Public Service career pension - added pension

I'm ex forces and my clients are predominantly service personnel (light blue). You are not alone in your confusion. The figure refers to contributions that you may attach to your occupational scheme over the course of your employment; Glasgow affirms that the system is still subject to change and that its your responsibility to stay on top of staying the right side of the regs (ignorance is no excuse etc).

I discuss your quandary about three or four times a month with clients. There are far too may pros and cons to be able to generalise fairly, and a lot will depend on your circumstances of course (especially too, with the new pay scheme and NEM now in force). Drop me a line if you want a 100% no sales steer or a self help chat - happy to help if I can.

Per Ardua..

This was chaos last year, the main area of confusion related to the amount of Added Pension that could be purchased. The £6500 is a HM Treasury limit relating to the individually variable amount of contributions towards an Added Pension maximum that you can receive each year in retirement; it does not relate to the amount of contributions that you may make until (possibly, depending on your offer of service) aged 60.

For example, to benefit from an additional £100 of Added Pension each year in retirement, typically you may have to make contributions equal to anything between £1000 and £2000 (the calculations are different for each service an/woman depending on your circumstances, branch/trade (let's keep this light blue).

So, for a typical AFPS member to accumulate an extra £6,500 per year in retirement (the maximum amount), you may have to make contributions throughout your career in the region of £60,000 - £120,000. The figure will depend on you, there is no hard and fast number Until you get in touch with Glasgow via JPA (good luck with that one right now).

The calculator is (or was the last time I looked) U/S - just before Christmas anyway, JPA advises that anyone who wants to buy Added Pension should first get a quote from DBS (using AFPS Form 6). Only when you have received the quote should you complete AFPS Form 6A. The link to the form that should be used to obtain a quote is below:

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/420457/afps-2015-form_6.doc

Like I said, drop me a line and we can chat. Happy to help a penguin (?!) if I can.

On another thread the value of a DB government backed pension was valued at 2.7% i.e. pay £100k and receive an inflation linked pension of £2.7k pa. At £120k for an extra £6.5k pa that sounds like a bargain unless you are likely to exceed any pension penalty levels.

The price of something, and the value of it, are rarely in accord. This is something I posted to someone here the other day who was a member of the NHS scheme. It might offer a quick aide memoire for when considering options.

<<Most of my clients live in a Final Salary world (AFPS) and this is a question that crops up often as they make the transition to civvy street. Although transferring out of an unfunded final salary scheme is no longer allowed, I have adapted this and loosely refer to it by way of an aide memoire to highlight some differences between the two pension 'spaces' - it might be useful for you in making a determination.

Improved, 'better', different or alternative death benefits – the ability for a spouse, an unmarried partner and /or children (or these days in fact, any other beneficiaries) to inherit your entire unspent personal/ defined contribution pension fund free of inheritance tax.

Increased levels of tax free cash, and access to cash - this may allow mortgages to be repaid, debt to be paid off, early retirement etc. Access to cash above your tax free allowance is rated at your marginal rate of course, and the terms of access may change.

Current pension scheme in flux – will the NHS scheme trip its cost settings, will its terms change yet again? This caveat may apply to defined contribution pensions too of course. Do you trust the government?

Greater flexibility when shaping the benefits – the NHS scheme includes a spouse’s pension on death even if you are not married or in civil partnership. But if you are single, do you need this benefit? The benefit won't apply in some cases either, ie, if you're a senile 80 years old and marry a twenty year old Chippendale or Lithuanian pole dancer.

Tax planning – final salary pensions may push you into higher rates of tax. A more flexible personal pension arrangement can enable you to avoid this.

Income flexibility and phasing – you may want to take higher levels of income initially – for example, until the State or other pensions kick in, then reduce the income from your pension later. Will the NHS scheme allow you to do this?

Health – if you’ve had health issues and/or are a regular smoker, then it may be possible to replicate NHS pension benefits privately using guaranteed annuity rates to obtain a greater level of guaranteed pension. I wouldn't hold your breath with this one though.

Better off (potentially) – if, on balance, and using realistic, pragmatic projections, you could well be better off and receive more benefits as a result of such a transfer.

Cash flow - you imply that you are in your forties or fifties - what is your projected cash flow requirement likely to be, does the NHS scheme fit in with this? How risk averse are you? The NHS scheme may or may not be better for you in many ways, but at least the income stream is guaranteed. What are your retirement objectives.. what does it 'look like' - if you are retiring abroad then alternative (credible and safe) flexible pension structures *could* be worth exploring. Be careful though, sharks thrive on this space.

Finally, the really big one is this. Will George Osborne change the rules on pension tax relief in the forthcoming budget? If so, do you stand to gain or lose (it might be neither of course)?>>