Forces Pension Society: Does Aggregation Matter?
Some of you will have left the Armed Forces, re-joining a year or so later.
If you left with a preserved pension (PP) it is not affected by the pension rules in place for any new service unless you elect otherwise. When you aggregate you combine two periods of service so that they count as one, you are agreeing that the first period of service should be treated in line with the rules that apply during subsequent service.
In this article Mary Petley of the Forces Pension Society looks at aggregation of AFPS75 and AFPS05 benefits. Although AFPS15 does not permit aggregation, aggregating AFPS75 and AFPS05 benefits can affect AFPS15 benefits.
When a PP is awarded it builds up by Consumer Prices Index rises each year until paid out. AFPS75 PPs are payable at age 60 for pension earned up to and including 5 April 2006 and age 65 for service after that date. For AFPS05 PPs are paid at age 65.
Most people who re-join the
regular Armed Forces go on to
be promoted and receive pay rises. Once aggregated, preserved benefits will be counted in the individual’s rank for pension at discharge for AFPS75 or at the individual’s final pensionable pay (FPP) for AFPS05. The right to aggregate AFPS75 and AFPS05 preserved benefits is protected, which means that you can choose to aggregate, or disaggregate, at any point while you are still in active regular service. That is the theory, so let’s look at a few examples:
Captain Jackson leaves the
Army on 1 April 2003 after 6 years service with a PP. He re-joins on 31 March 2004 and leaves again on 31 March 2017 as a Major.
Award without aggregation: a second AFPS75 PP for his service up to 31 March 2015, an AFPS15 deferred pension (DP) payable at his State Pension Age (SPA) for his remaining service and an AFPS 75 Resettlement Grant.
Award with aggregation: an immediate pension worth about 90% of the 19 year rate for a Major, with a tax free lump sum of three times the pension, and an AFPS15 DP.
Clearly aggregation is attractive in this case.
Sergeant Bilko leaves the Royal Air Force on 1 June 2004 after 12 years service. He re-joins on 1 June 2005 and leaves on 31 March 2018 as a Warrant Officer (FPP £49,283).
Award without aggregation: an AFPS05 PP for his service from 1 June 2005 to 31 March 2015 payable at age 65 and an AFPS15 DP payable at his SPA for his remaining service.
Award with aggregation: a single AFPS05 PP payable at age 65, and an AFPS15 DP payable at his SPA, PLUS immediate benefits from the Early Departure Payment (EDP) Schemes applicable to both AFPS05 and AFPS15. The EDP lump sums alone would amount to around £60K!
The EDP benefits are unarguably very attractive but, in making his decision, Sergeant Bilko needs to weigh up what he gains against the AFPS 75 benefits he could have received between age 60 and 65 when his AFPS 05 benefits become payable.
Lance Corporal Simpson has an AFPS75 PP having served for 7 years. She re-joined the Army, served a further 7 years and was discharged on medical grounds with a Tier 1 condition in Spring 2017. She was a Corporal by the time she left. The Tier 1 decision means that she is awarded preserved/deferred benefits payable at age 65 and her SPA respectively plus a Tier 1 lump sum based on her pensionable pay and length of service.
Award without aggregation: an AFPS05 PP, an AFPS15 DP plus the Tier 1 lump sum of about 7/8ths of her pensionable pay.
Award with aggregation: an AFPS05 PP based on the 12 years in AFPS05 (and her FPP at discharge), an AFPS15 DP and a Tier 1 lump sum of 14/8 (1.75 years) pensionable pay. Corporal Simpson may well find the higher cash sum on discharge a huge plus BUT she needs to weigh this up against the AFPS 75 benefits she could have received between age 60 and 65 when her AFPS 05 benefits become payable.
If you are a Member of the Forces Pension Society and have any pension-related questions, contact us at firstname.lastname@example.org.
If you are not a Member but would like to know more about us, please visit www.forcespensionsociety.org.