The Forces Pension Society is an excellent source of advice, news and guidance on the Armed Forces Pension Scheme (AFPS). The website is linked below. From the link below you can see details of how to join the society, membership benefits, events and the news and updates on your pension.
I would however, pick out a few
key points:
- The Armed Forces Pension Calculator (AFPC) is a useful tool to obtain a pension forecast. The AFPC was updated on 1 August 2023 to reflect the results of the AFPS 15 (McCloud) Remedy.
- You can obtain a formal forecast from Veterans UK in Glasgow. You are entitled to one free forecast in any 12-month period. Apply by completing the form linked below and posting the form (address is on the form). There is also an online form but it must be sent from a modnet email address. It can be found by searching "AFPS Form 12 - Intranet Version" on modnet.
- You can make additional voluntary contributions to your AFPS 15 pension:
- You can purchase Added Pension provisions by a contract that lasts up to one year.
- You can make monthly instalments of as little as £25, or a minimum £300 lump sum.
- You can boost your pension and / or that of your dependants.
- The cost depends on (amongst other things):
- Your age when making the contribution.
- Wether you are doing a lump sum payment or paying by instalments.
- How much you want to enhance the pension.
- When in the year you want the contract to start.
- To obtain a no commitment quote, complete and send AFPS Form 6 (linked below) to the address on the form.
- If you wish to proceed with the quote, complete and send AFPS Form 6A (linked below) to the address on the form.
- The benefits of making contributions are:
- Flexible - the contract only lasts a year.
- Tax efficient - contributions come from your salary before tax. This essentially means if you're a basic-rate tax payer (20%), a £500 pension contribution sees a £400 reduction in your pay after tax and if you're a higher-rate tax payer (40%), a £500 contribution sees a £300 reduction in your pay after tax. This is explained in more detail here - salary contributions before tax.
- Increasing the pension will increase Early Departure Payment (EDP) benefits.
- The sum is guaranteed and not subject to stock market fluctuations.
- However, once you've committed the money, you cannot take it out as a cash lump sum.
- Depending on your rank, length of service and size of the Added Pension you decide to purchase, you could be at risk of exceeding, or further exceeding the annual allowance, referred to below. The Forces Pension Society advises engaging with them directly if you believe purchasing Added Pension would take you above the annual allowance.
- There is an annual allowance on pension contributions - this is the most that can be added to your pension pot in a tax year before you have to pay tax. The recent annual Budget, the annual allowance was increased from £40,000 in 2022/23 to £60,000 for 2023/24. Some further points:
- If you breach the annual allowance in a tax year, you will receive a letter from the MOD in or around October in the next tax year (ie, if you exceeded the annual allowance in tax year 2021/22, you can expect a letter around October 22).
- The letter provides the details of the process to follow.
- You may be able to carry over unused annual allowance from the previous 3 tax years.
- You can use the HMRC Online AA Calculator to help establish if you have to pay a tax charge.
- If you do, you have to complete a Self Assessment tax return. The most up to date guide for this is the 2021/22 version on the gov.uk site.
- The rate of tax you pay depends on the rate of income tax you would be on if you added the value of pension contributions over the annual allowance to your income. The Tax on Your Salary section in the Income Tax section provides details of the rates.
- If you have a high income, you may have a reduced (tapered) annual allowance. To calculate your threshold income, reduced income and your reduced (tapered) annual allowance, there is guidance on the gov.uk site. This applies in tax year 2022/23 if:
- Your threshold income is over £200,000.
- Your adjusted income is over £260,000.
- There is currently a lifetime allowance (LTA) of £1,073,100. This is the limit on how much you can build up in pension benefits throughout your lifetime, whilst still receiving the full tax benefits. Some key points:
- Prior to 6 April 2023, there was a lifetime allowance charge. The recent Budget abolished this charge. Instead, if your pension pot will pay any lump sum taken from your pension pot above the LTA at your marginal rate (for example, if your pension pot was £1,430,800, and you took a £200,000 lump sum, this would be taxed as the value of the pot is above the LTA of £1,073,100).
- The LTA will be abolished completely from 6 April 2024 onwards, but the maximum lump sum will be 25% of the previous LTA of £1,073,100, which equates to £268,275.
