|When Iím Dead And Gone What Happens to My Pension? Part II|
Following on from last month’s article in which Lieutenant Commander David Marsh from the Forces Pension Society looked into the very valuable asset of dependants’ pension entitlement under the AFPS75 scheme, this month he tackles the same issue, but from the AFPS05 perspective...
As with the old AFPS75 scheme, I believe it sensible that first we establish which, of the dependants you leave behind, may have an entitlement to some form of dependant’s pension based on that which you earned during your service.
Unlike the AFPS75 scheme, you do not have to be in a marriage or civil partnership for a dependant’s pension entitlement to exist if you die in retirement. If you are in a steady relationship with a partner of the same, or opposite, sex; then providing that individual can show some form of financial interdependence with you when called to do so, they will normally be entitled to the same benefits payable to a spouse or civil partner.
However, there is one caveat in the AFPS05 pension scheme that is not in the AFPS75 scheme, which might affect the amount of dependant’s pension payable. It is this:
“If your spouse, civil partner, or eligible partner is more than 12 years younger than you there will be a reduction in the dependant’s pension payable of 2.5% for every complete year the dependant’s age is lower than yours, up to a maximum deduction of 50%”
Therefore, if your spouse happens to be 21 years younger than you, and you predecease them, they will suffer a reduction of 22.5% of the normal pension entitlement that they could have expected; unless you were in a relationship with that person before 6th April 2006, in which case you have reserved rights. This caveat helps protect the scheme’s costs from a syndrome known as the ‘deathbed marriage’. For example it might be that a 94 year old General in his last days takes a shine to the 23 year old nurse who is looking after him.
He asks her to marry him; she accepts; he lives for a further 12 months; upon his death we would have 24 year old nurse running around with 62.5% of a General’s pension for the rest of her life, because under AFPS05 she does not have to surrender it if she remarries, or cohabits! (As an aside, she would not be badly looked after – she would still receive just over 31%.)
Children are also eligible for a child’s pension in certain circumstances too, providing that they are:
a. Under age 18 – quite straightforward.
b. Under age 23 and still in full time education or vocational training. This includes university, providing that there is no more than a single gap year between the completion of ‘A’ Levels and the start of the university degree. If a child’s pension is in payment before the commencement of a gap year it will cease to be paid throughout the gap year but reinstated at the start of the university degree, providing those intentions were made clear at the end of the child’s ‘A’ Levels.
c. Is unable to undertake gainful employment due to mental or physical disability suffered before the age of 23. In such cases it does not matter what age the child is on your date of death, they will receive a child’s pension until the day they die.
There is no such thing as a “short term family pension” in the AFPS05 scheme since that arrangement completely breaks Inland Revenue rules, and unlike AFPS75, which is approved by Royal Warrant and Prerogative Instruments, the AFPS05 scheme is an Inland Revenue approved scheme. Therefore, upon the death of a pensioner, the proper dependant’s pension comes into payment at the proper rate from the outset.
At this point, the dependant’s pension is usually 62.5% of the pensioner’s award on exit, increased by inflation uplifts that occurred between leaving the Armed Forces and the date of death. (I say “usually” because 37.33 years’ service is the most that may be counted towards a dependant’s pension on this scheme. This, in turn limits the percentage of dependant’s pension payable to 62.5% or a little lower for anyone who has served longer than 37.33 years.)
The amount of your pension that is available for distribution amongst eligible children is the difference between 100% and the percentage of your pension that is paid out in the form of a principal dependant’s pension. Usually this leaves 37.5% where a widow, widower, civil partner or eligible
partner’s pension is in payment. In such cases no single child is entitled to more than 25% of your pension.
However, if there is no widow, widower, civil partner or eligible partner’s pension in payment, and the children are not in the care of a parent or step-parent, then 100% of your pension is available for distribution amongst the children, but in this case a single child can only have as much as 33.33%.
If you leave the Armed Forces before age 55, your pension and lump sum become preserved benefits payable to you at a normal age of 65. If you are unfortunate enough to die before age 65 then as well as your dependants being entitled to a pension, the lump sum that accompanied your preserved pension is also payable to your spouse, civil partner, eligible partner or your estate – in other words, it is not lost, even though you did not live to see it.
Another benefit that the AFPS05 scheme has, which the old AFPS75 scheme does not have, is a form of critical illness cover. If, you leave the Services before age 55 and prior to reaching age 65 you are diagnosed with a terminal illness that offers you a life expectancy of 12 months or less, let SPVA know and once they are satisfied with the diagnosis, they will, upon application, offer you the opportunity of taking the preserved lump sum and two years of annual pension.
All you have to do is sign a disclaimer that you will not make any further claims on the pension scheme – should you defy medical science! The choice you have is ‘Do I take the money and enjoy my last days to the full, or do I leave it for my dependants....?’
Finally, as I have already intimated, widows, widowers, civil partners and eligible partners keep their pensions for life – they do not have to surrender them if, after your death, they later meet somebody with whom they are quite comfortable and decide to cohabit or remarry. Do you let your loved ones know about this? I’ll leave that decision to you!
If you would like to find out more about this issue and you are not already a member of the Forces Pension Society; you can join via the website at www.forcespensionsociety.org
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