Armed forces pension reform,1995 - 2005

Armed forces pensions can be traced back as far as 1831, although it was not until April 1975 when legislation was changed to provide the right to a preserved pension for early leavers. Prior to that, while entitlement to an Immediate Pension was reached with after 22 years’ reckonable service (16 years in the case of officers), commissions or engagements for shorter periods were on non-pensionable terms. Those who had served 12 years (or nine in the case of officers) were awarded a gratuity. The Armed Forces Pension Scheme (AFPS) 1975 incorporated the requirement to award “preserved pensions” for early leavers. It is a Defined Benefit scheme, based on representative pay for the rank and length of service.

A consultation document on the review of the AFPS was published in March 2001. The intention was to be ‘cost neutral’, while modernising scheme benefits and ensuring affordability for the future. A new scheme, AFPS 05, was introduced in April 2005 for new entrants. AFPS 75 was closed to new members that date. Members of AFPS 75 in April 2005 were offered the opportunity to transfer to AFPS 05 in April 2006.

Both AFPS 75 and AFPS 05 are unfunded, defined benefit, salary-related, contracted-out occupational pension schemes. They are non-contributory for members, although the value of the scheme is taken account in setting pay.

This note looks at the review process that led up to the introduction of AFPS 05. In particular, it looks at the ways in which it is different to AFPS 75 and why. Separate notes cover the campaign for retrospective improvements to AFPS on a number of “legacy” issues – SN01424 Armed Forces Pension Scheme legacy issues – survivors’ benefits (12 November 2014) and SN01151 Armed Forces Pension Scheme and preserved pensions (15 May 2014). More recent reforms are covered in SN05891 Armed forces pensions – 2015 (24 August 2015).