Transcript FUTURE ARMED FORCES PENSION SCHEME CONSULTATION …

FUTURE ARMED FORCES PENSION SCHEME
CONSULTATION
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DCDS(Pers) Pensions, Compensation & Veterans
Future Armed Forces Pension Scheme Team
DCDS(Pers) Pensions, Compensation & Veterans
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DCDS(Pers) Pensions, Compensation & Veterans
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PURPOSE
 MoD will introduce a new pension scheme from April
2015. The majority of Service personnel will be
transferred to the new scheme
 AIMS:
● To reassure you about your rights to your existing Armed
Forces Pension
● To gather your views on the design of the Future Armed
Forces Pension Scheme:
- Focus Group
- Questionnaire: online or Hard copy
- Consultation Document
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FUTURE PENSION SCHEME
EARLY DEPARTURE PAYMENT (EDP)
LUMP
SUM
EDP
MONTHLY
INCOME
Pensionable Service
EDP
POINT
Exit the Armed
Forces
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Your views count
 The new pension has to be acceptable to the wider
UK Government. It has to be fair, both to you and to
the taxpayer
 The opinions of the Service population are
important
 Your views will be used as evidence to support a
recommendation
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PROGRAMME
 Introduction
 Existing Schemes:
● Describe AFPS 75 and 05
● Confirm rights to pension earned under existing pension
schemes (Accrued Rights)
 New Scheme:
● Drivers for change
● What will change
● Where your views are needed
 What happens next
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Existing Schemes
AFPS 75
AFPS 05
 Non contributory
 Non contributory
 Rep Pay Rate based on Final Rank
 2 yr Vesting Period
 Final Salary (best 365 days in last 3
years)
 Pension accrues after:
 2 yr Vesting Period
● Age 18 (Other Ranks)
 Pensionable Service accrues from first
day of paid service
● Age 21 (Officers)
 Immediate Pension (IP) paid after:
● 22 yrs service (Other Ranks)
● 16 yrs service (Officers)
 Preserved pension for those who do not
reach IP
Lump Sum of 3 times annual pension
 Full pension from age 55
 Early Departure Payment (EDP) made
after 18 yrs svce and age 40
Preserved pension for those who do not
reach EDP
Lump Sum of 3 times annual pension
Full pension from age 55
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• Armed Forces need a young workforce:
• Average Length of Service is 9 yrs
• 64% won’t serve to age 40 – Preserved Pensions
• 34% will earn Early Departure Payment
• Only 2% will serve to age 55
18%
64%
2%
DCDS(Pers) Pensions, Compensation & Veterans
16%
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KEY POINTS
 AFPS will change – not before 1 April 2015
 Your rights to pension already earned are
protected
 The new pension will remain amongst the best
available in the public or private sector
 This Consultation will allow you to share your
views on the design of the new pension
DCDS(Pers) Pensions, Compensation & Veterans
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ACCRUED RIGHTS
Government has stated that:
‘Pension benefits already earned up to the implementation
date of any new scheme will be protected. Individuals will be
able to draw these benefits at the same age as now and they
will be based on their final salary at the date of retirement. ’
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ACCRUED RIGHTS
Additional 10 year Protection
• Regular Service personnel who were born on or before
1 Apr 1967 will see no change to the pension they earn or
when they can draw it
• Reserve personnel who were born on or before 1 Apr
1962 will see no change to the pension they earn or when
they can draw it
Effectively, they can remain on their existing schemes
(DIN 2011 01-226 and DIN 2012 01-063)
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Examples
 Warning. The following examples only give an
indication of the final entitlements. There are many
variable factors between now and transition to the
FAFPS which make an exact calculation impossible
 What follows are two examples, more
information to suit your individual
circumstances is available at:
● DIN 2012 01-063 (26 examples)
● Intranet
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Example 1: OF-4 (Cdr, Lt Col, Wg Cdr)
AFPS 75 Immediate Pension
Lump sum
of around
£70,800
Promote to OF-4
Cumulative
CPI since
exit
Promote
to OF-3
+ CPI
Promote
to OF-2
Immediate
Pension
of around
£23,600 pa
AFPS 75 Pension Accrual
IPP
(16 Yrs)
Exit the Armed
Forces at 20
yrs Svce
Age
55
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Example 1: OF-4 (Cdr, Lt Col, Wg Cdr)
AFPS 75 Immediate Pension
Lump sum
sum
Lump
of around
around
of
£37,800 +
£70,800
10 Yrs
10 Yrs
Cumulative
CPI since
exit
Promote
to OF-3
Promote
to OF-2
Future AFPS
Pension
+ CPI
Future AFPS
Pension Accrual
+ CPI
Immediate
Immediate
Pension
Pension
of around
around
of
£12,600 pa
pa
£23,600
AFPS 75 Pension Accrual
IPP
Transition to Future
(16 Yrs)
AFPS
Exit the Armed
Forces at 20
yrs Svce
Age
55
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Example 2: OR-6 (PO, Sgt)
AFPS 05 Early Departure Payment
Lump sum
of around
£36,900
Salary c£34K
Promote
to OR-6
(PO, Sgt)
Lump sum
of around
£36,900
Cumulative
CPI since
exit
AFPS 05 Pension Accrual
+CPI
+ CPI
Pension
of £12,300
pa
Income of
£9,200 pa
Income of
around
£7,500 pa
EDP Point
(18/40)
Exit at 25
yrs svce
Age 55
Age 65
IPP
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Example 2: OR-6 (PO, Sgt)
AFPS 05 Early Departure Payment
Lump sum
of around
Lump
sum
of£36,900
around
£14,400
Salary c£34K
10 yrs
Promote
to OR-5
(PO, Sgt)
AFPS 05 Pension Accrual
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Future AFPS
Years
Accrual
of Future AFPS
Lump sum
of around
Lump
sum
of£36,900
around
£14,400
Cumulative
CPI since
exit
+CPI
+CPI
Income of
aroundof
Income
£7,500
pa
around
£2,900 pa
Point of EDP Point
Transition (18/40)
to
Future AFPS
Exit at 25
yrs svce
Future
AFPS
+ CPI
+ CPI
Pension
of
£12,300
Income
of
pa
£4,800
Income of
£9,200 pa
Income
of
£3,600 pa
Age 55
Age 65
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Accrued Rights Summary
 Rights earned to the Point of Transition are
protected
 Rights will be based on final salary, not salary at
Point of Transition
 Rights include no change whatsoever to when the
pension benefits can be drawn
 Further information:
● DIN 2012 01-063
● Intranet
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NEW SCHEME:
Need for change
 Increased longevity (and consistent failure to
forecast this)
 UK PLC - Pensions ‘Black-Hole’
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Increasing longevity
(and failure to predict accurately)
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NEW SCHEME:
Need for change
 Increased longevity (and consistent failure to
forecast this)
 UK PLC - Pensions ‘Black-Hole’
● Government debt 2011 - £883 Bn
Jan 2012 - £1.000 Trn
● MOD pays £1.9 Bn pa into Armed Forces Pensions:
- 34% of total pay bill, rising to 42%
● Cost of public service pensions paid out has risen by over a third
over the last ten years to £32 billion in 2008/2009
That is more than is spent on police, prisons and courts combined
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HUTTON REPORT
• All Public Service pension
schemes
Principles:
- Affordable and sustainable.
- Adequate and fair.
- Support productivity.
- Transparent and simple.
27 Recommendations
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Hutton Key Recommendations
(Those most relevant to Armed Forces)

Normal Pension Age linked to State Pension Age and should track
planned changes but:
‘…for the uniformed Services…a pension age of 60 is appropriate.’

Pension Schemes should be CARE (Career Average Revalued
Earnings)

Lump sums should be made available

Preserved Pension Age linked to State Pension Age (currently 65
and rising)
(Note this is already the case for AFPS 05 and AFPS 75 for service beyond 2006)

Annual Statements on Pension Benefits earned to date

Workers to have representation in pension management
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• Armed Forces need a young workforce:
• Average Length of Service is 9 yrs
• 64% won’t serve to age 40 – Deferred Pensions
• 34% will earn Early Departure Payment
• Only 2% will serve to age 55
18%
64%
2%
DCDS(Pers) Pensions, Compensation & Veterans
16%
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EDPs paid
between
exit and
age 65
66% of
Preserved
Service
66%
of
Pensions
population
Service
and
33%
33%
Full
population
of cost
of cost
of
34% of34%
33%
ServiceService
of cost
population
population
Career
Pensions
Pensions paid to former EDP
recipients
18%
64%
2%
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16%
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Complexity
Ancillary
Benefits
MoD Funding
Indexation
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How does Career Average Work?
Current schemes
Salary (Rank)
Pension = Rank(Salary) x Service
Pensionable Service
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Salary (Rank)
How does Career Average Work?
WO Brown
Pensionable Service
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Salary (Rank)
How does Career Average Work?
WO Brown
WO White
Pensionable Service
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How does a Career Average
scheme work?
1/70 of
£22,000
1/70 of
£21,000
1/70 of
£20,000
MoD
MoD
After 3 years
pension is worth
(per year):
MoD
£21,000
£22,000
£20,000
Year 3 Indexation
£314
Year 2
Indexation
£286
£300
£300
Year 2
£300
Indexation
Year 1
Indexation
Year 1
Indexation
£286
£286
Year 1
Year 2
Year 3
Salary
Salary
Salary
Cumulative
Indexation
£900
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Salary (Rank)
How does Career Average Work?
WO Brown
WO White
Pensionable Service
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How does Career Average Work?
WO Brown
WO White
Accumulated
Pension
Accumulated
Pension
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New Scheme Design
 What is already fixed
(recommendations of Hutton Report)
 What is not fixed:
● Consulting the Service population
- Certain specific elements
● Subject to discussion with Government
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New Scheme: What is fixed
 CARE (Career Average Revalued Earnings)

Normal Pension Age increased to 60

Deferred Pension Age link to State Pension Age

NPA Lump Sums not automatic with pension, but still available

Annual Statements on Pension Benefits earned to date

Service personnel to have a voice in new scheme

No plans to alter Ancillary Benefits (incl Death in Service)

No employee contributions
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Contributions
 Service personnel do not make any compulsory personal contributions
to the AFPS
 You will not be asked to pay a direct contribution to your pension when
the new scheme is introduced
 Govt will cap employer’s contribution to constrain costs which arise
from unforeseen pressures (such as further increases in longevity). If
costs rise above the cap in the future, the Govt will consider the best
approach to managing the increasing costs. Service personnel will be
fully consulted on any changes.
 Govt consider that the cost cap will not be exceeded in the next 25
years, and has said that there should be no future public service
pension reform in this timescale
Employee
Contributions
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New Scheme: What is not fixed
 Accrual Rate
Accrual rate
 Indexation
 MoD Funding Cap
MoD Funding
Cap
Indexation
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New Scheme: What is not fixed
(and is the main focus of this Consultation)
 Early Departure Payment (EDP)– when?
 EDP Lump Sum?
 EDP Monthly income?
EDP
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Early Departure Payment
 Under AFPS 05 paid after 18 years Service and
reaching age 40, whichever is later
 Likely to move to slightly later, in line with move of
Normal Pension age. But by how much?
 No other public service pension has a similar EDP
 1/3 of pension costs is made up of EDPs in payment
EDP
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Early Departure Payment
AFPS 75
Offrs
AFPS 05
All
18/40
AFPS 75
ORs
New
EDP?
20/42
35
36
37
38
39
40
41
42
23/45
43
44
45
16 Yrs Svce (from age 21)
AFPS 75 Offrs
22 Yrs Svce (from age 18)
AFPS 75 ORs
18 Yrs Svce (and reaching age 40)
46
AFPS 05 All Ranks
New EDP?
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Early Departure Payment
EDP
 Paid as a Lump Sum and Monthly Income:
● EDP Lump Sum?
- Justified for Resettlement and Compensation for loss of full career
● EDP Monthly income?
- Justified for Resettlement and Compensation for loss of full career
- Vast majority of Service personnel will be in employment within 6
months of leaving the Services
 New pension scheme could maximise either of
these, but we cannot afford to maximise everything
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SUMMARY
 AFPS will change – not before 1 April 2015
 Your rights to pension already earned are
protected
 The new pension will remain among the best
available in the public or private sector
 This Consultation will allow you to share your
views on the design of the new pension
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MoD Intent
•
The Government has confirmed that public service
pensions will remain among the best available
•
The MOD has made its position clear – that a new
pension scheme must continue to be:
• highly competitive in relation to other schemes in recognition of
the Armed Forces’ unique commitment;
• retention positive in pulling personnel through to key career
points and
• aligned with the development of the New Employment Model
(DIB 2011 – 38)
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WHAT HAPPENS NEXT?
 Today: Focus Groups
 Online Survey
 Questions:
● How long do you intend to serve?
● Importance of EDP Lump Sum?
● Importance of EDP Monthly Income?
● Timing of EDP qualification (18/40 point)?
● Who should represent the views of Service personnel in the
new scheme?
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DEFENCE
INTRANET
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DEFENCE
INTRANET
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DEFENCE
INTRANET
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DEFENCE
INTRANET
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WWW - INTERNET
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WWW - INTERNET
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WWW - INTERNET
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WWW - INTERNET
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WWW - INTERNET
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Questions
Accrued Rights – DIN 2012DIN01-063