To carry on with our Staff Sergeant’s career... Let’s assume that on the day of inception of the new scheme, he had completed 19 years’ reckonable service on the AFPS75 pension scheme, and will leave the Army after 22 years’ reckonable service on 6th April 2018. This means that there is going to be a split pension award on exit – some AFPS75 and some AFPS15. I will deal with the AFPS75 entitlement first.
Even though the Staff Sergeant will not have completed 22 years’ reckonable service on the date the new pension scheme started, he would, on his day of exit, have achieve that amount of service in total, albeit with 3 years of that service under the new pension scheme rules. Therefore, since 22 years’ service will be attained, he will receive an immediate pension and lump sum award on exit under the AFPS75 pension scheme rules.
The rules of AFPS75 state that an individual must complete at least 2 years’ reckonable service in the substantive rank in order to receive a full pension for that rank; if they complete at least 12 months’ reckonable service in the substantive rank, there will be a proportionate increase in the pension award based on the rates payable for each of the two ranks.
Unfortunately, as our Staff Sergeant did not complete 12 months’ reckonable service in the substantive rank, his AFPS75 pension award will be based on that of a Sergeant for the full 19 years.
The current annual pension award after 22 years’ service for a Sergeant is £10,509; therefore the award of a pension payable immediately on exit under AFPS75 would be 19/22nds of the £10,509 (£9,075.95) and a lump sum of 3 times that figure (£27,227.85).
What of the small pension earned under AFPS15? Assuming our Staff Sergeant is 41 on exit and has completed over 20 years’ service, his full pension becomes a deferred pension payable from State Retirement Pension Age. However, because he is aged 40 or over and has completed at least 20 years’ reckonable service, he qualifies to receive EDP payments.
The amount of EDP income stream payable is based on 34% of the pension earned plus 0.85% for each complete year beyond the EDP qualifying point. Our Staff Sergeant reached his EDP point at age 40 (he had completed 21 years’ reckonable service then), so given that he has completed one further year beyond his EDP qualifying point he will receive an EDP income stream of 34.85% of £2,454.30 (£855.32). Please note that you only need to hold the rank for one day and that one day’s salary in the higher rank is pensionable under the new AFPS15 scheme rules.
The amount of EDP lump sum is equal to 2.25 times the value of the pension pot. This means £2,454.30 x 2.25, equals £5,522.18. So, the overall award on exit for our Staff Sergeant is a lump sum equal to (£27,227.85 + £5,522.18) £32,750.03 and a total pension/income stream until State Pension Age of (£9,075.95 + £855.32) £9,931.27.
At State Pension Age the EDP income stream stops and the proper pension becomes payable. Our Staff Sergeant has a choice of taking all the pension in income, so the total pension would increase to (£9,075.95 + £2,454.30) £11,530.25, or he can surrender (up to) 25% of the AFPS15 pension and buy another lump sum at this point. If he did that, then for every £1 of annual pension surrendered, a £12 lump sum is paid. Surrendering 25% of £2,454.30 (£613.57) would buy a lump sum of £7,362.84, and the pension at State Pension Age would only be (£9,075.95 + £1,840.71) £10,916.66.
