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Army pensions explained: what they are and how to qualify

British Soldiers
British Soldiers

Armed Forces personnel may get plenty of job satisfaction from defending their country, but the pension perks are also pretty attractive.

A UK Armed Forces pension is among the most generous and valuable in the world but it does come with some limits.

David Hulse, head of the financial planning department at Hugh James, said: “Armed Forces veterans receive one of the most generous pension schemes in the UK.

“Depending on when you join and years of service, and also rank, in some scenarios you can access your pension earlier than the standard, subject to eligibility.

“The scheme is unfunded, so the member doesn’t have pension contributions deducted from their pay, unlike the vast majority of other pension members.”

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Here is what you need to know about Armed Forces pensions.

What is an army pension?

An army pension or Armed Forces pension is available for those who serve our country in roles such as the British Army, Royal Air Force and Royal Navy.

All members of the Armed Forces are automatically enrolled into the Armed Forces Pension Scheme.

Unlike many other defined benefit schemes, as well as private sector defined contribution pensions, members don’t have to make any monthly contributions.

The scheme is unfunded and paid for via government funding.

Qualifying for an army pension

You typically have to serve for a minimum of two years before you’ll qualify for an army pension.

All members of the Armed Forces qualify, but the type of scheme you are enrolled in and what you end up entitled to will depend on when you joined, your length of service, salary and rank.

Benefits of an army pension

An army pension is a defined benefit (DB) scheme, so will pay out a fixed income for life when you retire.

Being able to rely on this income, and knowing it won’t run out, can make it easier to plan for your retirement – and there are even extra benefits.

Deferred and preserved pension entitlement

An Armed Forces pension is a deferred or preserved scheme.

Like other public sector pensions, this means that even if you left the army or other form of service before you reached retirement, when the time does come to stop working you are still entitled to the benefits you earned while you served, as long as you meet the minimum requirements.

However, the charity Veterans Outreach Support warns that the Ministry of Defence doesn’t remind veterans of this fact, and instead puts the onus on them to apply for it, which can cause pots to get lost and left unclaimed.

Children’s pensions and allowances

An army member’s pension can be paid out to their children, as well as spouses or civil partners.

The amount will depend on the scheme the person was part of and if an adult has also inherited some of the fund.

Pension transfer and re-employment

It is possible to transfer your army pension if you move jobs and it hasn’t been paid out yet, but only to certain qualifying DB schemes.

The pension can be transferred to unfunded schemes in certain public sector roles such as the police, NHS or fire service, which are set up in a similar way.

It can’t be moved to a defined contribution scheme.

Types of army pensions

There are four types of Armed Forces pension.

The one you are enrolled in will depend on when you join or joined.

The oldest is Armed Forces Pension Scheme 1975 (AFPS 75). Anyone who joined the Armed Forces between April 1 1975 and April 6 2005 is in this scheme.

This was followed by AFPS 05, which closed to new service personnel in March 2015.

Full-time reservists are signed up to RFPS 05, which closed to new members in March 2015 and now all new recruits are signed up to AFPS 15.

Additional features of army pensions

Pension savings tax

As with all pensions, Armed Forces schemes are subject to the annual allowance – currently £60,000 – and any amount paid in above that is taxed.

But as army pension schemes are DB and there are no actual contributions, the annual allowance is worked out based on the net increase in the value of the pension pot between the beginning and end of the tax year, known as the pension input amount (PIA).

This is calculated by multiplying the annual pension at the start of the period by a factor of 16 and, where applicable, adding the pension lump sum.

This “start value” is then up-rated for inflation using the consumer price index rate as at September of the year before the relevant tax year began.

This is then compared with the value of the pension pot at the end of the period without any inflation uprating.

Individuals who exceed their limit because of the growth in the value of their AFPS benefits will be alerted by Veterans UK, and they may then have to pay tax to HMRC via self-assessment.

This is only likely to affect personnel who are promoted late in their career.

It is possible to offset the charge by carrying forward unused annual allowances from previous years.

Another group it may impact is those who moved into the AFPS 15 scheme by March 31 2022. When AFPS was set up in 2015 it moved from final salary to career average rules, but older members were given protected rights. This was deemed discriminatory in a successful legal challenge, known as the McCloud ruling.

As a result members who would have been eligible for pensionable service between April 1 2015 and March 31 2022 inclusive can choose which scheme to be part of, known as the “2015 remedy”. This could mean more people on final salary calculations approach the annual allowance limits, so planning is needed.

Armed Forces personnel also had to consider the lifetime allowance up until April 2024 when it was scrapped by the Conservative government. So far, it appears that a future Labour administration wouldn’t bring it back should the party win the general election.

Resettlement Grant

If you leave the Armed Forces, there are benefits beyond just your pension entitlement.

Former service personnel can get a resettlement grant to help with the transition from working in the Armed Forces to civilian employment, education and training or retirement.

The resettlement benefits you are entitled to are based on your length of service and conditions of discharge.

If you have served at least 12 years in the Armed Forces, you could get a resettlement grant worth up to £15,047.

Armed Forces Compensation Scheme

Current and former members of the Armed Forces can claim compensation for any injury or illness which was caused while servicing.

Family members may also be able to claim for compensation for personnel whose death was caused by service.

This is done through the Armed Forces Compensation Scheme.

There are two types of payment, a tax-free lump sum for pain and suffering and a guaranteed income payment (GIP) which is a tax-free, index-linked monthly payment.

Claimants must usually bring a claim within seven years of the incident, or when an existing illness or injury was made worse by service, or the date when you or your partner first asked for medical advice about an illness or the date of discharge.

How to work out your army pension

  1. Check which scheme you are in.

  2. Keep a record of your salary when you started and finished serving.

  3. Use the relevant calculation for your scheme.

  4. Alternatively, use the online Armed Forces pension calculator to see what you would be entitled to. If you are no longer serving, you need to apply for a preserved pension forecast.

The value of your pension and the annual payments you receive when you retire will depend on the scheme.

AFPS 75 is a final salary scheme. This means the payments you get once you retire are calculated as a percentage of your final pensionable pay, based on your length of service and rank. The maximum you can receive is up to 48.5pc of your final pensionable pay. You can also get a tax-free lump sum worth three times your annual pension.

Similarly, under AFPS 05 the pension is worth 1/70th of your final pensionable earnings multiplied by the years and days of service.

If your final salary is £45,000 after 25 years’ service, your annual pension would be: £45,000 x 25 x 1/70 = £16,071. You would also receive a lump sum of £48,214, which is three times your annual pension.

The maximum pension you can receive under the AFPS 05 scheme is up to 57pc of your final pensionable pay, as well as a tax-free lump sum of three times your annual pension. This maximum comes from 40 years of service.

AFPS 15 works differently. It is based on a career average revalued earnings (Care) scheme. You earn a proportion of your pensionable earnings each year, and these amounts are adjusted annually to account for inflation.

Under this scheme, you can choose to give up part of your pension in order to obtain a tax-free lump sum, as a lump sum isn’t paid automatically.

Samuel Mather-Holgate, a financial adviser for Mather & Murray Financial, said: “The pension is non-contributory, so members don’t see any deductions from their pay.

“This makes it one of the best in the country. Unfortunately, low salaries in most ranks makes a Care pension of lesser benefit as most soldiers, sailors and airmen are on a much larger salary later in their career if they stay in the Armed Forces for a long period.”

FAQs

How much is a pension from the Army?

The value of an Armed Forces pension will depend on when you joined, how long you served and your salary. Service personnel who signed up before the end of March 2015 are part of a final salary scheme while others since have had their DB benefits worked out on a career average basis, which can be lower.

How long before you get a pension in the military?

You typically need to have served for two years to qualify for an Armed Forces pension.

The pension can be accessed once you retire. Each scheme will have its own retirement age and it depends if you are still serving.

Members of the AFPS 75 scheme who leave the Armed Forces from age 55 can immediately receive their pension if they have completed 34 years of service as an officer or 37 in any other rank.

If you haven’t completed the minimum years for immediate access when you leave or retire, you will become a deferred member and get your pension from age 60 if you served up to April 6 2006, or 65 after.

Under the AFPS 05 scheme, you can immediately get your pension benefits if you leave the service at age 55 or over but you will have to wait until you are 65 if you left before.

AFPS 15 members can get their pension paid immediately if they are still serving up to age 60. If you have already left you will have to wait until you reach state pension age.

How much is a 20-year pension worth in the military?

The amount you receive will depend on the scheme, the rank and salary you reached when you retired or left the Armed Forces and the age you were when you joined.

For example, if you are in the AFPS 05 scheme and your final pensionable earnings were £40,000 and you completed 20 years of service, then your annual pension would be £11,428 (40,000 divided by 70 multiplied by 20).

You can also take a lump sum and will be able to take the state pension separately to boost your income.