Contributions to pension schemes

Updated on 12 November 2017

If you are a serving member of the regular armed forces or reserve forces in service on or after 1 April 2015 you will be an active member of the Armed Forces Pension Scheme 2015 (AFPS 15) unless

  • you have Transitional (Full) Protection in other armed forces pension schemes; or
  • you have opted out of the AFPS 15.

If you were in service before 1 April 2015 you will have earned pension benefits in another AFPS (provided you did not opt out). Benefits you have earned under these schemes up to the 31 March 2015 are protected.

All AFPS schemes (AFPS 75, AFPS 05 and AFPS 15) are non-contributory – this means that you do not have to make a contribution from your own income. However, you may have purchased Additional Voluntary Contributions (AVCs) under previous schemes, or you may buy ‘Added Pension’ under AFPS 15.

Up until 5 April 2016 all AFPS schemes were contracted-out of the state second pension (SSP). This means that, as a scheme member, you paid reduced Class 1 National Insurance contributions (NIC). With effect from 6 April 2016 it is no longer possible for any pension scheme to be contracted-out and as a result your Class 1 NIC rate increased by 1.4%.

We suggest you read the section on our website which explains the different types of pension provision as this will explain some of the terms we use in this guidance.

Veterans UK is responsible for all armed forces pension matters and their contact details can be found at GOV.UK.

Can I do anything to increase the amount of pension I will receive when I retire? 
Will I get any tax relief if I decide to contribute under one of the options offered through AFPS 15?
Will there be any changes to the way I receive tax relief on my AVCs? 
What is my position if I do not want to use one of the armed forces’ options?
What are the Annual Allowance and Lifetime Allowance limits? 

Can I do anything to increase the amount of pension I will receive when I retire?

Yes, under AFPS 15 you have two choices. You can

  • purchase Added Pension; and/or
  • take out a Stakeholder Pension.

In addition, if you were purchasing Added Years Additional Voluntary Contributions (AVCs) before 1 April 2015 under AFPS 75 or AFPS 05 you may continue to pay these.

AFPS 15 (like all the AFPS schemes) is a defined benefit occupational pension scheme and when you purchase Added Pension you are increasing your pension from that scheme. How you can take your pension is governed by the relevant AFPS scheme rules.

A Stakeholder Pension is a personal pension. When you make contributions to this type of scheme you are building up a completely separate pot of money from your AFPS scheme. What you can do with this pot of money is exactly the same as for any other individual with a personal pension. You can find out more about these rules on our website. The armed forces has appointed Scottish Widows as its preferred provider of Stakeholder Pensions to the armed forces but you are free to use any pension provider you choose.

It is beyond the scope of this guidance to provide advice on whether you should make payments to increase the pension you receive when you retire. You can find out more about the options under AFPS 15 in the Ministry of Defence document “The AFPS 15 Your Pension Scheme Explained” and more about the position regarding AVCs under previous AFPS schemes in “AFPS 15: frequently asked questions”.

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Will I get any tax relief if I decide to contribute under one of the options offered through AFPS 15?

Yes. However, there are limits. If neither of the limits applies to you then your tax position on pension contributions is as follows:

Added Pension

JPAC deducts the contributions you make from your gross pay before calculating your tax. This means that you get full tax relief through the payroll. You can see an example of this on our website.

Scottish Widows Stakeholder Pension

JPAC deducts the contribution from your after tax salary. This is because your contribution is net of basic rate tax and Scottish Widows claims the basic rate tax from the Government. 

As an example, if you want to make a total monthly pension contribution of £100 then JPAC deducts £80 from your net pay and pays this to Scottish Widows each month. Scottish Widows then claims £20 from the Government.

If you are a higher rate taxpayer you will need to claim the higher rate tax relief separately, using self assessment.

If you live in Scotland and are a Scottish taxpayer, different income tax rates and bands apply to your earned income. This may affect the amount of tax relief you receive on your pension contributions and how you receive it. There is more information about Scottish income tax in our ‘tax basics’ section.

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Will there be any changes to the way I receive tax relief on my AVCs?

No, this will continue as previously. The limits to contributions apply as equally to AVCs as they do to other pension contributions.

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What is my position if I do not want to use one of the armed forces’ options?

You are entitled to tax relief, just as if you were contributing to one of the armed forces’ options. You can set up a separate personal pension (so long as you are not affected by the limits to contributions) and make contributions to it out of the net pay you receive in your bank account. The practical difference between this arrangement and using Scottish Widows is that the contribution comes from your bank account, rather than out of your net salary before it is paid into your bank account.

Your contribution is net of basic rate tax and the pension firm you have chosen claims the basic rate tax from the Government. As an example, if you want to make a total monthly pension contribution of £50, you pay £40 each month to your pension provider and your pension provider then claims £10 from the Government.

If you live in Scotland and are a Scottish taxpayer, different income tax rates and bands apply to your earned income – Scottish income tax. This may affect the amount of tax relief you receive on your pension contributions and how you receive it.

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What are the Annual Allowance and Lifetime Allowance limits?

There are limits on

  • the amount of tax relieved contributions you can make to pension schemes each year. This is known as the “annual allowance”. Normally the limit is £40,000 per year. This is tapered down to a minimum of £10,000 for those with earnings over £150,000, at the rate of £1 for every £2 of income. When you are a member of a defined benefit scheme there are “deemed contributions” based on the increase in your pension entitlement and you will need to ask Veterans UK to provide this information; and
  • making contributions if your total pension savings value exceeds the “lifetime allowance”. The current limit is £1 million from 6 April 2016. It was previously £1.25 million. When you are a member of a defined benefit scheme there is a “deemed value” based on your final pension entitlement and you will need to ask Veterans UK to provide this information.

You can find out more whether these limits might apply to you in the ‘tax basics section’ of our website.

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