Case Study: Should a Veteran Transfer Their Armed Forces Pension? An AFPS 2026 Analysis

Background: James’s Situation

James joined the British Army at 22 and served for 22 years, reaching the rank of Major before leaving at 44. During his service he accrued benefits under two Armed Forces Pension Schemes: the legacy AFPS 75 (for service before April 2015) and the reformed AFPS 15 (for service from April 2015 onwards).

Now 45 and working in private sector project management, James contacted a pension transfer specialist with a clear set of goals:

• Retire at 55 — his AFPS 75 Normal Pension Age
• Generate sufficient income to fund private school fees (two children, aged 9 and 11)
• Pass as much wealth as possible to his family on death
• Understand whether transferring his £680,000 CETV into a SIPP would give him more flexibility

Understanding James’s Pension Schemes

AFPS 75 — Final Salary, NPA 55

James served 15 years under AFPS 75 before the April 2015 reforms. Under this scheme:

• Accrual rate: 1/69.2th of final pensionable pay per year of service
• Final pensionable pay: James’s rank pay as Major — approximately £52,000 (adjusted for service)
• Pension from AFPS 75: (15 ÷ 69.2) × £52,000 = approximately £11,272 per year
• Automatic lump sum: 3× annual pension = approximately £33,816
• Normal Pension Age: 55
• Indexation: CPI-linked for life once in payment

AFPS 15 — CARE Scheme, NPA 60

James served 7 years under AFPS 15 from April 2015 until leaving at 44. This is a Career Average Revalued Earnings (CARE) scheme:

• Accrual rate: 1/47th of pensionable earnings each year
• Revaluation: Each year’s slice revalued by CPI + 1% until retirement
• Estimated pension from AFPS 15: Approximately £7,300 per year from age 60 (nominal terms)
• No automatic lump sum under AFPS 15 (unlike AFPS 75)
• Normal Pension Age: 60

The Transfer Value: £680,000

The Government Actuary’s Department (GAD) calculated a combined Cash Equivalent Transfer Value (CETV) for James’s deferred benefits:

• AFPS 75 CETV: £430,000
• AFPS 15 CETV: £250,000
• Combined CETV: £680,000

On the surface, £680,000 sounds like a substantial amount to invest in a SIPP. But the critical question is: what guaranteed income does the scheme deliver, and at what cost would you need to replicate it?

The Required Return Rate (RRR)

A Transfer Value Analysis (TVA) calculates the annual investment return that a SIPP would need to achieve to match the guaranteed income and lump sum from the occupational scheme. This is known as the Required Return Rate (RRR).

For James:

• AFPS 75 RRR: 6.9% per annum (to match pension + lump sum from age 55)
• AFPS 15 RRR: 7.3% per annum (to match pension from age 60 with inflation revaluation)
• Blended RRR: Approximately 7.1% per annum

Generating a consistent 7.1% real return from a SIPP — year after year, through market cycles — is extremely ambitious. Most diversified investment portfolios target 4–6% real returns over the long term.

Analysing James’s Goals Against the Scheme Benefits

Goal 1: Retire at 55

This is perhaps the clearest argument against transferring. AFPS 75 has a Normal Pension Age of 55 — James’s exact target retirement age. He can take his full AFPS 75 pension and lump sum at 55 without any actuarial reduction.

From age 55, James would receive:

• AFPS 75 pension: £11,272/year (CPI-linked for life)
• AFPS 75 lump sum: £33,816 (tax-free)

His AFPS 15 pension would be preserved until age 60 and then add a further £7,300/year (in nominal terms, likely higher with revaluation).

From age 67, his State Pension would add approximately £11,502/year (2025/26 full new State Pension), bringing total guaranteed income to around £30,074/year — all inflation-protected.

Goal 2: Fund Private School Fees

James’s children are 9 and 11. He would need to fund fees for approximately 7–9 years (from now until the youngest finishes school at 18). At average UK independent school fees of £15,000–£20,000 per year per child, this represents a significant cost.

However, the adviser noted that James already has a DC workplace pension from his current private sector employment (approximately £55,000) and some ISA savings. The school fees challenge is best addressed through these liquid savings vehicles — not by transferring his AFPS pension, which would create unnecessary investment risk and tax complexity.

Key point: taking a CETV would forfeit the guaranteed £33,816 lump sum and the inflation-linked pension from 55. Replacing that certainty with SIPP drawdown introduces sequence-of-returns risk at exactly the point James needs cash.

Goal 3: Pass Wealth to Children

This is the goal that most commonly drives requests to transfer Armed Forces pensions. Under a SIPP, unused funds can currently be passed to beneficiaries largely free of inheritance tax (though this is changing in April 2027 — see below). Under AFPS, death benefits are more limited: a dependant’s pension (half the member’s pension for a surviving spouse) and, for in-service deaths, a lump sum of two years’ pensionable pay.

James reasoned that a £680,000 SIPP pot, if he died before drawing it, would benefit his children substantially. However, the adviser raised several counterpoints:

• James is 45 and in good health — the probability of dying before 55 without drawing any pension is low
• Once he starts drawing AFPS 75 from 55, any residual SIPP pot shrinks if he over-draws; a DB pension is guaranteed regardless of how long he lives
• His wife, if she survives him, receives a spouse’s pension from AFPS — a guaranteed income that a SIPP cannot replicate unless an expensive annuity is purchased

The Comparison Table

What the Adviser Recommended Instead

Rather than transferring his AFPS benefits, the adviser helped James develop a comprehensive retirement income strategy that worked with his guaranteed pension income:

1. Retain both AFPS schemes — take AFPS 75 from age 55, defer AFPS 15 to 60 for full NPA benefit
2. Maximise SIPP contributions now (45–55) — James can contribute up to his annual earnings into his workplace DC pension and personal SIPP, building a flexible supplement alongside the guaranteed AFPS income
3. ISA bridge for school fees — use ISA savings and DC pension (accessible from 57 under future rules) to meet school fee costs without disturbing AFPS
4. Tax planning at retirement — the £33,816 AFPS 75 lump sum is tax-free; careful drawdown from SIPP alongside the AFPS pension income can minimise the tax burden
5. Review McCloud deferred choice — at retirement, James should review his transitional period benefits under both AFPS 75 and AFPS 15 rules and select whichever gives the higher benefit
6. IHT planning via other means — ISA funds, trusts, or whole-of-life insurance are better vehicles for passing wealth to children now that the SIPP IHT advantage is being removed from April 2027

Five Lessons for Armed Forces Veterans Considering a Pension Transfer

1. Know Your Normal Pension Age Before Anything Else

AFPS 75 has a Normal Pension Age of 55 for most members. If you want to retire at 55, you may already have a scheme that delivers exactly that — without any transfer needed.

2. The Automatic Lump Sum Has Real Value

Unlike most modern pension schemes, AFPS 75 pays an automatic tax-free lump sum of three times the annual pension. This is a significant immediate benefit that would need to be replicated from a SIPP using your Lump Sum Allowance (LSA: £268,275). Don’t overlook it.

3. McCloud May Increase Your Benefits — But Only If You Retain

If you were in service before April 2015 and transferred to AFPS 15, the McCloud remedy gives you a deferred choice at retirement. This could materially improve your total pension. Transferring out forfeits this right permanently.

4. The 7% RRR Barrier Is Almost Insurmountable

Because Armed Forces pensions are well-funded and CPI-linked, their transfer values rarely make financial sense for the member. An RRR above 7% means markets would need to perform at near-peak conditions consistently for a SIPP to match the guaranteed income. For most veterans, the maths simply doesn’t work.

5. Get Independent, Specialist Advice

Armed Forces pension transfers require a Pension Transfer Specialist (PTS) with FCA permissions and, for CETVs over £30,000, a Transfer Value Analysis (TVA) is mandatory. Be wary of any adviser who immediately recommends a transfer — the FCA’s own data shows the majority of DB transfer advice since 2018 has not been in clients’ best interests.

Seeking Professional Advice

Armed Forces pension decisions are irreversible. Once you transfer out, you cannot transfer back into the AFPS. The decision to relinquish guaranteed, inflation-linked income in favour of investment-based drawdown is one of the most significant financial choices a veteran can make.

It is a legal requirement that anyone with a safeguarded (defined benefit) pension worth over £30,000 must obtain financial advice from a qualified, FCA-authorised Pension Transfer Specialist before transferring. Many veterans approach generalist advisers who lack the specific knowledge of AFPS rules, the McCloud remedy, or the nuances of military service pensions.

A specialist who understands both the regulatory requirements and the intricacies of Armed Forces pensions can help you make an informed decision — and, in most cases, confirm that your AFPS benefits are too valuable to transfer away.