MONEY STUCK in a F
irst, it would make sense if I explained exactly what a Pension Trough is. created as a result of an
It is
annual pay award being lower than the previous September’s rate of inflation figure that is used to increase pensions already in payment.
It should also be PENSION Trough?
What is a Pension Trough and how would such a beast affect your long-term pension receipts if you should find yourself stuck in one? Lieutenant Commander David Marsh, Pensions Secretary of the Forces Pension Society, sheds some light on this seemingly unfair and unforeseen consequence of fiscal policy.
stressed at this point that the Pension Trough phenomenon only affects those on the old AFPS75 pension scheme to any significant degree. Let us see in practice how this whole business comes about.
The last time the Armed Forces had an increased pay award was on 1 Apr 10. As a result of that uplift in salary AFPS75 pension rates were increased too to keep pace with the level of that increase, and thereby maintain the final salary concept.
The new pension rates saw a Sergeant’s pension entitlement, after 22 reckonable years’ service, increase to £10,509 per year, and that was the sum awarded to an individual who qualified for such an award if he left the Services at any time after 31 Mar 10, until a new set of pension rates were introduced.
The Armed Forces received no salary increase in Apr 11, which meant that there was no usual increase in the pension rates payable to those about the leave the Services after 31 Mar 11. Therefore, the Sergeant who left the Services on 11 Apr 11 received a pension award of £10,509 – exactly the same as a Sergeant who left 12 months earlier on 11 Apr 10, in identical circumstances.
Date of Exit
11 Apr 10 11 Apr 11 11 Apr 12 11 Apr 13 11 Apr 14
32 Pension Award
£10,509 £10,509 £10,509 £10,614 £10,720
Envoy Summer 2012
CPI Increase Apr 11 3.1%
£10,834.78
CPI Increase Apr 12 5.2%
£11,398.19 £11,055.47
But what happened on the 11 Apr 11 to the pension belonging to the person who left in 2010? It received its first increase in value via the inflation rate for Sep 10, which was 3.1%. This meant that on 11 Apr 11 the 2010 pension increased in value to £10,834.78, making the 2010 pension worth £325.78 per year more than that of the Sergeant who left on 11 Apr 11.
“£325.78 is not too bad.” you might think; but the story does not end there. Current Government policy, as part of its measures to reduce the deficit the country is saddled with, was not to award any of the public sector (which includes the Armed Forces) a salary increase in Apr 12. So there will yet again be no change to the pension rates payable to those leaving the Armed Forces between 1 Apr 12 and 31 Mar 13. So a Sergeant leaving the Services on 11 Apr 12, after 22 reckonable years’ service, will receive an annual pension award of £10,509, the same as the individuals who left on 11 Apr 10 and 11 Apr 11.
But what happened on 9 Apr 12 to the pensions belonging to those who left on 11 Apr10 and 11 Apr 11? The inflation level in Sep 11 was 5.2%; this means that the 2010 pension (already increased in 2011 to £10,834.78) increases further in value to £11,398.19, and the 2011 pension increases to £11,055.47. The upshot of this is that the 2010 pension is now £889.19 greater in value than the 2012 pension award, and the 2011 pension is £546.47 greater. You will notice also that the gap between the 2010 pension and
CPI Increase Apr 13 2%
£11,626.15 £11,276.58 £10,719.18
CPI Increase Apr 14 2%
£11,858.68 £11,502.11 £10,933.56 £10,826.28
www.raf-ff.org.uk
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