Funding the Armed Forces Pension Scheme (AFPS)

What is the AFPS?

All members of the armed forces are automatically enrolled into the Armed Forces Pension Scheme (AFPS) and, unlike almost all other schemes, members pay 0% in contributions each month.

The scheme is also protected by legislation and distributed from the public purse.

Three APFS Schemes

There are three revisions of the AFPS; each named after the year of their implementation. You can select from the links below for further information about the schemes.

The 2015 scheme was introduced after the Hutton review of pension schemes because the population’s life expectancy rates were rising, there was a need to ensure that payments of armed forces pensions were sustainable.

UK Government Defence Spending

The UK spends approximately £60 billion annually on Defence, and this figure includes pension payments to veterans.

Is the AFPS Funded or Unfunded?

The AFPS is an unfunded liability.

This means the AFPS is free to its members and therefore receives no employee contributions.

What is the In Year Cash Requirement?

The 2017/18 AFPS in year cash requirement was £1,573.1 million.

How is the In Year Cash Requirement Funded?

The AFPS in year cash is funded through a combination of:

  • Employer contributions (Superannuation Contributions Adjusted for Past Experience); and
  • A top up from the HM Treasury Consolidated Fund.

A top up is required as the AFPS is free to its members and therefore receives no employee contributions (there is no investment income). As a result, the in-year income received from employer contributions does not cover the in-year pension expenditure.

Reference

FOI 2019/00481 dated 07 February 2019.

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