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Home arrow Resettlement arrow Personal Finance arrow What is the Impact of a Medical Discharge on Your Pension?
What is the Impact of a Medical Discharge on Your Pension? PDF Print E-mail

The number of telephone calls that the Forces Pensions Society (FPS) has experienced in the past few months associated with the subject of Medical Discharges has grown enormously to the point where it now features regularly as a topic of concern in the Society’s top three subjects of enquiry

What is interesting for us, yet at the same time somewhat worrying, is the number of unit administrative officers in all three Services, who are advising personnel within their unit who have been told they are to be medically discharged, to contact the FPS to get some idea of what their potential terminal benefit awards from their occupational pension might be.  

It is not fully understood what the unit administrative officers’ thought processes behind these recommendations are, but all too often the individuals being discharged tell us that they are getting nowhere through the normal Service sources. So, what is so mysterious about medical discharges that our sailors, soldiers and airmen constantly seem to struggle to get solid answers to the basic question “I’m being medically discharged – can you tell me what I am likely to get from my pension scheme?” The answer to that question is that there is nothing mysterious at all!  

In this article we will look at the AFPS75 pension scheme and next month the AFPS05 scheme, and with a bit of luck (but don’t hold your breath) the AFPS15 scheme the month after, if the Treasury has sanctioned the rules for that scheme by then.

AFPS75

If you are a member of the AFPS75 pension scheme, and a Medical Board has surveyed the medical condition that has given rise to the suspicion you might no longer be able to perform your duties in the Armed Forces in your current trade, or any other trade, and the Board has concluded that you should be medically discharged, you will be entitled to receive an annual pension and a tax free lump sum immediately on exit.

This is pretty much a categorical cast iron guarantee because there is likely to be hardly anybody serving in the Armed Forces today who is on the AFPS75 pension scheme who will have less than 9 years service as of 6th April 2014, and for such a pension award, a member of the AFPS75 scheme must have completed at least 5 years’ reckonable service. (It is possible the occasional  officer who joined under the age of 17 might not qualify. but certainly no other rank or rating.) 

Your reckonable service qualification for a Service Invaliding Pension (since that is what it is called) on the AFPS75 scheme is calculated in the same way as that for a normal pension award. That is to say, the time in the Armed Forces that counts towards the award is based on your length of service from age 21 (officers) or 18 (other ranks and ratings), or date of entry if later than that. Your rank is also important as the rules regarding rank held for pension calculation purposes following a medical discharge, are the same as those for an ordinary discharge and subsequent pension award.

There is a set table giving the amounts of pension payable to those on AFPS75 who are medically discharged.  Members of the FPS will find it on the Society’s website in the members’ area under Leaflet FPS/13 – Annex A Table 3 for officers and Annex C Table 3 for other ranks and ratings. The table gives annual pension award figures that are representative of exact years of reckonable service; however, if you leave between two yearly points the difference is pro-rata.  The calculation to work out precisely what is likely to be paid is as follows.

First find the figure for the full year you have actually completed then deduct that from the figure for the year you have not quite reached to find a difference; then multiply that difference by the number of days over the full year you have completed, and divide that answer by 365; finally add that answer to the amount payable for the full year you have completed to get your likely annual pension award.
 
For example, if you are a Sergeant who has completed 15 years and 253 days, you first find the amount due for a Sergeant with 15 years’ service (£8,528) and deduct that from the amount due to a Sergeant who has completed 16 years’ service (£8,934) to get a difference of £406. Next, multiply the £406 by 253 (£102,718) then divide that answer by 365 (£281.42) and finally add that to the £8,528 to give you an annual pension award of £8,809.42.

The AFPS75 scheme is set up so that if you are awarded an annual pension; you are entitled to a tax free lump sum equal to 3 times the annual pension figure. Therefore, in this case, the Sergeant would receive a tax free lump sum of (£8,809.42 x 3 =) £26,428.26.

The annual pension is index-linked from your date of exit. This means that every April after you have left the Armed Forces your pension will increase in line with the CPI inflation rate by which public sector pensions are increased  – you do not have to wait until age 55 for a pension increase as you do with an ordinary discharge.  

Service Invaliding Pensions are awarded to those who are medically discharged no matter how the medical condition was incurred – on duty or off duty, it makes no difference. If the problem occurred on duty then you might be awarded additional compensation for the condition responsible for your medical discharge; this is paid through the Armed Forces Compensation Scheme or the War Pension scheme.

If the cause of your medical discharge is deemed to be ‘attributable’ to your service and you are awarded compensation of some sort, then there is potential to have your Service Invaliding Pension classified as ‘attributable’ too. If that happens then your Service Invaliding Pension becomes a tax free income. I should warn you at this point that the decision on ‘attributability’ is not something that occurs instantly and can take up to six months from your date of exit to sort out, so it is most likely that the pension will be taxed initially on exit, and you just need to be patient to await the ‘attributability’ decision.

Finally, for those on the AFPS75 scheme, a little bit of not-so-good news – the Resettlement Commutation scheme is not open to those awarded a Service Invaliding Pension, so you cannot sacrifice part of that pension for a larger lump sum as you can with an ordinary discharge.

If you have any questions about your Armed Forces pension and you are a member of the Forces Pension Society, you can find answers by looking at the Society’s web site or by calling the dedicated help line on 020 7735 0110. If you are not yet a member, the cost is modest and benefits (in addition to advice from an expert) include numerous discounts on a range of useful products and services and the assurance that a dedicated organisation, independent of the Government, is there to help you get the most from your Armed Forces pension.
 
For more information, go to www.ForcesPensionSociety.org

Last Updated ( Tuesday, 15 September 2015 )
 
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