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Future Armed Forces Pension Scheme Team PowerPoint PPT Presentation


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FUTURE ARMED FORCES PENSION SCHEME CONSULTATION This presentation should be viewed in conjunction with the script which is in MS Word Document format on the same page. Future Armed Forces Pension Scheme Team. PURPOSE.

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FUTURE ARMED FORCES PENSION SCHEMECONSULTATION This presentation should be viewed in conjunction with the script which is in MS Word Document format on the same page.


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Future Armed Forces Pension Scheme Team


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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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LUMP SUM

Exit the Armed Forces

FUTURE PENSION SCHEMEEARLY DEPARTURE PAYMENT (EDP)

EDP MONTHLY INCOME

Pensionable Service

EDP POINT


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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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AFPS 05

Non contributory

Final Salary (best 365 days in last 3 years)

2 yr Vesting Period

Pensionable Service accrues from first day of paid service

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

Existing Schemes

AFPS 75

  • Non contributory

  • Rep Pay Rate based on Final Rank

  • 2 yr Vesting Period

  • Pension accrues after:

    • Age 18 (Other Ranks)

    • 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


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  • 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%

16%

  • Armed Forces need a young workforce:


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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


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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


Example 1 of 4 cdr lt col wg cdr afps 75 immediate pension l.jpg

Lump sum of around £70,800

Promote to OF-4

Cumulative CPI since exit

+ CPI

Promote to OF-3

Immediate Pension of around£23,600 pa

Promote to OF-2

AFPS 75 Pension Accrual

Exit the Armed Forces at 20 yrs Svce

Age 55

IPP(16 Yrs)

Example 1: OF-4 (Cdr, Lt Col, Wg Cdr) AFPS 75 Immediate Pension


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Lump sum of around £70,800

10 Yrs

+ Future AFPSPension

10 Yrs

Cumulative CPI since exit

Lump sum of around £37,800

+ CPI

Immediate Pension of around£23,600 pa

Future AFPSPension Accrual

+ CPI

Immediate Pension of around£12,600pa

Transition to Future AFPS

Example 1: OF-4 (Cdr, Lt Col, Wg Cdr) AFPS 75 Immediate Pension

Promote to OF-3

Promote to OF-2

AFPS 75 Pension Accrual

Exit the Armed Forces at 20 yrs Svce

IPP(16 Yrs)

Age 55


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Lump sum of around £36,900

Salary c£34K

Lump sum of around £36,900

Promote to OR-6 (PO, Sgt)

+ CPI

Pension of £12,300 pa

Cumulative CPI since exit

+CPI

AFPS 05 Pension Accrual

Income of £9,200 pa

Income of around£7,500 pa

Age 55

Age 65

Exit at 25 yrs svce

EDP Point

(18/40)

Example 2: OR-6 (PO, Sgt) AFPS 05 Early Departure Payment

IPP


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Lump sum of around £36,900

Salary c£34K

Lump sum of around £14,400

10 yrs

Lump sum of around £36,900

15Yearsof Future AFPS

Lump sum of around £14,400

Promote to OR-5 (PO, Sgt)

+ CPI

FutureAFPS

+ CPI

Pension of £12,300 pa

Income of £4,800 pa

Cumulative CPI since exit

Future AFPS Accrual

+CPI

AFPS 05 Pension Accrual

+CPI

Income of £9,200 pa

Income of £3,600 pa

Income of around£7,500 pa

Income of around£2,900 pa

Example 2: OR-6 (PO, Sgt) AFPS 05 Early Departure Payment

Age 55

Age 65

Exit at 25 yrs svce

EDP Point

(18/40)

Point of Transition to Future AFPS


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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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  • Average Length of Service is 9 yrs

  • 64% won’t serve to age 40 – Deferred Pensions

  • Only 2% will serve to age 55

64%

2%

  • Armed Forces need a young workforce:

  • 34% will earn Early Departure Payment

18%

16%


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66% of Service population

Preserved Pensions and Full Career Pensions

EDPs paid between exit and age 65

33%of cost

33%of cost

34% of Service population

33%of cost

Pensions paid to former EDP recipients

66% of Service population

34% of Service population

18%

64%

2%

16%


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Complexity

Accrual rate

AncillaryBenefits

NPA + MPA

Uplift Factor

Employee Contributions

CARE

Indexation

MoD Funding

Actuarial Reductions

EDP


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How does Career Average Work?

Current schemes

Pension = Rank(Salary) x Service

Salary (Rank)

Pensionable Service


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WO Brown

How does Career Average Work?

Salary (Rank)

Pensionable Service


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WO White

How does Career Average Work?

WO Brown

Salary (Rank)

Pensionable Service


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1/70 of £22,000

1/70 of £21,000

1/70 of £20,000

MoD

MoD

MoD

£21,000

£22,000

£20,000

£314

£300

Year 2 Indexation

Year 2 Indexation

Year 1 Indexation

£300

£300

£286

Year 1 Indexation

Year 1 Indexation

£286

£286

£286

Year 1 Salary

Year 2 Salary

Year 3 Salary

How does a Career Average scheme work?

After 3 years pension is worth(per year):

Year 3 Indexation

Cumulative Indexation

£900


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WO White

How does Career Average Work?

WO Brown

Salary (Rank)

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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Employee Contributions

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 thistimescale


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New Scheme: What is not fixed

  • Accrual Rate

  • Indexation

  • MoD Funding Cap

Accrual rate

MoD Funding Cap

Indexation


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EDP

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?


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EDP

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


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New EDP?

35

36

37

38

39

40

41

42

43

44

45

46

Early Departure Payment

AFPS 05 All18/40

AFPS 75 Offrs

AFPS 75 ORs

20/42

23/45

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)

AFPS 05 All Ranks

New EDP?


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EDP

Early Departure Payment

  • 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


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