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Pensions

Volume 453: debated on Monday 27 November 2006

To ask the Secretary of State for Defence when the armed forces final salary pension scheme was introduced; and if he will make a statement. (101300)

Armed forces pensions can be traced back as far as 1831, although it was not until April 1975 when the Social Security Act 1973 changed legislation requiring pensions to be paid for those who did not serve a full career. The Armed Forces Pension Scheme 1975, which incorporated this requirement to award preserved pensions, is a defined benefit scheme. Although not final salary, it is salary-related with pensions based on a representative rate of pay for the rank and length of service. This was closed to new entrants on 5 April 2005.

The Armed Forces (Pensions and Compensation) Act 2004 laid the ground for the introduction of the Armed Forces Pension Scheme 2005 (AFPS 05) for new entrants to the regular armed forces on 6 April 2005. The opportunity was taken to introduce the Reserve Forces Pension Scheme (RFPS) for those who started or restarted full-time reserve service on or after 6 April 2005. The legislative vehicle for the RFPS is the Reserve Forces Act 1996. AFPS 05 and RFPS are the first true final salary schemes for the armed forces. For both of these schemes members who were already in service on 6 April 2005 and still in service on 6 April 2006 were given the opportunity to transfer to the new schemes with a common Member Transfer Date of 6 April 2006.

To ask the Secretary of State for Defence on what (a) rationale and (b) criteria the number of years of completed service for eligibility for an immediately payable pension for (i) officers and (ii) other ranks were determined. (102308)

Under the rules of the Armed Forces Pension Scheme (AFPS) 75 an immediate pension (IP) for officers after 16 years from age 21 reflects the career pattern of this group who now usually join the services immediately after university. The IP provides an incentive for officers to remain in the armed forces for a period deemed appropriate by the services. It also allows the services to release a proportion of personnel at a young enough age to obtain further employment while retaining those with potential for promotion.

The reason behind the IP point for other ranks is historical. Pensionable service for other ranks was from age 18. The 22 year point brought them up to age 40; the age at which the services deemed their health and fitness would begin to fall below the standard required. Even today, only those with potential to reach the rank of Warrant Officer are retained.

AFPS 05 does not feature an IP. Instead payments are made under the Early Departure Payments (EDP) Scheme Order 2005. This is because the provisions of the Finance Act 2004 prevented the payment of pensions in the new scheme before age 50 except in cases of ill-health retirement. The EDP acts as an incentive to stay in the armed forces until at least age 40 with at least 18 years service, for officers and other ranks, and provides compensation for the fact that the armed forces cannot offer the majority a career until age 55.