future armed forces pension scheme team
DESCRIPTION
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. - PowerPoint PPT PresentationTRANSCRIPT
DCDS(Pers) Pensions, Compensation & Veterans
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.
DCDS(Pers) Pensions, Compensation & Veterans2
Future Armed Forces Pension Scheme Team
DCDS(Pers) Pensions, Compensation & Veterans3
DCDS(Pers) Pensions, Compensation & Veterans4
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
DCDS(Pers) Pensions, Compensation & Veterans5
FUTURE PENSION SCHEMEEARLY DEPARTURE PAYMENT (EDP)
Exit the Armed Forces
EDP MONTHLY INCOME
Pensionable Service
LUMP SUM
EDP POINT
DCDS(Pers) Pensions, Compensation & Veterans6
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
DCDS(Pers) Pensions, Compensation & Veterans7
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
DCDS(Pers) Pensions, Compensation & Veterans8
Existing SchemesAFPS 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
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
DCDS(Pers) Pensions, Compensation & Veterans9
• Armed Forces need a young workforce:
• Only 2% will serve to age 55
2%16%
• 34% will earn Early Departure Payment
18%
• 64% won’t serve to age 40 – Preserved Pensions
• Average Length of Service is 9 yrs
64%
DCDS(Pers) Pensions, Compensation & Veterans10
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 & Veterans11
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. ’
DCDS(Pers) Pensions, Compensation & Veterans12
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)
DCDS(Pers) Pensions, Compensation & Veterans13
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
DCDS(Pers) Pensions, Compensation & Veterans14
Example 1: OF-4 (Cdr, Lt Col, Wg Cdr) AFPS 75 Immediate Pension
Exit the Armed Forces at 20
yrs Svce
Immediate Pension
of around£23,600
pa
Promote to OF-3
Promote to OF-2
AFPS 75 Pension Accrual
Promote to OF-4
Lump sum of around £70,800
IPP(16 Yrs)
Age 55
Cumulative CPI since
exit
+ CPI
DCDS(Pers) Pensions, Compensation & Veterans15
Immediate Pension
of around£23,600
pa
Lump sum of around £70,800
Cumulative CPI since
exit
+ CPI
Immediate Pension
of around£12,600
pa
Lump sum of around £37,800
+ CPI
Example 1: OF-4 (Cdr, Lt Col, Wg Cdr) AFPS 75 Immediate Pension
Exit the Armed Forces at 20
yrs Svce
Promote to OF-3
Promote to OF-2
AFPS 75 Pension Accrual
IPP(16 Yrs)
Age 55
Transition to Future AFPS
10 Yrs
Future AFPSPension Accrual
+ Future AFPSPension
10 Yrs
DCDS(Pers) Pensions, Compensation & Veterans16
IPP
Example 2: OR-6 (PO, Sgt) AFPS 05 Early Departure Payment
Exit at 25 yrs svce
AFPS 05 Pension Accrual
Promote to OR-6 (PO, Sgt)
Salary c£34K
EDP Point
(18/40)
+ CPI
+CPICumulative CPI since exit
Income of around
£7,500 pa
Age 55
Lump sum of around £36,900
Income of £9,200 pa
Age 65
Pension of
£12,300 pa
Lump sum of around £36,900
DCDS(Pers) Pensions, Compensation & Veterans17
Example 2: OR-6 (PO, Sgt) AFPS 05 Early Departure Payment
Exit at 25 yrs svce
AFPS 05 Pension Accrual
Promote to OR-5 (PO, Sgt)
Salary c£34K
EDP Point
(18/40)
+ CPI
+CPI
Income of around
£2,900 pa
Lump sum of around £14,400
Income of £3,600 pa
Income of £4,800 pa
Lump sum of around £14,400
Point of Transition
to Future AFPS
10 yrs
Age 55 Age 65
+ CPI
+CPICumulative CPI since exit
Income of around
£7,500 pa
Lump sum of around £36,900
Income of £9,200 pa
Pension of
£12,300 pa
Lump sum of around £36,900
Future AFPS Accrual
15Years
of Future AFPS
FutureAFPS
DCDS(Pers) Pensions, Compensation & Veterans18
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
DCDS(Pers) Pensions, Compensation & Veterans19
NEW SCHEME:Need for change
Increased longevity (and consistent failure to
forecast this)
UK PLC - Pensions ‘Black-Hole’
DCDS(Pers) Pensions, Compensation & Veterans20
Increasing longevity (and failure to predict accurately)
DCDS(Pers) Pensions, Compensation & Veterans21
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
DCDS(Pers) Pensions, Compensation & Veterans22
HUTTON REPORT
• All Public Service pension schemes
Principles:
- Affordable and sustainable. - Adequate and fair. - Support productivity. - Transparent and simple.
27 Recommendations
DCDS(Pers) Pensions, Compensation & Veterans23
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
DCDS(Pers) Pensions, Compensation & Veterans24
• Armed Forces need a young workforce:
• Only 2% will serve to age 55
2%16%
• 34% will earn Early Departure Payment
18%
• 64% won’t serve to age 40 – Deferred Pensions
• Average Length of Service is 9 yrs
64%
DCDS(Pers) Pensions, Compensation & Veterans2516%
18%
64%
2%
34% of Service
population
66% of Service
population66% of Service
population
34% of Service
population
EDPs paid between exit and age 65
Pensions paid to former EDP recipients
Preserved Pensions
and Full
Career Pensions
33%of cost
33%of cost
33%of cost
DCDS(Pers) Pensions, Compensation & Veterans26
Complexity
Accrual rate
Uplift Factor
CAREMoD Funding
Ancillary
Benefits
Actuarial Reductions
NPA + MPA
Employee
Contributions
Indexation
EDP
DCDS(Pers) Pensions, Compensation & Veterans27
How does Career Average Work?
Pensionable Service
Sa
lary
(R
ank)
Current schemes
Pension = Rank(Salary) x Service
DCDS(Pers) Pensions, Compensation & Veterans28
How does Career Average Work?
Pensionable Service
Sa
lary
(R
ank)
WO Brown
DCDS(Pers) Pensions, Compensation & Veterans29
How does Career Average Work?
Pensionable Service
Sa
lary
(R
ank)
WO Brown
WO White
DCDS(Pers) Pensions, Compensation & Veterans30
How does a Career Average scheme work?
£20,000
Year 1 Salary
£300
£314
£286
£21,000
Year 2 Salary
£286
Year 1 Indexation
£22,000
£300
Year 3 Salary
Year 1 Indexation
£286
Year 2 Indexation
1/70 of £20,000
MoD
1/70 of £21,000
MoD
MoD
1/70 of £22,000
£900
Cumulative Indexation
Year 3 Indexation
£300
Year 1 Indexation
£286
Year 2 Indexation
After 3 years pension is worth
(per year):
DCDS(Pers) Pensions, Compensation & Veterans31
How does Career Average Work?
Pensionable Service
Sa
lary
(R
ank)
WO Brown
WO White
DCDS(Pers) Pensions, Compensation & Veterans32
How does Career Average Work?
WO Brown
Accumulated Pension
WO White
Accumulated Pension
DCDS(Pers) Pensions, Compensation & Veterans33
New Scheme Design
What is already fixed (recommendations of Hutton Report)
What is not fixed:
● Consulting the Service populationCertain specific elements
● Subject to discussion with Government
DCDS(Pers) Pensions, Compensation & Veterans34
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
DCDS(Pers) Pensions, Compensation & Veterans35
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
DCDS(Pers) Pensions, Compensation & Veterans36
New Scheme: What is not fixed
Accrual Rate
Indexation
MoD Funding Cap
Accrual rate
MoD Funding Cap
Indexation
DCDS(Pers) Pensions, Compensation & Veterans37
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
DCDS(Pers) Pensions, Compensation & Veterans38
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
DCDS(Pers) Pensions, Compensation & Veterans39
New EDP?
Early Departure Payment
35 36 37 38 39 40 41 42 43 44 45 46
AFPS 75 Offrs
AFPS 75 ORs
AFPS 05 All
18/40
New EDP?
20/42 23/45
22 Yrs Svce (from age 18)
16 Yrs Svce (from age 21)
18 Yrs Svce (and reaching age 40)
AFPS 75 Offrs
AFPS 75 ORs
AFPS 05 All Ranks
DCDS(Pers) Pensions, Compensation & Veterans40
EDPEarly 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
DCDS(Pers) Pensions, Compensation & Veterans41
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
DCDS(Pers) Pensions, Compensation & Veterans42
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)
DCDS(Pers) Pensions, Compensation & Veterans43
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?
DCDS(Pers) Pensions, Compensation & Veterans44
DEFENCE INTRANET
DCDS(Pers) Pensions, Compensation & Veterans45
DEFENCE INTRANET
DCDS(Pers) Pensions, Compensation & Veterans46
DEFENCE INTRANET
DCDS(Pers) Pensions, Compensation & Veterans47
DEFENCE INTRANET
DCDS(Pers) Pensions, Compensation & Veterans48
WWW - INTERNET
DCDS(Pers) Pensions, Compensation & Veterans49
WWW - INTERNET
DCDS(Pers) Pensions, Compensation & Veterans50
WWW - INTERNET
DCDS(Pers) Pensions, Compensation & Veterans51
WWW - INTERNET
DCDS(Pers) Pensions, Compensation & Veterans52
WWW - INTERNET
?Questions
Accrued Rights – DIN 2012DIN01-063