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Discuss AFPS 2015. You probably won't like this. in Finance & Pensions on Navy Net; Military Pensions – Where Next? David Marsh, Pensions Secretary, Forces Pension Society, Reviews the Hutton Report&hellip; On 10th March the Independent Public Service Pensions Commission, chaired by Lord Hutton, produced its 227 page report that ...
- 16-06-11, 16:13 #1
AFPS 2015. You probably won't like this.
Military Pensions – Where Next?
David Marsh, Pensions Secretary, Forces Pension Society, Reviews the Hutton Report…
On 10th March the Independent Public Service Pensions Commission, chaired by Lord Hutton, produced its 227 page report that contained 27 recommendations in total. Some of these were significant; a couple were a pleasant surprise; but most were expected and, to a large degree welcomed, as an opportunity to begin to rebuild trust between the Country and the Service community.
What happens to the Armed Forces Pension Schemes (AFPS) next? The ball is now firmly in the Government’s court, and it must decide whether to accept the Commission’s report in full, partially (cherry pick the bits it likes and discard the rest) or reject it. Once it has declared its hand, and one must assume at this point that it will fully accept the report, then the onus is on the MoD to construct a new Pension Scheme that is compliant with not only the wishes of Government and thereby the Treasury, but the needs of the Services too.
The principle recommendation on which the new scheme is to be based, and is thereby the thrust behind the whole report; is that the Armed Forces are to be moved off final salary pension schemes and onto what is termed as a Career Averaging scheme; this will include those serving on the day the new pension scheme is put into place. AFPS75 and AFPS05 will close on that day to all new and current members, as will the Reserve Forces Pension Scheme.
The Commission strongly recommended that the Government must honour in full the pension promises that have been accrued by scheme members up to the point of closure of the current schemes. Importantly also, the Commission recommended that those accrued rights maintain the final salary link for past service. This means that those leaving after the new scheme becomes operative will have the portion of their pension from the AFPS75 or AFPS05 pension schemes based on their representative salary (AFPS75) or actual salary (AFPS05) on exit – not on the salary they were in receipt of at the time of scheme closure.
When constructing a new pension scheme the Commission recommended that the AFPS, together with a full state pension, should deliver at least adequate levels of income as defined by the Turner Commission benchmark replacement rates (which sit between 60% and 66.67% of salary) for scheme members who work full careers in the Armed Forces. The proposed changes to the State Pension (likely for 2015 onwards) will have an impact on the value of pension from the new scheme. Currently the plan is to increase Basic State Pension from £102.15 per week to a flat £140.00 per week. This will mean that £7280 of the 60% – 66.67% of salary will be from State Pension with the new scheme making up the rest at the Normal Retirement Age.
A surprising recommendation is that pension benefits should be up rated in line with the Average Earning Index (AEI) during the accrual phase for active scheme members. As a current comparison, the Civil Service operates a career averaging pension scheme (called Nuvos) but pension benefits earned during the accrual phase for active members are increased in line with prices indexes. The AEI is usually more generous than prices indexes over a period of time. Note, however, that once pensions are put into payment or deferment (preserved), then they are increased by prices indexes,
Just as is the case with pensions today.
Another key recommendation is that the Government should consider setting a new Normal Retirement Age (NRA) of 60 for the Armed Forces. This is a matter for Chiefs of Staff to accept or decline, however, the Commission recommended that scheme members should be given the option of drawing their pension benefits earlier (from age 55) or later, with accrual adjustments to reflect the choice made.
In terms of independent governance of any new scheme, the Commission recommends that the AFPS has a properly constituted, trained and competent Pension Board, with member nominees, responsible for meeting good standards of governance including effective and efficient administration.
An important recommendation, acknowledging some behind the scenes work that the Forces Pension Society has been
quietly lobbying for over the past ten years, is that regular benefit statements should be issued to active scheme members, at least annually and without being requested. It was a little embarrassing to note, however, that Lord Hutton’s Commission felt it necessary to have to comment
on the level of service being offered by Pension Scheme administrators to Scheme Members, necessitating a specific recommendation for an improvement to an acceptable level.
Any new pension scheme will, like AFPS05, be Inland Revenue approved and sanctioned by an Act of Parliament, with the aim of having such a scheme in place by 6th April 2015 – four years’ time. However, with the lack of manpower within the MoD centre, this is probably going to be the biggest challenge that the Veteran’s Minister is going to have to deal with as a result of the Commission’s report, to achieve this deadline. The current levels of manpower and expertise being asked to maintain “business as usual” are very tight, without the additional task of producing a brand new pension scheme plus all the transitional arrangements that are compliant with pension law and palatable to the Services too.
It would appear, therefore, that we are in for a very interesting time over the next five years. First the construction of anew scheme, then sorting out of transitional arrangements consequent of closing AFPS75, AFPS05 and RFPS; theeducation of the Services about their new pension scheme, and finally dealing with the inevitable fallout of queries and complaints after initial implementation. Fortunately most of the staff in the Forces Pension Society have the experience of
the construction and introduction of AFPS05 to enable this Society to monitor the whole process in a constructive and creditable way that will be of use primarily to the Society’s members, and to the Armed Forces as a whole.
The Forces Pension Society fights for members of the Armed Forces and their dependants to receive the pension towhich they are entitled and which they deserve. For more information please call +44 (0) 20 7820 9988 or visit The Forces Pension Society
16-06-11, 16:20 #2
16-06-11, 16:51 #3
- Join Date
- Mar 2008
Great News. Cheers CONDEM
16-06-11, 18:51 #4
This really isn't new news, if you'll pardon the grammer. The MoD made no secret of this earlier in the year and the report was open to all to read - even if I did have to get a friend to decipher large portions of it - the intentions werer very clear. We're going down the same route as most other Crown servants.
I've mentioned it before, but once again, just because they will preserve what we have accrued up to the implementation of AFPS15, doesn't mean they have to deliver it in the same way - i.e. pay out. I strongly suspect the mechanism for commutation will change for one.
Oddly, my wife had her NHS pension offer, but they can choose to stay on the old scheme - talk about a non-offer, "here you are Mrs WD, move to this new scheme and get xx% less per annum or stay as you are - let us know what you think".
Anyway, the killer fact to my mind. 2015, just when we should be leaving Afghanistan, just when the Government will be hoping to make further savings across Defence, but probably wouldn't want (nor be able) to pay. Hmmm how could I piss off enough Servicemen and convince them it was time to leave....hmmmm, how could I target the older people especially.....let me see.
Anyone else think its an odd coincidence?
Last edited by wave_dodger; 16-06-11 at 18:54.The only Life lesson, "Being right is irrelevant".
16-06-11, 19:37 #5
someone break that down into a quick one.
Was afp05 worse or better?RT for AET in April 2010.
Early summer 2012, hopefully.
16-06-11, 19:43 #6
i'd say, as a generalisation, I've never seen a new pension scheme be "better" than its predecessor. The Gov are trying to save money not give it way.
Take from that what you will.The only Life lesson, "Being right is irrelevant".
19-06-11, 19:45 #7
- Join Date
- Jun 2011