Armed Forces Pension Scheme - Lump sum purchase of added pension

TcpnT

A relative of mine is in the AFPS15 scheme and is trying to understand the added pension options.
She is aged 58 and currently an active reservist so is an active member and being paid for the days she works. I don't know the yearly amount but I'm guessing around £5000 per year. Shje has some spare cash and has been quoted an added pension of circa £500 pa for a lump sum payment of £10000. She does not have any other relevant Uk earnings apart for her army pay. I have read the scheme document on gov.uk but I am still unclear about some points and I wonder if anyone on here can help.
1. Does a lump sum payment have to be covered by earnings for the year - in the same way as annual pension contributions are limited to earnings for a particular year. Or can the lump sum come from savings with no limit applicable?
2. This pension would become payable at age 60. Does the scheme allow for the start date of the pension to be delayed by a few years and an actuarially increased pension to be paid due due the delay. If no increase is applicable could any unpaid years be claimed later?
3. How does the offer of £500pa for £10000 lump sum paid at 58 compare to other public service pension schemes - good value or not? Obviously better than annuity rates but not nearly as good value as topping up to full state pension entitlement if record is not full.

Thanks

Marcon

TcpnT said:

A relative of mine is in the AFPS15 scheme and is trying to understand the added pension options.
She is aged 58 and currently an active reservist so is an active member and being paid for the days she works. I don't know the yearly amount but I'm guessing around £5000 per year. Shje has some spare cash and has been quoted an added pension of circa £500 pa for a lump sum payment of £10000. She does not have any other relevant Uk earnings apart for her army pay. I have read the scheme document on gov.uk but I am still unclear about some points and I wonder if anyone on here can help.
1. Does a lump sum payment have to be covered by earnings for the year - in the same way as annual pension contributions are limited to earnings for a particular year. Or can the lump sum come from savings with no limit applicable?
2. This pension would become payable at age 60. Does the scheme allow for the start date of the pension to be delayed by a few years and an actuarially increased pension to be paid due due the delay. If no increase is applicable could any unpaid years be claimed later?
3. How does the offer of £500pa for £10000 lump sum paid at 58 compare to other public service pension schemes - good value or not? Obviously better than annuity rates but not nearly as good value as topping up to full state pension entitlement if record is not full.

1. The lump sum is deducted from pay before her pay is taxed, so she can't contribute more than she earns from being a reservist (but she can start a new Additional Pension contract each year while still an active member).

2. The pension is payable from the date when she claims it. There will be a late payment supplement if this is after it first becomes payable. No 'missed years' can be claimed.

3. Not sure this is relevant, given that she isn't eligible to contribute to other public sector schemes. A better comparison is surely to look at what she could do rather than theorising on something which can't be done? If she doesn't have a full state pension and could top up, and that would give a better outcome, why not do that?

TcpnT

Marcon, thanks for your reply.

 1. The lump sum is deducted from pay before her pay is taxed, so she can't contribute more than she earns from being a reservist (but she can start a new Additional Pension contract each year while still an active member).

This is how I imagined it would work but she is under the impression that she can contribute more than earnings as a direct payment. I have since found a clause in the "The Armed Forces Pension Regulations 2014" that states "the contribution is payable immediately by the member to the scheme administrator by deduction from the member’s earnings or otherwise". Just wondering whether the reference to "otherwise" means that the lump sum can be paid from another source. If anyone has further knowledge of this I would be interested to hear.

2. The pension is payable from the date when she claims it. There will be a late payment supplement if this is after it first becomes payable. No 'missed years' can be claimed.

Don't suppose anyone can provide a link to a table or calculation for the Late Payment Supplement?

3. Not sure this is relevant, given that she isn't eligible to contribute to other public sector schemes. A better comparison is surely to look at what she could do rather than theorising on something which can't be done? If she doesn't have a full state pension and could top up, and that would give a better outcome, why not do that?

I completely agree with you and this was my recommendation to her. It was her that specifically asked about how it might compare with other public sector schemes. If anyone is able to point to recent examples of the cost of buying additional pension in other schemes for someone around her age that would be useful.

Andy_L

Marcon said:

TcpnT said:

A relative of mine is in the AFPS15 scheme and is trying to understand the added pension options.
She is aged 58 and currently an active reservist so is an active member and being paid for the days she works. I don't know the yearly amount but I'm guessing around £5000 per year. Shje has some spare cash and has been quoted an added pension of circa £500 pa for a lump sum payment of £10000. She does not have any other relevant Uk earnings apart for her army pay. I have read the scheme document on gov.uk but I am still unclear about some points and I wonder if anyone on here can help.
1. Does a lump sum payment have to be covered by earnings for the year - in the same way as annual pension contributions are limited to earnings for a particular year. Or can the lump sum come from savings with no limit applicable?
2. This pension would become payable at age 60. Does the scheme allow for the start date of the pension to be delayed by a few years and an actuarially increased pension to be paid due due the delay. If no increase is applicable could any unpaid years be claimed later?
3. How does the offer of £500pa for £10000 lump sum paid at 58 compare to other public service pension schemes - good value or not? Obviously better than annuity rates but not nearly as good value as topping up to full state pension entitlement if record is not full.

1. The lump sum is deducted from pay before her pay is taxed, so she can't contribute more than she earns from being a reservist (but she can start a new Additional Pension contract each year while still an active member).

That seems unlikely seeing as how the lump sum can be more than monthly earnings (even for full-timer). Are you confusing the monthly payment option with the lump sum?

Marcon

Andy_L said:

Marcon said:

TcpnT said:

A relative of mine is in the AFPS15 scheme and is trying to understand the added pension options.
She is aged 58 and currently an active reservist so is an active member and being paid for the days she works. I don't know the yearly amount but I'm guessing around £5000 per year. Shje has some spare cash and has been quoted an added pension of circa £500 pa for a lump sum payment of £10000. She does not have any other relevant Uk earnings apart for her army pay. I have read the scheme document on gov.uk but I am still unclear about some points and I wonder if anyone on here can help.
1. Does a lump sum payment have to be covered by earnings for the year - in the same way as annual pension contributions are limited to earnings for a particular year. Or can the lump sum come from savings with no limit applicable?
2. This pension would become payable at age 60. Does the scheme allow for the start date of the pension to be delayed by a few years and an actuarially increased pension to be paid due due the delay. If no increase is applicable could any unpaid years be claimed later?
3. How does the offer of £500pa for £10000 lump sum paid at 58 compare to other public service pension schemes - good value or not? Obviously better than annuity rates but not nearly as good value as topping up to full state pension entitlement if record is not full.

1. The lump sum is deducted from pay before her pay is taxed, so she can't contribute more than she earns from being a reservist (but she can start a new Additional Pension contract each year while still an active member).

That seems unlikely seeing as how the lump sum can be more than monthly earnings (even for full-timer). Are you confusing the monthly payment option with the lump sum?

Quite possibly! I had hoped that SIlvertabby might be along to answer this question, but as nobody had responded I did a bit of googling (not always the best idea and certainly no substitute for actual knowledge) to try and help on this point, and had relied on this: https://forcespensionsociety.org/2019/07/afps015-and-added-pension/ (in particular the list of 'Pros').

Silvertabby....? or anyone else who really knows what they're talking about in respect of this scheme....?

TcpnT

Marcon said:

Andy_L said:

Marcon said:

TcpnT said:

A relative of mine is in the AFPS15 scheme and is trying to understand the added pension options.
She is aged 58 and currently an active reservist so is an active member and being paid for the days she works. I don't know the yearly amount but I'm guessing around £5000 per year. Shje has some spare cash and has been quoted an added pension of circa £500 pa for a lump sum payment of £10000. She does not have any other relevant Uk earnings apart for her army pay. I have read the scheme document on gov.uk but I am still unclear about some points and I wonder if anyone on here can help.
1. Does a lump sum payment have to be covered by earnings for the year - in the same way as annual pension contributions are limited to earnings for a particular year. Or can the lump sum come from savings with no limit applicable?
2. This pension would become payable at age 60. Does the scheme allow for the start date of the pension to be delayed by a few years and an actuarially increased pension to be paid due due the delay. If no increase is applicable could any unpaid years be claimed later?
3. How does the offer of £500pa for £10000 lump sum paid at 58 compare to other public service pension schemes - good value or not? Obviously better than annuity rates but not nearly as good value as topping up to full state pension entitlement if record is not full.

1. The lump sum is deducted from pay before her pay is taxed, so she can't contribute more than she earns from being a reservist (but she can start a new Additional Pension contract each year while still an active member).

That seems unlikely seeing as how the lump sum can be more than monthly earnings (even for full-timer). Are you confusing the monthly payment option with the lump sum?

Quite possibly! I had hoped that SIlvertabby might be along to answer this question, but as nobody had responded I did a bit of googling (not always the best idea and certainly no substitute for actual knowledge) to try and help on this point, and had relied on this: https://forcespensionsociety.org/2019/07/afps015-and-added-pension/ (in particular the list of 'Pros').

Silvertabby....? or anyone else who really knows what they're talking about in respect of this scheme....?

I think I too have exhausted the googling possibilities on this. Input from Silvertabby would be much appreciated.

[Deleted User]

I would ask the question on arrse. The Forces Pension Society normally answers on there as well.

OldBeanz

This is the LGPS equivalent.
https://www.lgpsmember.org/more/apc/extra.php?
My son has just joined as a Reserve and buying extra pension from 'salary' would appear to be nigh on impossible given the irregularity of pay. Would be interested if buying extra pension was feasible.

TcpnT

OldBeanz said:

This is the LGPS equivalent.
https://www.lgpsmember.org/more/apc/extra.php?
My son has just joined as a Reserve and buying extra pension from 'salary' would appear to be nigh on impossible given the irregularity of pay. Would be interested if buying extra pension was feasible.

I just snipped this from the application form for AFPS15 added pension and it's clear from this that the lump sum does not have to come from salary - you can just send them a cheque. 
That's one question answered at least. The outstanding queries therefore are:
1. Can an annual lump sum payment exceed the earnings from the army for the year?
2. Can a lump sum payment exceed total earnings from all sources for the year - which would not be allowable for normal pension contributions?

OldBeanz

TcpnT said:

OldBeanz said:

This is the LGPS equivalent.
https://www.lgpsmember.org/more/apc/extra.php?
My son has just joined as a Reserve and buying extra pension from 'salary' would appear to be nigh on impossible given the irregularity of pay. Would be interested if buying extra pension was feasible.

I just snipped this from the application form for AFPS15 added pension and it's clear from this that the lump sum does not have to come from salary - you can just send them a cheque. 
That's one question answered at least. The outstanding queries therefore are:
1. Can an annual lump sum payment exceed the earnings from the army for the year?
2. Can a lump sum payment exceed total earnings from all sources for the year - which would not be allowable for normal pension contributions?

Ok Question 2:  As this is a net pay arrangement then HMRC only refund tax paid. So no tax paid then no tax relief. This is unlike paying into a SIPP where the provider reclaims tax relief up to your earnings limit. You will not be able to exceed total earnings. 

Silvertabby

Hello all.  Thanks for the vote of confidence,  but I'm a AFPS75 pensioner which is very different to AFPS2015 - especially for reservists!

I've had a good look through the scheme booklet, and it does read to me that there is no difference in how regulars and reservists are treated when it comes to buying added pension, and that the only cap is in respect of the total amount of added pension you can buy.

I would suggest that this lady applies for a quote using the relevant form (AFPS Form 6), and sends it with a covering letter stating that her reserve pay is her only income and asking if there is a cap.

Note that your friend would have to actually serve until 60 in order to receive her pension then.  (Likely in view of her age now?). Absolutely no benefit in deferring payment - she would be throwing money away.

If she were to leave before 60, her pension would be deferred until SPA.

Hope this helps.