A Guide to Pension and Compensation Schemes for Armed Forces, Veterans, and Their Families

Dan Nailer
Dan NailerLegal Assessment Specialist
Updated on 17th June 2024

Serving in the Armed Forces is a profound commitment, often often accompanied by sacrifices that extend far beyond the call of duty.

For many service members, military life, with its frequent relocations, deployments, and the risks associated with service, can have a lasting impact on financial security and well-being. In recognition of this, the UK has established a range of pension and compensation schemes designed to support Armed Forces personnel, veterans, and their families both during and after their service.

In this guide, we will explore the different types of pension and compensation schemes and how they provide long-term financial security for service members and dependents.

What is the Armed Forces Pension Scheme?

The Armed Forces Pension Scheme (AFPS) is a set of retirement benefits designed to provide financial security to UK Armed Forces personnel and their dependents. These schemes recognize the unique nature of military service and aim to support service members in their retirement, reflecting their years of dedication and sacrifice.

The AFPS has evolved over the years, and different versions of the scheme apply depending on when individuals joined the Armed Forces.

Version

Eligibility

Benefits

AFPS 75

Applies to members who joined the Armed Forces before 6th April 2005.

Provides a pension based on a service member’s final salary and length of service.

AFPS 05

Covers personnel who joined between 6th April 2005, and 31st March 2015.

FPS 05 is a career average revalued earnings (CARE) scheme, which means the pension is based on the average earnings throughout the member’s career, revalued each year in line with inflation. It provides a lump sum payment of three times the annual pension on retirement.

AFPS 15

Applies to all members who joined on or after April 1, 2015, and those who transitioned from earlier schemes as part of pension reforms.

AFPS 15 is also a CARE scheme, but it accrues benefits at a higher rate than AFPS 05. It offers greater flexibility in retirement options and is designed to be more sustainable over the long term.

Reserve Forces Pension Scheme

For members of the Reserve Forces who are not eligible for AFPS 75, 05, or 15.

FPS provides similar benefits to AFPS 05 and is based on the length of service and earnings. It offers flexibility for reservists with varying service patterns.

How is my pension calculated under the Armed Forces Pension Scheme?

The calculation of your pension under the Armed Forces Pension Scheme (AFPS) depends on which version of the scheme applies to you based on your joining date and service history. Each version of the AFPS has its own method for determining pension benefits.

AFPST 75

AFPS 75 is a final salary scheme, meaning your pension is based on your final rank and length of service at the time of retirement.

The pension is calculated as a proportion of your final salary, with the proportion increasing the longer you serve:

  • Officers: Pension = (Rank-based representative rate) x (Pension fraction) x (Years of service) / 36

  • Other ranks: Pension = (Rank-based representative rate) x (Pension fraction) x (Years of service) / 66

It is available for those with at least 16 years of service as an officer or 22 years as other ranks, payable immediately upon leaving the service.

Typically, you receive a lump sum equal to three times the annual pension at the point of retirement.

AFPS 05

AFPS 05 calculates your pension based on the average earnings over your career, adjusted for inflation each year. Each year of service adds a percentage of your pensionable earnings to your total pension pot.

A lump sum of three times the annual pension is provided at retirement.

AFPS 15

Similar to AFPS 05, AFPS 15 calculates pensions based on career average earnings, with annual revaluation for inflation.

You can choose to take part of your pension as a lump sum by commuting your pension, providing flexibility in retirement income.

RFPS

RFPS operates as a CARE scheme, similar to AFPS 05 and 15, where the pension is based on the average earnings over the reservist’s career. The rate at which pension benefits accumulate each year, reflecting service and earnings.

What is the Armed Forces Compensation Scheme?

The Armed Forces Compensation Scheme (AFCS) is a UK government program that provides financial compensation to service members and veterans who suffer injuries, illnesses, or conditions attributable to their military service. It also offers support to their families in the event of death due to service.

The AFCS acknowledges the risks associated with military service and aims to provide timely and fair compensation for those affected by service-related issues.

What injuries and illnesses are covered by the Armed Forces Compensation Scheme?

The Armed Forces Compensation Scheme covers any injury or illness sustained due to service on or after 6th April 2005. This includes both physical and mental health conditions that arise during or are exacerbated by military duties.

If a service member dies due to an injury or illness related to their service, the scheme provides compensation to their dependents, ensuring financial support for families left behind.

What types of compensation are available under the Armed Forces Compensation Scheme?

There are two main types of compensation available under the Armed Forces Compensation Scheme:

  1. Lump sum payments for pain and suffering caused by an injury or illness. The amount varies based on the severity and impact of the condition.

  2. Guaranteed income payments for more serious conditions to compensate for lost earnings capacity.

The scheme may also include other benefits, such as supplementary allowances for those with specific needs due to severe disabilities.

Who is eligible for compensation under the Armed Forces Compensation Scheme?

The AFCS applies to serving and former members of the UK Armed Forces whose conditions are directly attributable to their service on or after 6th April 2005.

Conditions that are not caused by or related to service are not covered by the AFCS. However, the scheme can cover the worsening of pre-existing conditions due to service.

In cases of death due to service, the scheme provides support for funeral expenses and financial assistance to the bereaved family.

How are claims assessed?

Claims are assessed based on medical evidence and the nature of the service. The Ministry of Defence (MOD) evaluates the extent of the injury or illness and its impact on the individual’s life.

Lump sum payments

Lump sum payments are made for each qualifying injury or illness. The amount varies depending on the severity and impact on daily living, as categorised in the AFCS tariff system.

The scheme has 15 levels of compensation for injuries, with level 1 being the most severe and level 15 the least severe. Payments range from £1,200 for less severe injuries to £650,000 for the most severe.

Guaranteed Income Payments

Guaranteed income payments are calculated as a percentage of the service member’s gross pay at the time of discharge, reflecting the loss of potential earnings due to their condition.

These payments continue for life and are indexed to inflation, helping maintain the standard of living despite lost earning capacity.

Family and survivor benefits

The AFCS includes provisions for dependents, ensuring that spouses, civil partners, and eligible children receive financial support if a service member dies due to a service-related condition.

How to apply for Armed Forces Compensation Scheme benefits

To submit a claim, you should complete the AFCS claim form, available from Veterans UK or online. Provide detailed information about your service, the injury or illness, and how it is related to your military duties.

Include any relevant medical records, service documents, and other evidence that supports your claim.

The MOD will review your medical evidence and service records to evaluate the impact of your condition and decide on your eligibility for benefits.

nce your claim is assessed, Veterans UK will notify you of the decision and the amount of compensation awarded. This includes details of any lump sum payments and GIP, if applicable.

If you disagree with the decision, you have the right to appeal. Veterans UK provides guidance on how to appeal a decision and the steps involved.

What is the War Pensions Scheme?

The War Pension Scheme (WPS) is a UK government program that provides financial support and compensation to veterans and their dependents for injuries, illnesses, or conditions attributable to service in the Armed Forces before 6th April 2005.

Who is eligible for the War Pensions Scheme?

The War Pensions Scheme covers all serving and former members of the UK Armed Forces who sustained an injury, contracted an illness, or had a condition that was aggravated by their service before 6th April 2005.

The injury or illness must be directly linked to military service to qualify for benefits under the scheme.

What types of benefits are available under the War Pension Scheme?

The War Pension Scheme offers:

War Disablement Pension

A tax-free pension paid regularly to veterans whose service-related injury or illness results in a degree of disablement assessed at 20% or more.

The amount is based on the percentage of disablement, with higher levels of disability receiving greater compensation. Payments increase with higher percentages of disablement, up to a maximum for 100% disablement.

Constant Attendance Allowance

Constant attendance allowance is for veterans needing regular care or supervision due to their disability. The amount varies based on the level of care required.

Mobility Supplement

This is provided to those with severe mobility restrictions due to their condition, helping cover the costs associated with mobility aids or transportation.

The WPS covers medical treatment related to the service-connected condition, ensuring veterans receive necessary care without additional financial burden.

Unemployability Support

For veterans who are unable to work due to their service-related conditions. This supplement provides additional income support.

What survivor benefits does the War Pension Scheme offer?

Suvior's benefits offered by the War Pension Scheme include:

  • Ongoing financial support for the spouse or civil partner of a veteran who dies as a result of a service-related condition.

  • Pensions for eligible children, including those under 18 or in full-time education, and in some cases, those over 18 with a disability.

  • Contributions towards funeral costs for veterans who die as a result of their service-related injuries or illnesses.

How to apply for War Pension Scheme benefits?

Complete the WPS claim form, which is available from Veterans UK or online. Provide detailed information about your service, the injury or illness, and how it is connected to your military duties.

Veterans UK will review your claim and may require a medical examination to assess the extent of your injury or illness. This assessment helps determine the percentage of disablement and the corresponding level of benefits.

Once your claim is assessed, you will receive a decision from Veterans UK, detailing the level of compensation awarded and the type of benefits you are eligible for.

Approved pensions and allowances are paid regularly, typically monthly, and are tax-free.

nlike the AFCS, the WPS does not have a strict time limit for making claims. Veterans can apply at any time, acknowledging that some conditions may take years to develop or be recognised.

How does Early Departure Payment (EDP) work under the AFPS?

The Early Departure Payment (EDP) is designed to bridge the gap between leaving the Armed Forces and reaching the pensionable age, offering income support to those who retire early but have completed a substantial period of service. EDP helps ensure that personnel who leave before the standard pension age still have a source of income until their pension benefits become payable.

Who is eligible for the Early Departure Payment?

To qualify for the EDP you must have completed at least 18 years of service and be at least 40 years old.

It applies to members who joined the Armed Forces between 6th April 2005 and March 31st 2015 or members who joined on or after April 1st 2015, or transitioned to AFPS 15 from an earlier scheme or as part of pension reforms.

How is EDP calculated?

The calculation of EDP benefits differs between AFPS 05 and AFPS 15, but both schemes provide a combination of a lump sum and ongoing annual payments.

Under AFPS 05

Upon leaving service, eligible members receive a lump sum equal to three times the annual pension they would receive if they were entitled to their pension at that point. This lump sum is paid immediately upon leaving the service and provides an upfront financial boost.

In addition to the lump sum, members receive annual payments equivalent to 50% of their preserved pension. These payments continue until the individual reaches the age of 65 or starts receiving their deferred pension, whichever comes first.

Under AFPS 15

Eligible members receive a lump sum of 2.25 times the deferred pension accrued up to the date of leaving the service. This payment is made immediately upon leaving and helps support the transition to civilian life.

The annual EDP payments under AFPS 15 are based on a percentage of the deferred pension, which increases with the member’s age at the time of leaving.

These payments continue until the individual reaches their state pension age or accesses their deferred pension, providing consistent income support.

How to apply for EDP

To apply for EDP you should inform the Ministry of Defence or Veterans UK of your intent to leave service and apply for EDP.

Upon approval, you will receive the lump sum payment immediately. Regular EDP payments will begin shortly after you leave service and continue until you reach the pensionable age.

Can I combine my AFPS pension with other pension schemes?

You can combine your Armed Forces Pension Scheme (AFPS) benefits with other pension schemes. However, how this is done depends on several factors, including the rules of the AFPS, the specific terms of the other pension schemes, and the options available for transferring or integrating your pension benefits.

Maintaining multiple pensions

If you have a pension from a civilian job or a private pension plan in addition to your AFPS, you can receive benefits from both. Each scheme will pay its benefits according to its rules and your entitlements.

You do not need to transfer your AFPS pension into another scheme to receive benefits from both. They can operate separately, each contributing to your overall retirement income.

Transferring pensions benefits

You may transfer your AFPS benefits to another qualifying pension scheme if you leave the Armed Forces before your benefits become payable. This is often considered by those who wish to consolidate their pensions into a single scheme. However, once you start receiving your AFPS pension, transfers are not typically allowed.

How can Lawhive help?

At Lawhive, we understand the unique challenges faced by Armed Forces personnel and veterans. Our mission is to provide accessible, high-quality legal and financial advice tailored to your specific needs.

For further advice on pensions and estate planning, contact us today for a free case evaluation and personalised quote for the services of a specialist lawyer.

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