Armed forces pension glossary

Why the jargon matters when you plan

The armed forces pension is one of the most valuable things you will ever earn in uniform, and it is also wrapped in more abbreviations than almost any other part of service life. AFPS, CARE, EDP, GAD, commutation, accrual, indexation: each is shorthand for a rule that can move the number in your eventual statement by thousands of pounds. When you are trying to decide whether to sign off, when to take a lump sum, or how your pension compares with a civilian job offer, the words stop being trivia and start being money. Getting them right is the difference between a confident decision and a guess.

This page pulls the key terms together and shows how they relate, so the individual definitions above read as one connected picture rather than a list of unrelated cards. We have written it for serving personnel and veterans who want to understand the working, not just memorise a glossary. None of it is regulated financial advice, and we are an independent education site, not part of the Ministry of Defence, Veterans UK or JPAC. Treat everything here as a plain-English map of the terms, then get your official figure from Veterans UK before you act.

The three schemes set the vocabulary

Almost every term on this page behaves differently depending on which scheme you are in, so it helps to fix the three in your mind first. AFPS 75 and AFPS 05 are final-salary schemes: your pension is worked out from your pay near the end of your service, multiplied by your length of service. AFPS 75 can build up to 48.5% of final pay (reached at 34 years for officers and 37 years for other ranks) and pays an automatic tax-free lump sum of three times the pension, with a normal pension age of 60. AFPS 05 accrues 1/70th of final pay for each year, up to roughly 57%, also with an automatic 3x lump sum, and a normal pension age of 65.

AFPS 15 is the scheme almost everyone serving now is building, and it works on a completely different principle called CARE, or Career Average Revalued Earnings. Instead of one final-salary sum, it banks a slice of pension each year and revalues every slice for inflation. It has no automatic lump sum, a normal pension age equal to your State Pension age, and an Early Departure Payment available from age 40. Once you know which scheme a term sits in, the rest of the vocabulary falls into place.

How the key terms connect

The cleanest way to see the terms is as a chain. At one end is the pay your pension is built from; at the other is the income and cash you eventually receive. Each term in between is a link in that chain.

Pensionable pay and accrual rate: the building blocks

Pensionable pay is the part of your earnings that actually counts towards your pension. In the final-salary schemes it is based on representative pay for your rank near the end of your service; in AFPS 15 it is your actual pensionable earnings in each year. Most allowances and specialist pay are excluded, which is why your pensionable pay can be lower than your total take-home. The accrual ratethen tells you what fraction of that pay you earn as pension for each year served: 1/70th of final pay on AFPS 05, and 1/47th of each year's earnings on AFPS 15. A faster accrual rate, meaning a smaller bottom number in the fraction, builds a bigger pension for the same length of service. This is why AFPS 15's 1/47th is generous: it banks a larger slice each year than AFPS 05's 1/70th.

Final salary versus CARE: two ways to add it up

Final salary and CAREare simply the two methods for turning pensionable pay and accrual into a yearly pension. Under final salary, late promotions are powerful because they lift the single figure your whole pension is multiplied against. Under CARE, each year stands on its own: the slice you banked as a junior rank stays based on that year's pay, but it is protected by index-linking so it does not wither over a long career. Neither method is automatically better; which one suits you depends on your rank progression and how long you serve.

Index-linking: the thread that runs through everything

Index-linking, also called indexation or revaluation, is the yearly increase that keeps pension values in step with the cost of living, broadly in line with prices. It appears in three places: it revalues each banked CARE slice while you are still serving, it uprates a preserved pension while you wait to draw it, and it increases pensions already in payment. Recent figures show how much this matters: the uprating was 6.7% in 2024, 1.7% in 2025, and pensions in payment rise 3.8% from April 2026. Over a retirement that can last thirty years or more, index-linking is what stops your pension quietly losing its value.

Commutation, the commutation factor and the lump sum

A lump sum is the tax-free cash paid alongside your pension. On AFPS 75 and AFPS 05 it is automatic and equal to three times your annual pension. AFPS 15 pays none automatically, so you create one by commuting, which means giving up part of your yearly pension in exchange for cash. The exchange rate is the commutation factor: on AFPS 15 it is roughly £12 of lump sum for every £1 of annual pension you sacrifice, and you can commute up to 25% of your pension. A higher factor gives you more cash per pound surrendered. Crucially, the cash you take this way is pension you will not receive every year for the rest of your life, so the decision is a genuine trade-off, not free money.

EDP, preserved pensions and GAD: leaving before pension age

If you leave before your scheme pension age, what happens next depends on how long you served. Serve long enough and you may qualify for an Early Departure Payment (EDP): a tax-free lump sum plus a monthly income that bridges the gap until your full pension starts. EDP is broadly available after 18 years and age 40 on AFPS 05, and 20 years and age 40 on AFPS 15, where the EDP lump sum is 2.25 times your preserved pension. Leave without qualifying and your benefits become a preserved pension: you become a deferred member, your pension is locked away and index-linked until you reach pension age. Sitting behind the EDP and commutation numbers is the Government Actuary's Department (GAD), the independent body that sets the factors. Our calculators rely on the latest GAD factors, which is why an estimate should always be confirmed against an official forecast.

McCloud: where the chain can split

One more term ties several others together: the McCloud remedy. For the remedy period from 1 April 2015 to 31 March 2022, members moved into AFPS 15 can choose at retirement whether that service counts towards their old scheme or AFPS 15. Because the schemes use different accrual, lump sum and EDP rules, that single choice can change almost every figure above, so it is worth modelling both options carefully rather than assuming one is better.

A short worked example (illustrative)

To see how the terms connect, take an illustrative AFPS 15 member. Suppose in one year their pensionable pay is £40,000. The 1/47th accrual rate banks £40,000 divided by 47, which is about £851 of pension for that single year. That slice is then index-linked every year afterwards, so by the time they retire it is worth more than £851 in today's money. Repeat for every year of service and add the revalued slices together, and you have the annual CARE pension.

Now suppose that finished pension is £12,000 a year and they want some tax-free cash. They can commute up to 25%, so up to £3,000 of annual pension. At a commutation factor of roughly £12 per £1, giving up £3,000 of yearly pension would produce about £36,000 of tax-free lump sum, leaving an ongoing pension of around £9,000 a year. The figures here are rounded and for illustration only; they show the mechanics, not your entitlement. Your real numbers depend on your service record, and only Veterans UK can confirm them.