A bit about Armed Forces Pensions and other money matters.

There came a time when detailed data was required for a hospice I happen to know well.  I volunteered, and within a month or so received so much detail under the FofIA {Freedom of Information Act} that a new external HDD was needed and acquired. In that research programme I got interested in pensions [don't we all ?], what the average person receives and what is forfeited to pay for care [if any] etc. I noticed that so many people are in the same socio-economic group as we are [my wife and I] but that so few people evidently didn't know about and therefore didn't benefit from some of the more obscure Government Rules, which believe it or not, are sometime generous! More about that in a minute or two.

That socio-economic group has several things in common statistically, but the recurring pattern is a pension income made up of several pension pots, the norm being five pots. Exceptions apart, these were apportioned such that the male partner had three pensions and the female partner two pensions. The male pensions were two careers and one retirement, with the female one career and on retirement. Quite often the female pensions were small when compared with their male partners. Retirement pensions are of course index-linked but not all career pensions are. However, at least one of the male career pensions is index-linked. From my point of view first and second careers start with a naval career, but of course naval/military careers are by far in the minority and that is to be expected. Few second careers which lead to a pension are started after the age of 50, and most that do, are between 40 and 45. Many, who are much younger on a career change which has a pension provision, receive the pension earned to the point of opt-out, as a deferred pension in later years. With the taxed-at-source implication, many of these are relatively small amounts. Not long ago, I remember a pressure-group out to get the Government to change its mind paying the pension, albeit a small one, when the person left the Service until having to wait until reaching the age of 60. As far as I now, it failed. It failed, as much as for any other reason, because it was organised at the time of cut backs throughout the land when all budgets were dramatically pruned.

Of those who do go into pensionable second careers the timing is such that they can either gain materially, lose materially or attain parity materially. For example, is it better to opt-out of a first career at a young age to start the second career also at a young age or is better to try and balance the books and endeavour to achieve two careers of equal lengths, say from age 18 to 42 and 43 to 66.  That aspiration is wholly based on an arithmetical calculation for few companies would be willing to take on staff for a meaningful career as late on as aged 43, especially when those already in the company aged 43 would be senior management. Remembering that opt-outs from a first naval/military career are extremely low in the national work-force equation {measured in low tens of thousands as opposed to the civilian work force measured in the high hundreds of thousands} so are of no real consequence,  in most cases an act of disillusionment, seeking a change from the unpredictable and unnatural nature of Service life especially for married personnel, for that of a settled family life, which has to be considered as normal, with a rewarding, responsible job with promotion prospects leading to tangible gains in terms of pension.   The obvious self-deprivation is the loss of the pension income from the first career during the whole of the second career, especially when statistic show that the majority of personnel leaving the Services at the age of 40, secure good civilian employment with comparable salaries and perks to those being earned by their new colleagues who years before had perhaps been their peers, but with less attractive pensionable sums from their second careers which the early Service opt-outs can expect to receive. Statistic also show that the deferred pension paid usually at the age of 60 for service in the Armed Forces, nowhere near matches the total career pensions received by the person who opted for the full first career. Statistically, approximately one third of people leaving the Services after a full career, either at the 40 or 45 years of age break-point, chance-their-arm at going into business either as a one-man-band or in partnership with like-minded people. On average, half of these fail, and the person reassesses his or her chances of acquiring suitable civilian employment with more vigour and enthusiasm than was first applied for their watershed at the time of leaving their first career.  With their tail-between-their-legs at the failure they experienced, they seem to do better and make a good-go at being a civilian at their second attempt.

Whilst all were busy acquiring a pension with another one to follow if possible as rewards for their life-time efforts, most mis-understood or were simply not able to cash-in on that all import other pension, namely the State Pension with it enhancements and advantages. The Rules were simple enough and just two of them at that. The first was to be opted in {to the State Pension Scheme} which involved paying in an amount directly linked to your earnings which included all BIK's - Benefits in Kind, like company cars, medical health, car fuel etc.,  which were Class 1A NIC - National Insurance Contributions.  The second was opted out {of the Scheme} whereby a National Insurance Contribution was fixed at a given level and not related to earnings, again covering all BIK's etc., which were Class 1NIC - National Insurance Contributions.

Those working in or for a company who were OPTED OUT paid less NIC's  but in return received less favourable treatment when it came to paying Retirement Benefits from the Government [DWP - Department of Works and Pension]. Typical of these were large companies and organisations [the Armed Forces for example; police; fire brigade; BMW; BBC; BP; SHELL, the Civil Service and Teachers etc]. By paying less NIC's their take home pay was greater and so they could afford to purchase a Private Pension which usually the Employer would help fund. In this way, their Retirement Pension + their Private Pension would be enhanced. These large companies also ran a company pension plan, again with a company and an employee contribution to provide pensions on retirement, sometimes called final salary pension. In recent years however, Companies have found that they are unable to keep their payments up, so a commonly heard statement is that "all new employees will be on a much less attractive pension based on calculations other than final salary much to the chagrin of the employees expecting better. The State retirement pension was always indexed linked and today there is an issue as to whether that should be to the RPI or the CPI, respectively Retail Price Index or the Consumer Price Index.  I wont go into the issue but one pays more percentage-wise than does the other and currently {2012-2013} the lower of the two is the CPI which to our loss, the Government has recently adopted.  For uplifts applying at the start of a financial-year, they take the CPI inflation figure at September the previous year as the bench-mark choosing whichever is the lower of the two, either the CPI or a fixed percentage figure, currently 2.5%.

Those working in or for companies who were OPTED IN paid the greatest amount of NIC's, but in return received extremely favourable treatment when it came to paying Retirement Pensions. The more the employees earned the more they and their employer paid into the Government coffers. This was expressed in terms of a Basic Pension [which class 1 NIC payers also got] and also a SERP a [State Earnings Retirement Pension] which the Class 1 NIC payer did not get, paid to the retiree in one lump sum but under two separate cost titles. These were both index-linked to whatever standard was being used, again RPI or CPI.

In a moment, I will tell you the huge advantage of being a Class 1A NIC payer over being a Class 1 NIC payer. Both these NIC systems are also known as PAYE [Pay As You Earn].......Pay meaning your taxes of course! The truth of the matter was that you could not as an employee duck and dive and be selective. Companies made agreements with the Inland Revenue [HRMC] and if you went to work for a company you  automatically followed the company's agreement and commitments to the Tax Man.

I have mentioned the 'employee' and the 'employer' so now let us add them together to be treated as one. Making them as one, leads on to starting ones own company, a Limited Company, and appointing oneself as a Director.  The law needs at least two Directors so that means the wife also becomes a Director. What they must not be, is SELF EMPLOYED. They must be EMPLOYEES or a Company registered with Companies House, a Government Authority. The golden opportunity comes when leaving the first career which may have been either Opted In or Opted Out [the Royal Navy is OPTED OUT] to start a new and second career now also Opted Out. If the Limited Company {Ltd Co} is successful, it can afford to pay its two Directors well [and of course any other employee] at which point DWP demands a payment from both YOU and the Employer, and YOU as the Employee. When the BIK's become more generous and more lavish, the DWP rubs his hands and pockets another tract of money again at Class 1A NIC levels. The more success in such a company the greater the wage bill and the greater the DWP bill. There comes a point soon into the start-up,  that the Ltd Co can afford to set up a Company Pension Fund for the two Directors only, advising the other well paid employees in the Ltd Co to fund their own Private Pension. The option to go Self Employed is certainly easier [less paper work, less accountability {although you are not excused from keeping records and from completing an Annual Self Assessment HMRC Tax Form} smaller amounts of NIC to be paid Class 2 and if your annual profits are good and high enough, possibly Class 4 also, but whatever, they are much less than Class 1A, the highest of all. You may also have to register for VAT but rest assured, that is a GOOD thing for you can benefit in reclaiming VAT paid on many goods/products which clearly have a dual use e.g., a computer and just about anything else considered to be IT, and don't forget that ride out in the company car for pleasure with the company paying the for the fuel, the servicing, tyres etc and claiming the VAT back also. Whilst the company pension appeared to be attractive, the tax-free lump sum had limitations, and what was left of the fund was paid to you monthly as a pension on which you paid income tax at source. Being a Ltd Co allowed choice and one of the choices was the ability to have a FURBS [Funded Unapproved Retirement Benefit Scheme]. The advantage of this was that as the Ltd Co paid in to the Company offering the Scheme {Prudential} an amount which included a tax at source which was equivalent to your lowest income tax rate, in most cases 20% even though your top rate might have been  40% PAYE. When it came to cashing-in the FURBS there was a beneficial rule as to how much you could take as a tax free lump sum up to 50% of the pension-pot, plus what was left and paid to you as a monthly pension was paid tax free instead of a potential 40% PAYE pension income; you have paid in the tax as you paid in the savings element of the FURBS.

At this point, the Ltd Co is funding its commitment satisfactorily  providing BIK's to an ever increasing level [from small BMW to a large BMW, travel expenses etc}; paying good salaries; paying dividends; providing a pension for when the Ltd Co is sold on inter alia.  Because it is paying good salaries, DWP is banking good money for the time when State Retirement Benefits are paid.  As the years tick by and the Bank Manager, the Solicitor and the Accountants are being "kept sweet" whilst paying creditors on time [suppliers and employees], and seeing that there are no debtors owing money to the Ltd Co, all that is required is a steady hand on the tiller, and a modicum of good 'trading' luck! Moreover, it is not just the DWP who is banking money on your behalf for a rainy-day [or hundred nay thousands of rainy-day whilst in retirement] but that ever kind Tax Man is offering incentives for you to make-hay-while-the-sun-shines.  Remember those BIK's on expensive cars etc, charged at Class 1A NIC ? Well if you purchased a smart company car say for 40,000 for your own use as a Director, he allowed you to write-down the cost over a four year period, meaning that on day one, the purchase of the car, it was an asset on the Company Books worth 40,000, one year later it was worth 75% = 30,000, then 20,000 and finally 10,000 and four years on it was written-off and taken off the Company Books as tax-wise - worthless. Four years on, after a pampered and a well cared for low mileage life, its open market value is still worth 15,000 to 20,000 of anybody's money, so at the point of it being written-off tax wise, you put the vehicle up for sale, and low and behold, you are the only bidder! You legally buy it in good faith accepting the losses {?} for 5000.  At that point a new Directors car is procured offering a part-exchange, and the cycle starts over again. If the part-exchange is mean, then the vehicle is sold for cash! The BIK at Cass 1A NIC Cost on a 40,000 car, is pricey plus of course the financing costs of buying the car, but those costs are lost in the gains made on disposing of the written-off car, only sold because the tax man made it an attractive ploy!        

At retirement, the Ltd Co is sold off to a new buyer, and the surplus assets to the requirements of the new owner,  liquefied and distributed to the former Directors and staff if appropriate.

The company pension fund is wound-up, the lump sum distributed, and the monthly pensions declared and put into motion as index-linked with a generous pass-on in the event of death of a spouse to the surviving spouse.

The Retirement Pension are declared and set-up for monthly payments @ 13 payments pa {13 x 4 weeks = 52} and everybody is happy. Apart from the obvious life styles between a Director and an employee, there is still very little in procedures or rewards for the years when Ltd Co paid over amounts of Class 1A NIC to the DWP to differentiate us with a Class 1 NIC payer into the DWP coffers, except that our Retirement Pensions are greatly enhanced vis-a-vis the receiver of a Pension with little or no SERPS element in the monthly payment.

Now and inevitably comes the long-time retirement culminating with a visit from the 'grim reaper'!

What happens when a person who has no SERP dies is that his or her Retirement Pension DIES also and the payments to the deceased family cease forthwith. However, when a person with a SERP element dies {and more often than not this is far greater amount than the Basic Pension, currently as I write approximately 110 per week} the Basic Pension dies, but up to 100% of the SERPS due is automatically passed to the surviving spouse, payable, with index-linking for the rest of their lives. This means passing from husband to wife and wife to husband. Because of our ages with my wife slightly younger than I, the pass-over is 90% from me to my wife, and 100% from my wife to me. These are generous amounts and as an example the Basic Pension April 2013 - April 2014 is 110 per week and the SERPS element is 136 per week, meaning a total weekly pension of 254 with 8 added as GRP.  Ignoring the hike in additional pension given as a type of bereavement pay [but expressly not called such] the surviving spouse is left with their own Basic Pension + SERPS + SERPS from his/her spouse + their own GRP. Like-for-Like comparisons area therefore:-

a.  Surviving Spouse Class 1 NIC = 110 + 8 = 118pw = 6136pa [i.e., his/her own Pension arrangement before the loss of the spouse]
b.  Surviving Spouse Class 1A NIC = 110 + 8 + 136 + 136 = 390pw = 20280pa.  This figure is in theory for there is a small reduction in their [DWP] generosity and SERPS wherever it comes from is now
     limited to a smaller amount than that shown but not by much! Still generous when compared with workers in an OPTED OUT company.

Now, part of my research into these matters, reveal the details about the Armed Forces Pensions. Regrettably no separate Navy, Army or Air Force stats or figures are release because the AFPRB [Armed Forces Pay Review Body] work with and issue the money outcome on a tri-Service basis and not on a single-Service basis,  but for all practical purposes the split between the three Services equates approximately to 46 : 30 : 24, Army, Air Force and Navy respectively. As you will see, the last time the numbers were updated were 339745  The total at the last up-datings, covered three topics.

AFPS/FFP* = Armed Forces Pension Scheme, Occupational Pensions = 339745 people drawing monthly pensions.  Using the ratios above, approximately, the Army had 156,282 claimants, the RAF had 101,923 claimants and the Naval Services had 81538 claimants. Just rewards paid to men and women for long Service careers. For well less than half a million men and women who qualify for pensions under the AFPS, you would be amazed at the variations in pension payable taking into account a whole host of situations depending upon <the year and month of leaving their Service and their qualifying time>,  <their rank/rate/airman/other rank status at the point of departure based on periods of commissioned and non-commissioned time served>, <special conditions of service like pilots/aircrew>, <the aging population, meaning that in some cases, pensioners had rpt had  been drawing pensions for fifty years or more  a few cases being pensioned well before 1946 and then end of WW2, but others born in 1906, mention of pension draw-downs in 1996 at the age of 96, an ever growing situation which is bound to increase well into the twenty first century>, <and getting to the point of the uniqueness of a pensioner with a Victoria Cross where special payments called gratuities are made administered by the same Authority who control AFPS Pensions, believed currently to be approximately 1500pa>, <the amounts of and degrees of commutation in percentage terms, where a person literally forfeits the total amounts of pension paid in monthly amounts in return for a one-off greater non-taxable lump sum up-front, called full commutation], bearing in mind, that all Service pensions are taxed at source for life, so by taking full commutation they avoid that encumbrance. In my time this was an elitist choice, given only to commissioned officer, geared towards helping them set themselves up in a civilian career or job. Once taken, there was no way back! It was clearly assumed that ratings, notwithstanding, which I found condescending and offensive, could not think or provide for themselves, and therefore they needed to be spoon-fed as it were their accrued benefits,  so that the stresses and strains of the transition to civilian life would not overawe them or worse still  fraught their plans through lack of managed finances.  Many ex-officers have very few pension resources having given them over for generous and enhanced lump sums. Ratings were only allowed to commute a small percentage of their terminal grant, taking a greater lump sum than had they not done so, leaving a reduced monthly pension, taxable of course as stated]. This was called 'Resettlement Commutation', a state which was to last until one's 55th birthday,  On reaching that age, the commutation had been paid off, and the monthly pension was reinstated to that being paid to service personnel leaving in that year, annually index-linked from that point forwards.

*FFP = Forces Family Pension.  On the death of a person in receipt of a AFPS, the surviving spouse continues to receive the deceased persons pension in full for three months. At that point, the AFPS ceases and in lieu a FFP is paid for the rest of the surviving spouse's life. The rules for this are complex but basically the payments [index linked] are either 50% of the AFPS payable at the time of death if that option was made/taken and paid for whilst still Serving, or if the option was not taken, a lesser amount, but all the while increasing until a given date was reached when the rules changed and the opportunity for opting withdrawn. The FFP award is case-based and it would be prudent to ask the SVA [Services Veterans Agency] what the amount will be for your spouse in your will/death/funeral planning stages.  Also, in the same theme, get to know by engaging them in written correspondence, just how much of your pre-death pensions will be made payable to your widow/widower at your death, especially in cases which are not clear-cut or well defined, particularly where Retirement Pensions have 'large' amounts of SERPS.  The transfer of SERPS from spouse to spouse gets SMALLER the YOUNGER you are!  The rules do vary so it is rather pointless telling you what they are at todays date. but to give you an idea, I am 80 and have accrued a healthy pot of SERPS, which when I die I can pass on to my wife to boost her total State pension which would then comprise of her own SERPS element plus her basic pension plus 90% of my SERPS. In the rules [available all over the place and worth reading] you will see for example, that if the husband dies first and he was born on or before 5th October 1937 reaching his 65th birthday on or before 5th October 2002 [the day he started to draw his OAP] then he could have passed on a full 100% of his SERPS to his widow which she receives, index linked for the rest of her life. If the man  had been born on the 6th October 1945 or later, drawing his pension on his 65th birthday, say 6th October 2010, then he can only pass on 50%, a great deal less, saving the Government a great deal of money! In my own personal case, I was born in 1938 so can pass to my wife 90% of my SERPS value, but because my wife was born in 1940 she could pass on a full 100% of her SERPS value to me. Well worth the exercise to bringing peace-of-mind [or otherwise] to the both of you especially the "little lady" for it is well to know how well she will fare and what income will be available to her at your death.

Other Armed Forces Pensions, Allowances, Lump Sums are to be found under the following two heading. Both of them, unlike the one above, paid in very sad circumstances, and fortunately, I, like so many of my colleagues, didn't qualify for either of them.

AFCS = Armed Forces Compensation Scheme 
WPS = War Pension Scheme

pensions.xls  - involves two sheets, the first called "NOTES" and the second called "POSTAL CODES", in which all three types of pensions/allowances/lumps sums are mentioned. Since the vast majority of you reading this page will already be au fait with the "nuts and bolts of the money system" and know from experience how much is paid, to whom and when, this spreadsheet approaches the subject from an angle rarely seen before. Before you explore the spreadsheet, remember than an AFPS pension is not only index-linked, but like the SERPS element of a Government Retirement Pension and a good Company Pension from a second career, the income from the AFPS pension pot/annuity does not cease when you die and useful amounts of it are passed on to the surviving spouse for the rest of his/her life. The amount your spouse gets will be down to the provision you made for him/her whilst still Serving electing to fund a half share for which your salary was debited to pay for the perk, or to accept a lesser percentage/amount funded by the trustee of the Scheme and not from your salary.

In this Excel file {.xls} above, there is much detail, but no mentioned of actual money.  Part to do with this was the need for a new external HDD I mentioned at the beginning - just too much information which is not necessary and sometimes sad to divulge. However, gender-led statistics, show that a lucky man, or a man who has made the best provision, should be netting at least parity with the average male gross annual salary which is currently {2013} 31260pa.  With the three pension incomes previously mentioned this is not difficult to achieve.  Additionally, retirees do not pay any NIC, pay tax on two of those pensions via PAYE {taxed at source before a net payment is made, and tax, if any due, on the third pension, the OAP, via the Self Assessment system. There should be no tax due on any Stocks and Shares gains made, these being absolved under the CGT Allowance System, that is unless you are very well off in which case you would have to completed a CGT page with your Self Assessment submission.  There is however a disadvantage when it comes to Personal Allowances, because if you are receiving this income in retirement of in excess of 31,000, you will remain on the lower allowance, currently 9440 {for the rest of your life} when it should increase to 10500 and then to 10660. Still the female income [my wife's] is yet to be considered and the average female income is currently 24150. In retirement, she doesn't pay NIC and has step-ups with her Personal Allowance moving through the age-jumps 65 to 80, when it jumps to {currently} 10660. If you want to calculate your joint income with comparable figures you should come to a joint retirement income of approximately 1.5 times that  of the male gross salary of 31260, namely 31260 x 1.5 = 46890, GROSS of course, but with lower outgoing because NIC is no longer taken etc.

Then, using our own current residential area data for Post Codes, and the ratio's previously mentioned, we can see how many pensioned Service [and with ratio's, Naval personnel] live in our midst, how many receive War Pensions and how many receive compensation. Local councils use such information when making policies affecting housing, etc etc.  Some areas have many Service pensioners with  many have few or none at all. Some Post Codes are part cryptic, and the largest numbers {8000+} live in the Post Code of BT, with BT standing for the City of Belfast. This shouldn't surprise us given the Services of the Ulster Defence Regiment [UDR] in addition to the traditional three main Services. We cannot really gain anything from these numbers as far as local turn-outs for Service Associations, other than applying a simple though possibly unreliable rule-of-thumb, which is that the numbers shown represent approximately 20% of all who Served, meaning that 1 in 20 stayed on for pension the other 19 leaving after National Service, or short engagements which in our day were 9, 12 and 14 years.

This next file is very interesting in that it tells you all about WAR PENSIONS, and all the nitty gritty.  If you are genuinely interested, you will find all the answers you seek here.  WAR_PENSION_SCHEME_ANNUAL_STATISTICS_TO_MARCH_2013.  Don't forget that War Pensions differ hugely from The Compensation Scheme, and as you will read, cases that were originally dealt with under the WPS are now being shifted to the CS. Obviously as time goes by and IF our Politicians can refrain from interfering with the other nations domestic problems {unless of course by not doing so our access to oil stocks is adversely affected} resulting in fewer wars and cross-border altercations, new claimants should reduce dramatically. I note from general reading about international affairs, that on a scale of 1 to 10, the volatility levels  which are adjudged to be a sign of stability and of improvement in national statistics [economies, democratiseations, adherence to UN Resolutions, Amnesty human right records, maintaining alliances with world-friendly countries and organisations, trade,  and actively shunning liaisons with countries hell-bent on showing their detestation of the West offering mankind little other than provocation, confrontations, and ever deteriorating humanistic values, etc] are still way off the scale of expected levels, considered norm's.  I have used the word 'humanistic' because the adjective captures my meaning exactly - <of or pertaining to a philosophy asserting human dignity and man's capacity for fulfillment through reason and scientific method and often rejecting religion.> Whether my readers like it or not, religions appears in an equation whenever a third or second world country is involved, or where an ancient/mediaeval religion custom or practice is used knowing it to be flawed, supplanting the advances made over the centuries and decades.  I have in mind occasions when blood transfusions are denied to children [and older people too] by their elders and so-called loved ones, when death inevitably follows. Other examples could be cited and unfortunately the world has seen much of such dogma in the last two decades, currently being championed by the Yemen, a country which 'manufactures' hate! It should comes as no surprise that much of the Middle East and the North African States from Tunisia east onwards are considered to be so paralysed with mega-high levels of xenaphobia, even, if not a paradox, to their own kind e.g., Islamic nations, where there is as much trouble between Shiites and Sunnis as there is between Muslims and non-Muslims. Despite the many deaths and injuries caused to Western Troops many of them covered by this story, and/or the money expended in fighting wars which by and large are nothing to do with us except to safeguard our oil supplies, the gains are difficult to ascertain and quantify. The countries on the other hand are easy to pick out, Iraq, Afghanistan, Egypt, Tunisia, Libya, Syria, Lebanon, with Iran, yet to play its cards militarily, but known to be a non-Arab country acting as a 'devil provocateur' supporting and funding one of the main Arab issues, namely Palestine and the Jewish problem!  Cuba, in the USA back-garden [or yard as an American would say] keeps the pressure on the CIA largely funded by Iran and of course by North Korea . However, enough of all this, and the paragraph I want you most to concentrate on follows. 

Written to help you understand Naval pensions for full careers, for various inevitabilities in war service, and for in-Service casualties so that you can be aware of what is paid out, to whom, for how long, and be pleased to know that our peers-in-arms are justly rewarded for their Service and their sacrifices, or, you may feel displeased by what you will read. It might help you to know that all claimants who have paid the ultimate sacrifice since the end of World War 2 in 1945 [i,e,. those who have lost their loved ones whilst on duty in the Service of the Crown] are listed with pride on the NAM [National Arboretum Memorial] and regrettably, there are many of them! One hopes that all those who perished in the wars before WW2 and in WW2 itself,  are listed with pride on war memorials sited throughout the UK and also world wide whether on splendid memorials or on humble parochial memorials.

God be with you and yours.