Guidance

Armed Forces Pension and how it is affected by National Insurance modification

Published 27 November 2019

If you are receiving an Armed Forces Pension that includes reckonable service before 1 April 1980 your pension is liable for reduction when you reach State Retirement Age. This reduction affects all public sector pension schemes and for the armed forces the rate of deduction is based on £0.87 for each year. The rate of your basic pension, that is before any increases are applied, will be reduced by £0.87 for each whole year of your reckonable service before 1 April 1980. The reduced pension is then uprated by the pension increases accrued since discharge and the reduction is applied to your armed forces pension when you reach State Retirement Age.

Here is an example of how this is applied:

Service person discharged in the rank of Sergeant on 1 October 1993 with 22 years reckonable service from age 18 years. Whole years between joining on 2 October 1971 to 1 April 1980 was 8 years.

£0.87 multiplied by 8 years is £6.96.

Annual Pension on discharge = £5,732

State Retirement Age is 65 which is on 2 October 2018.

Basic Annual Pension plus accrued pension increases as of 1 October 2018 is £10,676.94.

At state retirement age the annual basic pension is reduced by £6.96 to £5,725.04 and the accrued pension increases are revised to reflect the deduction from discharge, the reduction takes effect from your state retirement age.

From 2 October 2018 revised Annual Pension is £10,663.98.

Background Information

The reason for this abatement goes back to when the National Insurance Scheme was made compulsory for all employed persons in 1948. When flat rate benefits were introduced under the National Insurance Act 1946, the Government took the view that, to avoid over-provision of pension benefits, account should be taken of State benefits. It requires all employers with occupational pension schemes to modify their schemes to take account of the contributions and benefits payable under the National Insurance Scheme, to prevent two pension benefits being paid for the same period of service. The Armed Forces Pension Scheme was therefore modified and the basic pension of a service person who entered the service on or after 1 July 1949 was to be reduced when they reached State Retirement age.

The Ministry of Defence must comply with this legislation and reduce pension benefits in accordance with the State Legislation.

Graduated Pension Scheme

Employees who contributed to the Graduated Pension Scheme during the period 3 April 1961 to 5 April 1975 will have their Armed Forces Pension reduced by the basic graduated pension earned by their contributions. Again, this reduction is made to prevent an individual from receiving the benefit of both the state pension scheme and an occupational pension scheme for the same period of employment. The amount of reduction in respect of the Graduated Pension Scheme is derived from the contributions you made. How this affects your Armed Forces Pension at state retirement age is the same principle used for the deduction of National Insurance Modification, your basic pension is reduced, and the accrued pension increases are revised to reflect the deduction from discharge, the reduction takes effect from your state retirement age.

DBS Veterans UK comply with legislation and reduce your pension at state retirement age if you require further information about the National Insurance Act you must direct your enquiry to your State Pension Provider. Our Paying Agent Equiniti (EQ) will make the necessary adjustments to your pension and this will be notified to you on a Payment Advice Notice once the changes have been made.

If you require more information about the amount of pension adjustment you should contact your paying agent:

Equiniti (EQ)
PO BOX 1246
Sutherland House
Russell Way
Crawley
RH10 0HZ