AN ADVERTORIAL FEATURE


NAVY NEWS, MARCH 2011 Redundancy – how generous is the package?


THE fallout from the Strategic Defence and Security Review has ensured that there will probably be at least three tranches of redundancy in the next three years, possibly four. Lt Cdr David Marsh from the


Forces Pension Society examines the packages on offer for those who either volunteer or are compulsorily made to leave the Royal Navy prematurely. Now that there are two pension schemes (three if you include the RNR) in place, matters are not quite as simple as was the case in previous redundancy rounds. The simplest way to look at the issue is to view the two schemes separately, and I will start with the AFPS 75 scheme. Pension: To be entitled to an immediate pension of exit everybody must complete at least 18 years’


remaining on their current commission/engagement – nine months’ salary. b. Two to three years remaining on their current commission/ engagement – six months’ salary. c. One to two years remaining on their current commission/ engagement – three months’ salary. d. Less than one year remaining on their current commission/ engagement – pro-rata of three months’ salary (eg six months equals one and a half months’ salary).


reckonable service,


unless you are an officer who has passed the 16 year point (who would be entitled to a pension on exit anyway). Those who have completed less than this requirement, but at least two years’ reckonable service, will still remain entitled to a Preserved Pension and Gratuity payable at age 60/65 (portion of service up to April 5 2006 payable at 60; portion of service from April 6 2006 to exit date payable at 65). Resettlement Grant: Ratings


who have completed at least 12 years’


reckonable service, but


not as much as 18 years, will be entitled to receive a Resettlement Grant. This is currently worth £10,038.


Similarly officers who have completed at least nine years’ reckonable service, but not as much as 16 years, will also be entitled to receive a Resettlement Grant; the value for an officer is currently £14,686.


Special Capital Payment: Those who receive an immediate pension and gratuity at the point of their redundancy exit point will receive a Special Capital Payments under the following terms: a. Three years or more


Those who will not receive an immediate pension and gratuity at the point of their redundancy exit, but had they completed their current commission/engagement would have left the Service with an immediate pension on exit, will receive one and a half months’ salary for each year of redundancy reckonable service (service from age 18 – ratings and officers ). Those who, had they completed their current commission/ engagement, would have left the Service without an immediate pension on exit receive the lower of the following options: a. One and a half months’


salary for each year of redundancy reckonable service; or b. One and a half months’ salary for each year by which redundancy has shortened the commitment to further service – plus one and a half months’ salary. Now let’s look at the AFPS05


Pensions and Early Departure Payments (EDP) a. To be awarded a full pension immediately on exit an individual must be aged 55 or over b. To be eligible for a lump sum and income stream under the EDP system one must have completed at least 18 years’ qualifying service and be aged 40 or under age 55 on the date of exit. c. Those who leave with at least


scheme.


two years’ qualifying service, and under age 55, will be awarded a Preserved Pension and tax free Lump Sum, normally payable at


13


or more, the CLS is restricted to six months’ final pensionable salary.


● Forces Pension Society representatives deliver a letter to Downing Street


Resettlement Grant Officers and ratings who have completed at least 12 years’ qualifying service on their final date, will be entitled to receive a tax free Resettlement Grant; this is currently worth £10,302. Compensation Lump Sum There are two types of Service commitments that are relevant to the award of a Compensation Lump Sum (CLS): a. Long Service Commitment (where completion of an individual’s current commitment would have taken them beyond age 40 with at least 18 years’ qualifying service, or beyond age 55 with at least 18 years’ qualifying service).


age 65. These awards can be put into payment as early as age 55, but the value of the pension is reduced by around five per cent for each year earlier than 65 that it comes into payment, and the lump sum is reduced by three per cent for each year earlier than 65 that it is paid.


b. Short Service Commitment (where completion of an individual’s current commitment would have meant that they would have exited the Services before age 40, or before age 55 but with less than 18 years’ qualifying service). Both types of commitment are broken down into whether they are an Early Leaver or a Late Leaver. Long Service Commitment Early Leaver is an individual who leaves under redundancy terms before reaching age 55 or the EDP 18/40 point; they will receive a CLS of either: a. If they have completed less than 18 years’ qualifying service 1/8th of their final pensionable salary for each complete year of qualifying service completed (part years count on a proportionate basis); or b. If they have completed 18


years’ qualifying service, but leave before their 40th birthday, the CLS is limited to 18 times 1/8th of final pensionable salary. Later Leaver is an individual


who leaves having completed sufficient qualifying service for the award of an EDP Income Stream and Lump Sum on exit will receive a CLS calculated in relation to the uncompleted period of committed service, in one of the following three manners: a.


Uncompleted Service One years’ final pensionable


Short Service Commitment A person serving on a short


service commitment shall receive a CLS based on the lesser of the following: a. 1/8th of final pensionable


salary for each completed qualifying years’ service (part years are paid proportionately) b. 1/8th of final pensionable


At least four years’


salary (unless the individual has already completed 40 years’ qualifying service – see (c) below) b. Less than four years’ Uncompleted Service Quarter of a years’


pensionable salary for each complete year remaining (part years are awarded proportionately) (unless the individual has already completed 40 years’


service – see (c) below). c. Already completed at least 40


qualifying


years’ Qualifying Service CLS is calculated in similar


fashion to (a) and (b) above, however, where the portion of uncompleted service is two years


final


salary for each uncompleted qualifying years’ service (part years are paid proportionately) plus 1/8th of final pensionable salary. This is quite a complex issue


and if you are considering applying for voluntary redundancy,


you


might think it prudent to obtain a forecast of your potential redundancy benefits first, before committing yourself to a possible early exit from the Royal Navy. If you are struggling with the


maths, and are a member of the Forces Pension Society, you can email the Society’s help desk and they will provide you with your calculation.


Membership


can be obtained through the Society’s website at www. forcespensionsociety.org


GOVERNMENT CUTS: WHAT CAN YOU EXPECT


FROM YOUR ARMED FORCES PENSION NOW? There’s never been a more important time to join the Forces Pension Society


Rarely has the influence of the Forces Pension Society been more important. As the independent organisation campaigning for fairness in Armed Forces pensions, we are using the leverage of our 40,000+ Members to argue that the proposed change in indexation (from RPI to CPI) flies in the face of the Military Covenant and the unique nature of military service.


The impact of the change will be to devalue Armed Forces pensions by an average of 15%. For example, a 40 year old Sergeant by age 85 will see his pension reduced by £212,000; a Major will lose £319,000.


Although the need for Government spending reductions is understood, there is arguably a legitimate expectation among the Armed Forces for fair treatment in line with the unique nature of their work and of the promise clearly stated in MOD pension brochures that “pensions will be increased every year in line with the Retail Prices Index”.


The Armed Forces have no trade union, nor do they enjoy the protection of independent trusteeship of their pension schemes. So it’s in your own interests to add your support to our work and to strengthen our voice in campaigning for fairness in all AFPS matters.


By joining us you will also have access to our expert, authoritative Pension Helpline and will be able to take advantage of many discounted services we offer from Healthcare to Holidays.


FREE £150 HOLIDAY VOUCHER*


if you join online now at: www.forcespensionsociety.org/promo (quote promo NNE2011) *Terms and conditions apply


Forces Pension Society is an independent not-for-profit organisation and is a member of the Confederation of British Service and Ex-Service Organisations Forces Pension Society, 68 South Lambeth Road, London, SW8 1RL.


Tel: 020 7820 9988 email: memsec@forpen.co.uk www.forcespensionsociety.org


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