28 | Financial


Scheme 2015 Explained Armed Forces Pension


Why did the Armed Forces introduce a new pension scheme in 2015?


In 2010 the government assessed that public sector schemes were becoming increasingly unaffordable as people were living longer resulting in pensions being in payment for longer than forecast. Lord Hutton’s Independent Public Service Pensions Commission was convened to make recommendations on reforms to all public service pensions schemes to ensure that they were affordable and sustainable, and also fair to scheme members and the taxpayer and these formed the basis for Armed Forces Pension Scheme 2015 (AFPS 15).


How is the AFPS 15 calculated? AFPS 15 pension entitlement starts accumulating from your first day of paid service and provided you have completed at least 2 years qualifying service you will be eligible to receive a pension. AFPS 15 pensions are calculated using a system called Career Average Revalued Earnings (CARE), rather than being based on your final salary as with


previous schemes. Every year, the MOD adds an amount equal to 1/47th of your annual pensionable earnings for that year into your ‘pension pot’, this is known as the accrual rate. To ensure your ‘pension pot’ retains its value it is increased each year by the Average Weekly Earnings Index, which for 2018 was 3%. This growth is known as indexation and is similar to money in a bank account earning interest each year. This process is repeated every year until you leave the Armed Forces with the total value of your ‘pension pot’ at that point representing what you would receive as an annual pension. The diagram below illustrates how AFPS 15 works.


When will I receive my pension? If you leave the Armed Forces having completed at least 2 years qualifying service, but before AFPS 15’s Normal Pension Age of 60, you will be entitled to a deferred pension which is paid at your State Pension Age in addition to your State Pension which is currently £8,545.50 p.a. After leaving service your deferred pension will increase annually in line with the Consumer Price Index (CPI) to


AFPS 15 – How does it work? Year 2:


Year 1: MOD pays a contribution worth 1/47th of annual salary (£713) into pension pot


Year 1 Salary


£33,490 Sgt


Supp 1 Level 1


Pay level increases. MOD pays 1/47th of annual salary, worth £730, into pension pot.


Year 2 Salary


1/47 of £33,490


Paid By


MoD £713 Year 1 Pension Pot


£34,324 Sgt


Supp 1 Level 2


The £713 already in pension pot is increased to protect it against inflation


1/47 of £34,324


Paid By


MoD Indexed


£713 £730


Year 2 Pension Pot


Year 3 Salary


£35,188 Sgt


Supp 1 Level 3


After 3


1/47 of £35,188


Paid By


MoD Indexed £749 Indexed Indexed


£713 £730


Year 3 Pension Pot


Previous indexation


£2,192


years your pension pot is worth:


ENVOY | Winter 2018 | raf-ff.org.uk


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