Armed Forces Pension Scheme 1975 · CAS-49642-P2Q6

CAS-49642-P2Q6

Ombudsman’s Determination Applicant Mr T

Scheme Armed Forces Pension Scheme 1975 (AFPS)

Respondent Veterans UK

Outcome

Complaint summary

Background information, including submissions from the parties and timeline of events The sequence of events is not in dispute, so I have only set out the salient points. I acknowledge there were other exchanges of information between all the parties. CAS-49642-P2Q6

• MMP116 ‘Armed Forces and Reserve Pension Schemes – Re-employment’ states that it is the Government’s policy that FTRS personnel with a pension in payment: “should not earn more by way of pension and new salary than they earned on the [sic] their last day of Regular service.”

• The abatement calculation had been based on three pieces of information:

o his AFPS pension that was in payment when his FTRS contract started (Figure A);

o his FTRS salary when his FTRS contract started (Figure B); and

o his final salary in regular service adjusted for inflation to the start of his FTRS contract (Figure C).

• His complaint was that different increase dates had been used in the calculation of the abatement. In particular, when calculating Figure C, the increase for 2018 had not been applied as it was not due until 7 April 2018. However, the calculation of Figures A and B included any increases due in 2018 as these increases were effective from 1 April 2018.

• This had resulted in an incorrect calculation of the abatement due to his FTRS contract having started between 1 and 6 April 2018. As a result, Veterans UK had failed to deliver Government policy and was responsible for maladministration.

• He wanted the abatement recalculated using 1 April as the increase date for Figure C. This would result in the annual abatement being reduced by £2,280 and lead to him being due a further payment from the AFPS of £2,848.

• The rules of the AFPS had been applied correctly. In particular, the abatement had been calculated in accordance with the Naval and Marine Pensions (AFPS 75 and Attributable Benefit Scheme) (Amendment) Order 2010 (the Rules). See Appendix 2 for an extract from this document.

• It was the pensions administrator of the AFPS and had no control over the implementation dates for pay awards. These were recommended by the Armed Forces Pay Review Body. Furthermore, it had no control over pension increases. These were intended to reflect increases in the Consumer Price Index in the preceding 12 months and HM Treasury determined the increase dates.

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Adjudicator’s Opinion

• Mr T questioned the method used to calculate the abatement that was applied to his pension from the AFPS. He said that, regardless of whether the calculation was in accordance with the Rules, it was not in line with the Government’s policy that FTRS personnel with a pension in payment should not earn more by way of pension and new salary than they earned on their last day of regular service.

• The Adjudicator reviewed the Rules and noted that the three key figures required to calculate Mr T’s abatement were:

o the annual amount of his AFPS pension on 2 April 2018;

o his annual rate of basic pay on 2 April 2018; and

o his annual rate of basic pay on the last day of the service in respect of which his pension was payable, increased to 2 April 2018 in line with the pension increases granted under the AFPS.

• Mr T was unhappy that, when applying the pension increases to the last of these figures, no increase was included for 2018. However, the 2018 pension increase was granted from 7 April 2018. In the Adjudicator’s opinion, Veterans UK was correct in not allowing for this increase in the calculation.

• Mr T said that the calculation of the other two figures had included allowance for increases in April 2018 as these figures were increased on 1 April 2018. The Adjudicator’s view was that this was not correct. The annual pension figure used by Veterans UK to calculate the abatement was Mr T’s pension on 2 April 2018, and did not include the 7 April 2018 increase.

• Veterans UK is required to calculate members’ benefits in accordance with the Rules and the Adjudicator’s view was that it did this when calculating Mr T’s abatement.

• Mr T questioned whether the provisions in the Rules for the calculation of the abatement were in line with Government policy. In the Adjudicator’s opinion, the approach adopted for calculating the abatement at the point that the member started FTRS was reasonable and in line with the spirit of the Government’s intentions. Inevitably, if an alternative approach were to be used, some people would be better off and some worse off. However, this did not mean that the current approach was inappropriate. 3 CAS-49642-P2Q6 Mr T did not accept the Adjudicator’s Opinion and the complaint was passed to me to consider.

Mr T provided some further comments in response to the Opinion. In summary he said:-

• The Opinion had not addressed the arbitrary nature of the abatement calculation. It had also not addressed the fact that Government policy had not been delivered for people commencing a FTRS contract in early April. He considered this to be maladministration.

• The arbitrary nature of the calculation was demonstrated by the three examples in Appendix 3. The second example resulted in an artificially high abatement.

I have considered the additional points raised by Mr T, however they do not change the outcome, I agree with the Adjudicator’s Opinion.

Ombudsman’s decision

4 CAS-49642-P2Q6 I do not uphold Mr T’s complaint.

Anthony Arter CBE

Deputy Pensions Ombudsman 19 May 2023

5 CAS-49642-P2Q6 Appendix 1 Calculation of Mr T’s abatement

Initial abatement calculation

Last day of regular service: 30 March 2014

FTRS commenced: 2 April 2018

Last regular basic annual salary: £74,350.68

FTRS annual pay at commencement (Figure B): £70,950.36

Annual pension on 2 April 2018 before abatement (Figure A): £42,547.98

Inflationary increases:-

April 2014: 0% - the increase of 2.7% was applied proportionately for anyone discharged within a year of its payment. Mr T was discharged in March 2014 and was not eligible for this increase.

April 2015: 1.2%

April 2016: 0%

April 2017: 1.0%

April 2018: 0% - the increase of 3% was effective from 7 April 2018. Mr T’s FTRS commenced prior to this date, so this increase was not applied.

The increases of 1.2% and 1.0% were applied to Mr T’s last regular basic annual salary to give a notional figure of £75,993.83 on 2 April 2018 (Figure C).

The abatement was calculated as: ((Figure A + Figure B) – Figure C), giving a value of £37,504.51. This was applied to Mr T’s pension in payment, reducing it to an annual figure of £5,043.47.

Revised abatement calculation

Mr T’s FTRS annual pay was increased to £72,369.36 (Revised Figure B). This increase was backdated to 2 April 2018.

The revised abatement was calculated as: ((Figure A + Revised Figure B) – Figure C), giving a value of £38,923.51. This was applied to Mr T’s pension in payment, reducing it to an annual figure of £3,624.47.

6 CAS-49642-P2Q6 Appendix 2 Extracts from the Naval and Marine Pensions (AFPS 75 and Attributable Benefit Scheme) (Amendment) Order 2010

Part D – Retirement Benefits

“D.23 Pension increases

(1) Subject to paragraphs (2) and (4), the amount of a pension payable under this Part –

(a) in respect of any period on or after 3rd January 2011, shall be (or continue to be) increased as if the former provisions of the Scheme corresponding to this rule were still in force; and

(b) in respect of any period on or after 11th April 2011, shall be increased (or further increased) by any amount by which an official pension would, by virtue of an order made under section 59 of the Social Security Pensions Act 1975(b) and coming into force on or after that date, be increased in respect of that period if –

(i) it began on the day on which the pension begins, and were payable at an annual rate equal to the annual amount of the pension; and

(ii) a qualifying condition were satisfied.”

Part H – Abatement

“H.4 Reserve service

(1) This rule applies if a pensioner member is in reserve service.

(2) The annual amount of the pension shall be abated by the relevant amount, for as long as this rule applies.

(3) The relevant amount is the amount given by the formula (A + B) – C, where

A is the annual amount of the pension;

B is the member’s annual rate of basic pay on the first day of the reserve service; and

C is the member’s annual rate of basic pay on the last day of the service in respect of which the pension is payable.

But this is subject to paragraphs (4) to (6). […]

(6) If rule D.23(1) (pension increases) applies in relation to the pension, C is increased in proportion to the increase in the amount of the pension […]”

7 CAS-49642-P2Q6 Appendix 3 Abatement examples provided by Mr T

The figures that follow assume inflationary and salary increases at the rate of 10% per annum.

Example 1 Example 2 Example 3

FTRS commencement date 31 March 3 April 12 April

Current pension in payment (£ per annum) 30,000 30,000 33,000

Final salary in old role adjusted to previous 7 100,000 100,000 110,000 April (£ per annum)

Salary in new role (£ per annum) 80,000 88,000 88,000

Abatement (£ per annum) 10,000 18,000 11,000

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