Armed forces pension NI change from 20 July

This new statutory instrument looks dense, but the practical point is quite small and quite clear. It says that when certain armed forces pension remedy payments are made, they should be left out when earnings are worked out for Class 1 National Insurance contributions. Class 1 NICs are the earnings-related contributions paid by employees and employers, and the 2023 armed forces remedy rules show that EDP 2015 benefits can arise as new-scheme benefits linked to remediable service. (gov.uk) For most readers, that sentence will need translating. What the Government is really doing here is stopping a very specific kind of armed forces pension payment from being treated as earnings for NI purposes when that payment exists because of the public service pension remedy.

The legal change sits inside the Social Security (Contributions) Regulations 2001, in the part that lists payments to be disregarded when earnings are calculated for contributions. In plain English, the amendment adds EDP 2015 equivalent benefits under AFPS 1975, so a remedy-created benefit that matches an Early Departure Payment is put on the same NI footing as the ordinary EDP 2015 version. The 2023 armed forces remedy regulations already recognise EDP 2015 benefits as possible new-scheme benefits in AFPS 1975 cases. (legislation.gov.uk) **What this means:** if two payments are doing the same job in practice, the rule is trying to stop them being treated differently just because one appears through pension remedy legislation rather than through the standard route.

This is not a change for every veteran, and it is not a broad rewrite of National Insurance. It is aimed at a narrower group: people with remediable service connected to the Armed Forces Pension Scheme 1975, where a pension choice under the remedy can lead to new-scheme benefits being paid instead. Ministry of Defence guidance says in-scope personnel receive a Remediable Service Statement setting out benefits that may be paid from both legacy and reformed schemes before a choice is made. (legislation.gov.uk) That is why the wording feels so specialised. The regulation is not trying to teach the public how armed forces pensions work from scratch; it is trying to plug one technical gap inside an already complicated remedy process.

If you have been staring at the phrases section 6 election and section 10 election and wondering what they actually mean, the short version is this. In the 2023 armed forces remedy rules, section 6 sits inside the immediate choice process and section 10 sits inside the deferred choice process. Our reading of that is straightforward: one route is about making the choice earlier, while the other lets the choice wait until benefits are coming into payment. (legislation.gov.uk) That distinction matters because this new NI rule only bites where one of those choices results in benefits that are equivalent to EDP 2015 benefits being paid in relation to AFPS 1975 remediable service.

What the regulation does not do is just as important as what it does. It does not create a new armed forces pension scheme. It does not change the basic structure of the AFPS 1975 remedy. And it does not rewrite NI rules for the wider workforce. It tidies up a narrow mismatch so that a remedy-related payment equivalent to EDP 2015 benefits is not counted as earnings for Class 1 NICs. (legislation.gov.uk) Because Class 1 NICs are earnings-related, and because they cover both the employee side and the employer side, removing these payments from the earnings calculation stops an NI consequence from attaching to something the policy now treats more like a pension remedy payment than ordinary pay. That is an inference from the way the rule is drafted, but it fits the structure HMRC uses for Class 1 contributions. (gov.uk)

The wider background is the public service pension remedy that followed the unlawful age discrimination found in the 2015 reforms. HMRC's 2021 Tax Information and Impact Note on that remedy said the tax changes were meant to make the pensions tax framework work as intended after the remedy, and that package was expected to have a negligible Exchequer impact with no significant macroeconomic effect. (gov.uk) So this instrument reads like a small repair job because that is, in truth, what it is. It is one more technical adjustment designed to make the tax and NI consequences line up with the pension choices affected members are allowed to make.

For most people, this rule will pass quietly. For a smaller group of former or serving personnel dealing with AFPS 1975 remediable service, though, it matters because it affects how a particular kind of payment is classified at the NI stage. Ministry of Defence guidance says affected people should receive paperwork explaining their remedy options, and those options sit inside the immediate and deferred choice routes set out in the 2023 regulations. (gov.uk) **What it means:** if you are reading a Remediable Service Statement, or advising someone who is, this is one of the rules sitting behind the paperwork. It is technical, but the purpose is simple enough: where the pension remedy produces an EDP-style benefit under AFPS 1975, that payment should not be pulled into Class 1 NI earnings just because of the route it arrived by. (legislation.gov.uk)