of AFPS 15 Added Pension provisions and how to get a quote.
Will buying Added Pension tie me in to extra payments for years to come?
No. Each AFPS 15 Added Pension contract lasts up to a year. Contributions can be as little as a £300 lump sum or monthly instalments of £25 per month. You decide what you can afford – and remember, because it comes out of pay before tax, it reduces tax liability.
What does it increase?
There is a choice. Contributions can either boost just the member’s pension or those of their dependants too. Obviously, if it is to boost the member’s pension AND those of their dependants, the cost will be greater as more is being enhanced. Whichever is chosen, the cost can be met by instalments or as a single lump sum.
How much would it cost?
It depends upon various factors, for example:
• What is to be enhanced and by how much.
• The member’s age when the contribution is made.
• When in the ‘contract year’ the contract begins.
• His or her State Pension Age (SPA).
• Whether the contribution is by lump sum or by monthly instalments.
• The last time I looked at the Added Pension cost factors, there were over a dozen assumption tables!
Give me an example that will make sense to me…
Someone who joined at age 20 takes out the Added Pension contract at age 38 to purchase £100 Added Pension payable each year from SPA. The age on joining, age at the point of purchase and the SPA (68 in this case) have a bearing on the cost:
If member’s benefits only are enhanced, the cost would be £1,566 as a lump sum or £133 per month for 12 months.
If member’s and the dependants’ benefits were enhanced the cost would be £1,687 as a lump sum or £144 per month for 12 months.
This may look like a lot of money but, remember, premiums come from pay before tax, thus reducing the member’s tax liability.
What are the pros?
• Added Pension offers value for money.
• The commitment is short term.
• Purchasing Added Pension is tax efficient as contributions come from pay before tax.
• Increasing the pension will improve Early Departure Payment (EDP) benefits.
• The Added Pension increases each year by Consumer Prices Index.
• Added pension benefits are guaranteed and not subject to stock market fluctuations.
And the cons?
• You cannot take the money out of the scheme as a cash lump sum.
• If a pension increases too much in one year, HMRC’s Annual Allowance could be breached.
What if I am returning to civilian life shortly – will that prevent the purchase of Added Pension?
No. As the contract runs for only one year at a time, and as the purchase may be made by instalment or lump sum, the Added Pension arrangements still work.
Is it easy to apply?
Yes. Simply submit an AFPS Form 6 to Defence Business Services (Glasgow) to obtain a quote. There is no commitment at this stage – it is only when the AFPS Form 6A application is submitted that the contract begins. These forms are available on JPA or online. Search: Veterans’ UK Armed Forces pension and insurance declaration forms, via:
