Financial Planning for Armed Forces Personnel: AFPS, Pensions and Beyond

Financial planning for military personnel is genuinely different from the civilian norm. The Armed Forces Pension Scheme is one of the most valuable public sector benefits in the UK, but understanding how it works, when benefits crystallise, and how to plan around it is not straightforward. Add in the complexities of frequent relocation, deployment, unique tax reliefs, and the eventual transition to civilian life, and the case for specialist financial planning becomes clear.

This guide covers the key financial planning issues for service personnel and their families.

The Armed Forces Pension Scheme 2015 (AFPS 15)

Most serving personnel who joined after April 2015 (and those transferred from older schemes) are in the Armed Forces Pension Scheme 2015. It is a Career Average Revalued Earnings (CARE) defined benefit scheme.

Accrual rate: the accrual rate is 1/47th of pensionable earnings for each year of pensionable service. This is among the most generous in the public sector — the civil service CARE scheme accrues at 1/43rd, and most NHS schemes at 1/54th. Higher accrual means faster accumulation of pension entitlement for the same salary level.

Normal pension age: under AFPS 15, the Normal Pension Age (NPA) is linked to State Pension age — currently 66, rising to 67 between April 2026 and March 2028 (depending on date of birth). Benefits accrued before any increase in SPA are protected at the earlier age.

Preserved benefits: service personnel who leave before completing the minimum qualifying service can preserve their pension benefits, which grow until they reach NPA. Benefits are revalued each year in line with CPI.

Early Departure Payments: The EDP Scheme

One of the most distinctive features of military pension planning is the Early Departure Payment (EDP) scheme. Personnel who leave after age 40 with at least 20 years' service — but before their Normal Pension Age — qualify for the EDP.

EDP structure:

• An immediate lump sum on departure.
• An ongoing EDP "top-up" income, payable until the deferred pension comes into payment at NPA.

The EDP provides a bridge income between departure and the preserved pension. It is not the same as the full pension — the deferred pension at NPA will generally be higher than the EDP income in the intervening years — but it provides meaningful income security for those who leave mid-career.

The EDP lump sum on departure is entirely different from the pension commencement lump sum available at NPA. Both are tax-free (the pension commencement lump sum is subject to the Lump Sum Allowance of £268,275 introduced after the abolition of the Lifetime Allowance in April 2024; the EDP lump sum has its own tax-free treatment under service-related provisions).

Immediate Pension

Personnel who complete the full qualifying conditions — reaching their Normal Pension Age with the required service — receive an Immediate Pension (IP). For many this will be at 55 or above. The IP includes a pension commencement lump sum (automatically commuted from the pension; no additional commutation is available under AFPS 15 at the standard terms).

The pension income is index-linked and paid for life. It is taxable as earned income.

Death Benefits: Protecting Dependants

The Armed Forces Death in Service benefits are structured differently from most civilian employer schemes:

• Spouse or civil partner pension: a surviving spouse or civil partner receives a pension equal to 50% of the member's notional pension entitlement (accrued to date of death).
• Eligible children's pension: dependent children under 18 (or under 23 if in full-time education) receive a pension. The amount depends on the number of eligible children.
• Dependant's pension: a qualifying dependent partner who is not a spouse or civil partner may also receive a pension, subject to eligibility conditions.
• Attributable Death Benefit: where death is attributable to service (whether in combat or as a result of service-related causes), significantly enhanced benefits may be available under the Armed Forces Compensation Scheme.

Nomination of dependants and keeping records up to date is critical. Unmarried partners need to register as nominated beneficiaries and meet the eligibility conditions.

Housing and Relocation

Frequent relocation is one of the defining features of military life. Service Families Accommodation (SFA) provides subsidised housing, but the decision of whether also to buy a property — and when — is a significant financial planning question.

Arguments for buying early: locking in mortgage rates; building equity over a career; having a property to return to after discharge; using rental income from a tenanted property when posted elsewhere.

Arguments against buying early: frequent relocations mean either renting the property out (with the attendant Section 24 mortgage interest restriction for individuals; management costs; tenant risk) or selling frequently (CGT on each sale once it is no longer your primary residence; transaction costs).

The Continuity of Education Allowance (CEA), which funds children's boarding school fees during frequent relocations, interacts with decisions about where to base a family property and which school the children attend. Financial planning that does not account for the specifics of the family's posting history and likely future is of limited value.

HMRC Tax Concessions for Deployed Personnel

Operational service and tax relief: HMRC provides specific relief for armed forces personnel deployed on qualifying operational service. Under the Longer Separation Allowance (LSA) and Operational Allowance schemes, some allowances are non-taxable.

More significantly, service personnel killed or who die from wounds sustained on active service are granted an exemption from income tax on income earned in the tax year of death. This is administered through the relevant HMRC helpline and should be raised promptly in the event of a fatality.

For personnel on overseas postings not qualifying as operational (e.g., a posting to Germany, Cyprus or elsewhere on routine duties), standard UK income tax rules apply — they remain UK-resident and pay UK income tax. The overseas living and working allowances may partially offset the cost of living abroad.

ISA contributions during service: service personnel can continue to contribute to ISAs throughout their career, including while deployed overseas. The allowance is the standard £20,000 per year.

Pension annual allowance: service pension accrual counts towards the pension annual allowance in the normal way, assessed using a multiplier of 16 × the increase in annual pension entitlement. For high-earning officers, the tapered annual allowance — which reduces the £60,000 annual allowance for those with adjusted income above £260,000 — can be a concern and should be monitored.

Transition to Civilian Life

Leaving the armed forces involves the loss of a range of benefits alongside the end of service: subsidised housing ends, the military medical system is replaced by the NHS, and the defined benefit pension does not fully crystallise for some years.

Pension planning on exit: for those leaving before NPA, the preserved or EDP benefits continue. The transition period — from exit to NPA — is often the most financially vulnerable phase. Gaps in pension income, the end of accommodation subsidies, and the cost of civilian housing all hit simultaneously.

Resettlement grants: service leavers are entitled to a lump sum resettlement grant, which is tax-free. The amount depends on years of service and rank on departure.

Second career and additional pension: many service leavers begin a second career in the private sector. Contributions to a new employer's workplace pension, combined with the preserved military pension at NPA, can produce a comfortable combined retirement income — but this requires coordination. Starting contributions to a SIPP alongside a new employer's scheme, if earnings are sufficient, can accelerate the build-up of supplementary pension assets.

Protection needs change on exit: the comprehensive military death-in-service and compensation schemes are no longer available once civilian life begins. Life assurance, income protection and critical illness cover should be put in place promptly after discharge, ideally before any health conditions emerge from service.

How Global Investments Can Help

Global Investments has experience advising service personnel and veterans on the full range of financial planning issues: from understanding and optimising their AFPS benefits to building a comprehensive civilian wealth plan after discharge. We work with advisers who understand the specific rules and allowances that apply to military clients. Contact us for a confidential initial consultation.