|Transferring Your Preserved Or Deferred AFPS Pension|
Many of you will be leaving service with a preserved pension and will be considering whether to leave it where it is or to move it. In earlier articles we have mentioned changes to the rules on transferring pensions out of public sector schemes and, recently, the media has been full of news about people being able to cash in their pension savings in exchange for a lump sum
This article takes a look at these changes, together with the AFPS rules allowing preserved or deferred benefits to be claimed early.
In AFPS 75, preserved pensions are payable at age 60 for the proportion of the pension earned up to and including 5 April 2006 and age 65 for pension earned after that date.
In AFPS 05 the preserved pension age is 65. In AFPS 15, deferred benefits are payable at the State Pension Age (SPA) of the member. Each scheme allows preserved/deferred pensions to be drawn earlier, with actuarial reductions – that means they are reduced to take account of the fact that they are in payment for longer than would otherwise be the case. For AFPS 75, the part of the pension payable at age 65 may be drawn at 60. For AFPS 05 and AFPS 15, the whole preserved/deferred pension may be drawn at any age after 55.
To give you an idea of how costly it can be to take preserved benefits early, an AFPS 05 member taking their preserved pension at age 55 can expect to lose 44.6% of their pension and 28.8% of their lump sum due to the actuarial reduction. You will see from this example why we strongly advise that anyone considering taking their preserved benefits early with actuarial reductions should seek financial advice before acting.
In the 2014 Budget, the Chancellor announced that from 6 April 2015 benefits in unfunded public sector pension schemes, like the AFPSs, could no longer be transferred to overseas or to Defined Contribution/private pension schemes. It will still be possible to transfer them to other Defined Benefit schemes, including other public sector schemes. Transfers to other public sector schemes must be done within 12 months of being eligible to join the new scheme - by this I mean that the clock starts ticking as soon as you are eligible to become a member of the new scheme irrespective of whether you are in fact a member.
The following information relates to preserved and deferred pensions only. Once any Armed Forces pension is in payment, it may not be transferred out of that scheme.
The first step in transferring out is to find out what you have built up in the scheme. Applications for a ‘statement of entitlement’ must be made in writing to:
DBS – Veterans UK
Your new scheme will then tell you what your AFPS benefits will buy in their scheme. You are not committed to the transfer at this stage of the process and, if you are unhappy with what the new scheme is offering or simply decide not to put all your eggs in one basket, it is still open to you to leave your benefits in AFPS.
If you decide to go ahead, you must apply to Veterans UK for a transfer value payment, specifying the scheme to which the transfer value should be made. Once the transfer agreement has been entered into with the new pension scheme, you cannot change your mind.
In reaching your decision on transferring AFPS benefits to another scheme, one of the things you should consider is the age at which benefits are payable in the new scheme – there are others but this example is just to get you thinking. Most public sector schemes will feature a Normal Pension Age (NPA) of whatever the member’s SPA is – the exceptions are the Police and Fire Brigade scheme which, like AFPS 15, will have an NPA of 60 and a deferred pension age of the member’s SPA. That means that if an AFPS 75 member transferred his or her AFPS benefits into such a scheme and left before reaching NPA, they would have to wait up to eight years longer to receive a chunk of their hard earned pension and up to three years extra for the balance which would have been due from AFPS 75!
£1,454 pension and £4,362 lump sum at age 60
If he transferred these benefits to another public sector scheme and left before NPA he would have to wait until SPA to draw them or opt for early payment with actuarial reduction – which, as we have already established, is expensive.
Assuming his SPA is 67, he could have already received the following from AFPS 75 by the time his deferred benefits from his new scheme are payable:
- his first lump sum of £4,362;
the second lump sum (£10,599) at age 65: and
That means that he could, in total, have received £32,205 before SPA.
This is not to say that transferring benefits is always the wrong thing to do. Most schemes have a two year vesting period – that is a qualifying period which must be completed before the scheme will pay out, say, ill-health or family benefits – and transferring benefits in from another scheme could mean automatic qualification. Further, preserved and deferred AFPS 75, 05 and 15 benefits increase year on year by Consumer Prices Index rises. If they were transferred into a new public sector scheme they would increase by whatever measure was in place for the scheme – for example, AFPS 15 pensions increase by average earnings. The bottom line is to take financial advice so that you understand all the implications of transferring benefits from one scheme to another.
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