Many of you will be leaving service with a preserved or deferred pension. That means that you have to wait until 60, 65 or your state pension age (SPA) to draw it, depending upon which AFPS your benefits have been earned. Most of you will leave those preserved or deferred benefits in MOD’s safe hands but some of you will be wondering whether or not to move them. Mary Petley takes a look at the transfer rules, together with the AFPS rules allowing preserved or deferred benefits to be claimed early…
In AFPS 75, preserved pensions are payable at age 60 for the proportion of the pension earned up to and including 5 April 2006 and age 65 for pension earned after that date. In AFPS 05 the preserved pension age is 65.
In AFPS 15, deferred benefits are payable at the State Pension Age of the member. Some of you may recall that the Chancellor relaxed the pension rules to allow certain pension savings to be taken as cash rather than an annuity for those retiring after 6 April 2015. I am sorry to have to tell you that unfunded public sector pension schemes are not amongst the pension arrangements to which this relaxation applies.
Each AFPS does, however, allow preserved/deferred pensions to be drawn early, with actuarial reductions – that means they are reduced to take account of the fact that they are in payment for longer than would otherwise be the case. For AFPS 75, the part of the pension payable at age 65 may be drawn at 60. For AFPS 05 and AFPS 15, the whole preserved/deferred pension may be drawn at any age after 55. To give you an idea of how costly it can be to take preserved benefits early, an AFPS 05 member taking their preserved pension at age 55 can expect to lose 44.6% of their pension and 28.8% of their lump sum due to the actuarial reduction. You will see from this is example why we strongly advise that anyone considering taking their preserved/deferred benefits early with actuarial reductions should seek financial advice before acting.
Turning now to transfers. The rules, in a nutshell, are;
– Only a deferred/preserved pension may be transferred. Once your Armed Forces pension is in payment, it may not be transferred;
– Armed Forces pensions may not be transferred to overseas or to Defined Contribution/private pension schemes but it is possible to transfer them to other Defined Benefit schemes, including other public sector schemes.
– Transfers to other public sector schemes must be done within 12 months of being eligible to join the new scheme – by this I mean that the clock starts ticking as soon as you are eligible to become a member of the new scheme irrespective of whether you are in fact a member. Other Defined Benefit schemes may also have time limitations for transfers, so do check.
The transfer process is straightforward:
– Find out what you have built up in the scheme. Applications for a ‘statement of entitlement’ must be made in writing to: DBS – Veterans UK, Pension Division, Mail Point 480, Kentigern House, 65 Brown Street, Glasgow, G2 8EX.
– Ask your new scheme what the value of your AFPS benefits will buy in their scheme. You are not committed to the transfer at this stage of the process and, if you are unhappy with what the new scheme is offering or simply decide not to put all your eggs in one basket, it is still open to you to leave your benefits in AFPS.
– If you decide to go ahead, apply to Veterans UK for a transfer value payment, specifying the scheme to which the transfer value should be made. Once the transfer agreement has been entered into with the new pension scheme, you cannot change your mind.
In reaching your transfer decision, one of the things you should consider is the age at which benefits are payable in the new scheme – there are others but this example is just to get you thinking. Most public sector schemes will feature a Normal Pension Age (NPA) and deferred pension age of whatever the member’s SPA is – the exceptions are the Police and Fire Brigade scheme which, like AFPS 15, have an NPA of 60 and a deferred pension age of the member’s SPA. That means that if an AFPS 75 member transferred his or her AFPS benefits into such a scheme and left before reaching NPA, they could have to wait up to eight years longer to receive a chunk of their hard-earned pension and up to three years extra for the balance which would have been due from AFPS 75!
An Army nurse leaves in 2016 with a preserved AFPS 75 pension of, say, £6,000 and a lump sum of £18,000. If her preserved pension remains in AFPS 75, she is due to get:
– £2,000 pension and £6,000 lump sum at age 60
and an additional
– £4,000 pension and £12,000 lump sum at age 65
If she transferred these benefits to the NHS pension scheme she would have to wait until SPA to draw them. She could opt for early payment with actuarial reduction – which, as we have already established, is expensive. Assuming her SPA is 67, she could have already received the following from AFPS 75 by the time her benefits from his new scheme are payable:
– first lump sum of £6,000 at age 60;
– £10,000 in pension between age 60 and 65;
– second lump sum of £18,000 at age 65: and
– £12,000 in pension between age 65 and 67.
That means that she could, in total, have received £46,000 before SPA had she not transferred her pension benefits from AFPS 75. This is not to say that transferring benefits is always the wrong thing to do. Most schemes have a two year qualifying period which must be completed before the scheme will pay out, say, ill-health or family benefits and transferring benefits in from another scheme could mean automatic qualification. Further, preserved and deferred AFPS 75, 05 and 15 benefits increase year on year by Consumer Prices Index rises. If they were transferred into a new scheme they would increase by whatever measure was in place for the scheme. The bottom line is to take financial advice so that you understand all the implications of transferring benefits from one scheme to another.
If you are a member of the Forces Pension Society and have questions on this or any other pension-related issue email us email@example.com If you are not yet a member but would like to know more about us, go towww.ForcesPensionSociety.org
Pathfinder would like to apologise to the Forces Pension Society for an error in their article in the November 2016 issue which included an erroneous quote.