On the go: The Armed Forces Pension Scheme has recorded a £200mn cost linked to incorrect benefits received by discharged personnel.
Its latest annual report published on July 20, which revealed a £25.1bn net increase in liabilities to £279.1bn, also disclosed that it will include a write-off of between £1.3mn and £1.7mn in its next set of accounts, resulting from incorrect payments connected to pension-sharing orders.
The scheme’s net increase included an actuarial loss of £19.6bn. This was composed of a £22.4bn loss driven by changes to actuarial assumptions and a £2.8bn gain linked to “experience items arising on pension liabilities”.
An experience gain or loss measures the extent to which events over the scheme’s reporting period have not coincided with the actuarial assumptions made for its assessment.
The scheme said that since its 2015 section was introduced, different periods of service for rejoining personnel have not been linked for pension purposes, owing to the inaccurate interpretation of policy.
This has subsequently left those who are then discharged receiving incorrect benefits. The scheme recognised a cost of £200mn in its accounts linked to the issue.
An exercise started during the 2021-22 period aimed at correcting around 8,500 pension-sharing order cases will, meanwhile, yield a write-off of up to £1.7mn in next year’s accounts, the scheme predicted.
“Historic guidance provided by the Department for Work and Pensions on dates to be used to value the share of benefits when PSOs were sealed by the court was misinterpreted,” the scheme said.
“As a result, members and their former spouses who have a PSO in place since 2004 may have been paid at an incorrect rate, and will therefore be reviewed and recalculated accordingly.”
Affected members will not have to repay any overpayments that they may have received as a result of the issue, the scheme added.
It also noted a judicial review, after several unions being granted permission on July 4 to challenge the government over plans to pass McCloud remedy costs on to their members.
“Even if the judicial review is successful, it is unclear what remedy the court may order, and the government would then need to consider how to proceed following that,” the Armed Forces Pension Scheme noted.
"Any attempt to predict such outcomes, such as any impact on scheme liabilities, would be highly speculative at this stage.”
The scheme provided details on the updating of its cost-cap mechanism itself, which will take effect from its 2020 valuation, a process that is currently under way.
“The new mechanism will only allow for the reformed scheme, will have an increased cost-cap corridor of plus/minus 3 per cent, and will also include an economic check, which means that a breach would only result in changes if there was still a breach once the impact of any change in the discount rate has been taken into account,” the scheme added.
