AFPS15 Added pension
The amount of your AFPS15 pension can benefit up to £6,500 overall by using the ‘Added Years’ facility. This amount is set by the scheme administrator and may be uplifted in the future. So, presume you were forecast a standard pension of £10,000 without having made any added contributions. Over the course of your career, you would be allowed to grow that to £16,500. To take full opportunity would cost you a lot of money.
As an example of what your additional contributions might buy, a year ago a 28-year-old female paid in a £6,000 lump sum and she was informed by Veterans UK that in her case it would add £733pa to her pension when due. In your case increasing the £10,000 to £10,733pa.
If you are making a lump sum contribution you may be able to claim tax back by mentioning it in a self-assessment tax return. An easier way is to make payments by the monthly deduction from earnings approach. That is because your contributions are made before tax, so it lessens the effect on your pay packet. The minimum you can contribute by this method is £25 per month, although if you start the contract mid-year, the minimum will be increased, this is to cater for the £300 pa minimum amount. To contribute a lump sum, the minimum is £300.
Unlike a civvy (occupational or personal) pension, with AFPS15 added pension you will know the guaranteed growth rate from day one. It will be Consumer Price Index (CPI) rate of inflation. With civvy schemes growth all depends on a combination of your 'Risk Appetite' and how the markets perform. So, you are usually informed of expected growth using low, medium and high risk. None of these outcomes are guaranteed. Also, a pensions provider/financial investment company could go bust, governments seldom do, so your investment in AFPS15 is guaranteed and linked to CPI from day one (not day one of drawing pension but day one since you paid it in).
A nice bonus with this is that if you serve at least 20 years and therefore qualify for a compensation scheme known as Early Departure Payment (EDP), then your increased pension which is due at state pension age also has a beneficial effect on your entitlement to EDP. EDP comes in two forms, firstly you get a tax-free lump sum when you leave the forces and a taxable income until state pension age when the full pension takes over. The value of the lump is 2.25 times the preserved pension. At the 20-year point, the value of the income is 34% of the preserved pension. If you serve longer, the percentage grows by 0.85% for each additional year. So, taking ‘added years’ increases the EDP Lump and Income. This is a nice bonus which no civvy scheme could ever do.
Another option which added years allows is ‘do you wish to increase your benefits or yours and your partners’. If you take the former only, the increased benefits are greater than the latter option. That’s because when you die, they don’t have to make the additional payment to your partner. An eligible partner is due up to 62.5% of your AFPS15 entitlement for life if you were to die first.
To get a quote for how much your added contribution will make, use the Form 6. Veterans UK will then provide you with a written quote. If you like it and wish to proceed, you then need to complete a Form 6a There is no obligation to enter into a contract every year, just when you want to do so.
More detail can be found Chapter 10 of the AFPS15 Guide and in Chapter 7 of the scheme regulations at: JSP905