Military Pension Plans & Benefits for Armed Forces Discharges
Military pension plans are a key factor in ensuring financial stability for members of the UK Armed Forces after discharge. They offer financial support, lump sums, and ongoing pensions to help veterans transition to civilian life or manage unforeseen challenges.
In the UK, these plans are primarily governed under the Armed Forces Pension Scheme (AFPS), which is split into 3 key versions:
- AFPS 75: For service members before 2005.
- AFPS 05: Introduced for members joining after April 6, 2005.
- AFPS 15: The current scheme for those joining from April 2015.
Each scheme or military pension plan has specific eligibility criteria and benefits tailored to members’ length of service and discharge reasons.
Eligibility Criteria for Military Pension Benefits
To receive military pensions after discharge, service members must meet the following criteria:
- Minimum Service: At least two years of qualifying service.
- Discharge Type: Eligibility can vary for voluntary and non-medical discharges.
|
Military Pension Criteria |
Details |
|
Minimum Service |
Two years’ qualifying service is required. |
|
Medical Fitness |
Assessed for Tier 1, 2, or 3 ill-health |
|
Scheme Eligibility |
Must be part of AFPS or equivalent plan. |
Armed Forces Pension Scheme Benefits
AFPS provides structured benefits for those discharged for non-medical reasons:
- Pension Lump Sum: A tax-free payment equal to three times the annual pension.
- Preserved Pension: Deferred pension payable at age 65 for early leavers.
If a veteran meets the Early Departure Payment (EDP) criteria (age 40+ with 18+ years of service), they receive:
- A tax-free lump sum.
- A taxable monthly income (minimum 50% of the preserved pension).
If you’re facing a medical discharge from any of the branches within the UK Armed Forces the Veterans Welfare Group is here to guide you through each step of the process. – Call our specialist, veteran support team today to learn more about your pension options and post-discharge support.
Military Pension Plans and Benefits for Medical Discharges
A military medical discharge occurs when a service member can no longer perform their armed forces duties, due to any injury that occurred due to their service. However, medical discharge does not mean a veteran cannot pursue civilian employment.
In cases of medical discharge, benefits are structured under the Armed Forces Pension Scheme 05, which assesses the severity of the medical condition into three tiers:
| Tier | Condition Description |
| Tier 1 | Unable to perform their current military role but still employable in civilian roles. |
| Tier 2 | Health significantly affects civilian employment prospects but is not fully permanent. |
| Tier 3 | Permanently incapable of full-time civilian employment. |
Benefits Under AFPS 05 for Medical Discharge
Under AFPS 05, medical discharge pensions depend on the assigned tier and length of qualifying service. Veterans can receive either lump-sum payments, ongoing pensions, or both, depending on the severity of their condition and their service duration.
Tier 1 Benefits
For Tier 1 medical discharge, a veteran receives:
- A tax-free lump sum equal to 1/8th of their final pensionable earnings multiplied by years of service.
- A preserved pension payable at the standard age (currently 65).
Example: A member discharged with 2 years’ service and annual earnings of £16,000 would receive a lump sum of £8,000 due to the minimum six-month pay rule.
| Condition | Benefit |
| Tier 1 (Lump Sum) | 1/8 x Earnings x Years of Service |
| Minimum Lump Sum | Six months’ pensionable earnings. |
| Additional Pension Benefits | Preserved pension at age 65. |
Tier 2 Benefits
Tier 2 benefits are provided for more severe health conditions that impact employability. Veterans discharged under Tier 2 receive:
- A taxable pension based on actual reckonable service plus 1/3rd of the potential remaining service to age 55.
- A tax-free pension lump sum equal to three times the annual pension.
Example: A 25-year-old member discharged after 8 years of service would have their pension calculated based on 18 years of service (8 years + 1/3rd of remaining service).
Tier 3 Benefits
For Tier 3, where a veteran is permanently incapable of full-time employment, benefits are enhanced:
- A taxable pension based on reckonable service plus 1/2 of the potential remaining service to age 55.
- If total service time is less than 20 years, it defaults to 20 years.
- A tax-free pension lump sum equal to three times the annual pension.
Example: A 24-year-old discharged with 4 years of service would have their military pension calculated based on 20 years of service due to the minimum guarantee.
| Details | Calculation |
| Pension | Actual service + 1/2 remaining service. |
| Minimum Service Default | 20 years of service. |
| Lump Sum | Three times the calculated annual pension. |
Additional Support for Service-Induced Conditions
If the medical condition leading to discharge was caused or aggravated by military service, additional compensation is considered under the:
- Armed Forces Compensation Scheme for conditions arising after April 6, 2005.
- War Pension Scheme (WPS) for conditions arising before April 6, 2005.
AFCS may also award:
- Tax-free lump sums based on the severity of the condition.
- Guaranteed Income Payments (GIP) for ongoing support.
Eligibility for Military Pension Benefits Under Armed Forces Discharges
Specific eligibility criteria must be met to qualify for military pensions under Armed Forces discharges. This applies to both voluntary discharges and those occurring after a set service term.
- Minimum Service Requirement
Members must have completed at least two years of qualifying service to be eligible for preserved pension benefits under the AFPS.- AFPS 75: Earlier schemes operate under slightly different eligibility rules.
- AFPS 05 and AFPS 15: These schemes standardise eligibility with a minimum two-year service threshold.
- Reckonable Service
Reckonable service determines the length of pensionable time needed to calculate benefits. This includes paid service but excludes:- Periods of detention.
- Unpaid leave or unauthorised absence.
Eligibility Factor | Details |
Minimum Qualifying Service | Two years of service for pension eligibility. |
Reckonable Service | Paid service excluding unpaid absences. |
Scheme-Specific Rules | Eligibility differs slightly across AFPS plans. |
Early Departure Payments (EDP) for Standard Discharges
If a member leaves before the normal pension age of 55 but meets certain conditions, they may receive Early Departure Payments.
To qualify, a service member must:
- Be aged 40 or older.
- Have completed a minimum of 18 years of reckonable service.
EDP Benefits Include:
- A tax-free lump sum equivalent to three times the preserved annual pension.
- A taxable monthly income equal to at least 50% of the preserved pension.
EDP Eligibility | EDP Benefits |
Age 40+ with 18+ years of service | Tax-free lump sum: 3x preserved pension. |
Leaving before age 55 | Taxable income: At least 50% of annual pension. |
If the service member later qualifies for a preserved pension at age 65, no further EDP increases occur.
Non-Attributable Benefits for Illness or Injury
For veterans whose discharge results from illness or injury not caused or aggravated by military service, benefits are classified as non-attributable. Under AFPS 05, these include:
- Tiered ill-health pensions or lump sums depending on severity.
- Preserved pensions if the service length qualifies.
Veterans medically discharged but fit for civilian work are typically placed in Tier 1 and receive a lump sum only, without immediate pension payments.
If you’re unsure about your benefit options leading up to your medical discharge or how to apply – the Veterans Welfare Group is here to help you navigate the options and access what you’re entitled to.
Taxation of Military Pensions and Benefits
For veterans receiving military pensions under the Armed Forces Pension Scheme, taxation rules differ depending on the type of benefit. While some benefits are tax-free, others are subject to income tax.
Tax-Free Military Benefits
The following military pensions components are not taxed:
- Pension Lump Sums: A one-off payment, typically equal to three times the annual pension, paid upon discharge.
- Early Departure Payments Lump Sum: A tax-free benefit provided to eligible members leaving service before age 55.
- Compensation Payments: Lump sums awarded under the Armed Forces Compensation Scheme for attributable injuries or illnesses.
Benefit Type | Taxation Status |
Pension Lump Sum | Tax-free (one-off payment). |
EDP Lump Sum | Tax-free benefit. |
AFCS Compensation Lump Sum | Tax-free for attributable conditions. |
Taxable Benefits & Military Pensions
Regular monthly pension payments and EDP income payments are treated as taxable income. These payments are subject to standard UK income tax rates, depending on the veteran’s annual income.
For example:
- A pension paid under Tier 2 or Tier 3 medical discharge is taxable.
- EDP monthly income payments are also taxable but do not include National Insurance deductions.
How the Veterans Welfare Group Can Help You
At the Veterans Welfare Group, we offer comprehensive support and advice through our directory of trusted, independent, experts to veterans and their families, ensuring they can access the services and benefits they are entitled to.
Some of the key ways we can assist you include:
- Legal Advice: In addition to the Government AFCS and AFPS, we help connect veterans with specialist solicitors who can file private claims for injuries, illnesses, or losses sustained during or after service.
- Pension and Benefits Guidance: With lived experience, we can advise and help simplify navigating the Armed Forces Pension Scheme.
- Family Support Services: Guidance for widows, widowers, and dependents in accessing survivor pensions and dependents’ benefits to maintain financial security after the loss of a loved one.
- Financial and Welfare Advice: Tailored support to help you understand your entitlements, including relocation and additional welfare resources.
Contact us today to ensure you and your family receive the correct information needed on military pensions and benefits. We’re here to help veterans transition into civilian life with peace of mind.
