1241123-barratt-325x125 trainee site manager.gif
pfreadsept_150.jpg
otl.gif  
soldiers-charity-logo_jpg.png

Opportunities

Advertisement
Advertisement
Advertisement
Advertisement
Advertisement
Advertisement
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

Following on from the March edition of Pathfinder, in which the Forces Pension Society wrote about the rules surrounding a medical discharge for those on the AFPS75 pension scheme, this month we look at what is payable from the AFPS05 pension scheme

AFPS05

It is not so easy to tell members of the AFPS05 scheme who are discharged due to ill health what they are going to receive prior to their exit, because the award depends on the Tier that their medical condition places them under, and there are three Tiers.
 
The worse their condition, the more benefit they receive and that decision is not normally made until after one’s exit date. Also, in order to qualify for an ill health award an individual must have accrued at least two years’ qualifying service. All of that said, there appears to be a syndrome amongst many who should be able to advise those people affected of not doing so, on the basis that it is all too difficult to calculate. It is not.

Tier One entitles the individual to an award of a tax free Lump Sum equal to 1/8th of their ‘final pensionable earnings’ for each year of service given, with a minimum award of 6 months’ salary and a maximum award of 2 years’ salary.

However, if the person being medically discharged has already passed the Early Departure Payment (EDP) point (that is to say they have completed at least 18 years relevant service and are aged 40 or over) then they are awarded their EDP entitlements without any additional lump sum. If the cause of the medical discharge is deemed to be attributable (ie: as a consequence of their military service) then the EDP income stream is deemed to be free of income tax deductions, and when the EDP income stream ceases at age 65 that status is automatically applied to the pension that becomes payable from that point too.

Tier Two entitles the recipient an ill health pension and lump sum. This is calculated by taking the best consecutive 365 days’ salary received in their last three years of service and multiplying that amount by the length of service given, plus ⅓ of the difference in time between the age they are on exit and their 55th birthday. The product of that calculation is then divided by the pension scheme’s accrual rate of 70 and the result is the annual pension awarded. There is an accompanying tax free lump sum equal to three times the annual pension entitlement. If the cause of the medical discharge is classified as attributable to service, the pension becomes tax free.

Tier Three is similar to Tier Two except that it is the greater of:

a. the length of service increased by ½ the difference in time between the age the individual is on exit and their 55th birthday

Or

b. 20 years’ service

The fact that there are three options does not prevent the calculation of some provisional awards that could be made, depending on the Tier the individual is placed under. Let us, for example, assume we receive a call from a Corporal who has been told they are being medically discharged on their 31st birthday; their pensionable salary is £28,558 and they will have completed 13 years 201 days (which translates into 13.55 years).

First, since the Corporal has completed less than 18 years’ service there will be no entitlement to EDP awards under a Tier One discharge so there would be entitlement to a tax free lump sum only, and this would amount to (£28,558 divided by 8 =) £3,569.75 x 13.55 = £48,370.11

Next if he is assessed as a Tier Two discharge, we make the calculation taking the following steps:

a. Assess the length of service to be added to the 13.55 years completed by:
i. Take the age on exit from their 55th birthday (55 – 31 = 14)
ii. Divide 14 by 3 (14 3 = 4.6667)
iii. Add the service given to the supplement 13.55 + 4.6667 = 18.2167 years’ service.

b. Multiply the supplemented service by the pensionable salary: £28,558 x 18.2167 = £520,232.52

c. Divide the answer at (b) above by the pension scheme’s accrual rate (70) £520,232.52 70 = £7,431.89 Annual Pension Award

d. £7,431.89 x 3 = £22,295.67 Tax Free Lump Sum

Finally under Tier Three we make the calculation taking the following steps:

a. Assess the length of service to be added to the 13.55 years completed by:
i. Take the age on exit from their 55th birthday (55 – 31 = 14)
ii. Divide 14 by 2 (14 2 = 7)
iii. Add the service given to the supplement 13.55 + 7 = 20.55 years’ service.
iv. Since the years calculated in (iii) above is greater than 20, the 20.55 is used.

b. Multiply the supplemented service by the pensionable salary: £28,558 x 20.55 = £586,866.90

c. Divide the answer at (b) above by the pension scheme’s accrual rate (/70) £586,866.90 70 = £8,383.81 Annual Pension Award

d. £8,383.81 x 3 = £25,151.43 Tax Free Lump Sum

Now, how difficult was that?

If you feel daunted by the kind of calculation above or 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 ( Monday, 02 June 2014 )
 
< Prev   Next >