The sections Calculation of the initial benefit offsets - member not in receipt of pension benefits (AFPS75, AFPS05, FTRS and RFPS) and Calculation of the initial benefit offsets - tax charge attributable to AFPS15 - or member in receipt of pension benefits (all schemes) of this guidance indicate how the initial benefit offsets should be calculated, based upon an assumption that these will be applied to members' pension benefits from age 65. In many cases the benefit offsets will not be implemented at age 65, and so this section sets out the method and instructions for calculating the adjusted benefit offsets to be applied to the member's benefits at the point they are implemented. In many cases the implementation of offsets could be several years after the initial benefit offsets were calculated, however this guidance will also apply where members elect for the scheme pays mechanism at retirement, or when they are already in receipt of pension benefits (in accordance with Calculation of the initial benefit offsets - tax charge attributable to AFPS15 - or member in receipt of pension benefits (all schemes) of this guidance).

In order to calculate the adjustment in this section of the guidance it is necessary to determine the Implementation Date. Where a member's benefits are being adjusted at the point of retirement the Implementation Date will be the date from which the pension benefits become payable. Where members have made a scheme pays election whilst already in receipt of their pension benefits, the administrators will need to agree with the member the date from which their pension will be reduced, as a consequence of the scheme meeting the member's tax charge. In this situation, the agreed date will be the Implementation Date.

Once the Implementation Date has been defined it is necessary to calculate the total benefits that are payable at that date ignoring the impact of any benefit offsets. The pension is then reduced to allow for the pension offset and, where applicable, the lump sum is reduced to allow for the lump sum offset. The offset should be revalued from the Relevant Date (see the section on Relevant Date) up to the Implementation Date in line with Pension Increase Orders (currently in line with changes in CPI).

The benefit offsets applied to the member's pension and lump sum are then adjusted if the benefits are put into payment earlier / later than the assumed recovery age of 65. This is because the pension offset will be applied over a longer / shorter period than was assumed in calculating the original amount of the offset, and so a lower / higher amount should be deducted (similarly the lump sum offset will have been applied earlier / later than originally anticipated). This will apply whether a member is retiring (or has retired) on normal or ill-health grounds, but in each case different adjustment factors will be used.

The pension, lump sum and spouses' benefit offsets to be applied at the Implementation Date are therefore:

MEMOFF at ID = MEMOFF x PI x MEMADJ

LSOFF at ID = LSOFF x PI x LSADJ

SUROFF at ID = 0

Where:

MEMOFF at ID = pension offset to be applied to the member's pension in this AFPS at the Implementation Date

LSOFF at ID = lump sum offset to be applied to the member's lump sum in this AFPS at the Implementation Date

SUROFF at ID = survivor's pension offset at the Implementation Date

MEMOFF = pension offset in this AFPS at Relevant Date - see Benefit offset - pension offset

LSOFF = lump sum offset in this AFPS at Relevant Date - see Benefit offset - lump sum offset

PI = the pension increase uprating factor between the Relevant Date and the Implementation Date

MEMADJ = pension adjustment factor at the member's age at the Implementation Date (taken from Table 1203A or 1204A)

LSADJ = lump sum adjustment factor at the member's age at the Implementation Date (taken from Table 1203B or 1204B)

For the avoidance of doubt, the factors used in the above calculation will in some cases be taken from a different set of guidance than the factors that were used to initially calculate offsets (as set out in the calculation of the initial offsets, found in the previous section). This reflects a difference in timing between the Relevant and Implementation dates.

In some circumstances a member of AFPS retiring on ill-health grounds will be exempted from incurring an Annual Allowance charge in respect of the Pension Input Period immediately prior to retirement. We note that these exemptions will not apply to all ill-health retirements from the military and I understand the MOD pension policy team have issued guidance on this matter.

Even where the exemptions do apply to a particular member, it is our understanding that they will only provide an exemption from incurring an Annual Allowance charge in that particular Pension Input Period. Any earlier benefit offset resulting from previous Annual Allowance charges will still apply. Where pre-existing offsets are applied to an ill-health pension different adjustment factors will be used from those applicable in other situations.