What index-linking actually means
Index-linking, sometimes called indexation or revaluation, is the mechanism that keeps your armed forces pension in step with the cost of living. Without it, a pension fixed at the figure you first qualified for would slowly lose its buying power, because the same number of pounds buys less each year as prices rise. Index-linking solves that by increasing your pension at regular intervals, broadly in line with a published index of prices or earnings. The aim is simple: a pension that is worth roughly the same in real terms at age 80 as it was at age 60.
The index that matters most to armed forces pensioners is the Consumer Prices Index, the CPI. Each year the government measures the change in the CPI to the September before the following April, then applies that figure to pensions in payment and to preserved pensions through a Pensions Increase Order. For the uprating that takes effect in April 2026, the relevant figure is 3.8 per cent, the CPI measured to September 2025. So a pension already in payment rises by 3.8 per cent that year, and a preserved pension waiting to be drawn is revalued by the same amount.
It is worth being precise about the language, because the schemes use two related ideas. Revaluation is the increase applied while a pension is still building or sitting deferred, before it is paid. Indexation, or the annual pension increase, is the increase applied once the pension is actually in payment. Both protect your buying power, but they kick in at different stages of your pension's life. The rest of this page works through how each scheme handles them, because AFPS 75, AFPS 05 and AFPS 15 do not all do it the same way.
How index-linking works on AFPS 75 and AFPS 05
AFPS 75 and AFPS 05 are both final-salary schemes, and they share an unusual feature that trips a lot of people up. If you draw your pension before age 55, it is paid flat, with no annual increases at all, until you reach 55. That does not mean those years of inflation are lost. At age 55 the scheme applies all of the accumulated increases in one go, so the pension catches up to where it would have been had it been indexed all along. From 55 onwards it then rises each year with CPI in the normal way. This is the single most misunderstood part of index-linking on the older schemes.
Why does this matter? Many AFPS 75 members draw an immediate pension years before 55, and AFPS 05 members can take an Early Departure Payment from age 40. During that window the headline pension figure does not move, which can feel like the pension is standing still while prices climb. It is not being eroded permanently; it is simply waiting for the catch-up at 55. Once that catch-up lands, the full back-dated uplift is applied and CPI increases follow every April thereafter. Understanding this rhythm stops people panicking that their pension has been left behind.
A preserved pension on these schemes is treated a little differently. If you leave with a preserved AFPS 75 or AFPS 05 pension that you will draw later, that preserved amount is revalued by CPI across the whole period it is deferred, so it keeps pace with prices right up to the point it comes into payment. The flat-to-55 rule applies to pensions and Early Departure Payments that are actually being paid early, not to a preserved pension sitting untouched until a later pension age.
How index-linking works on AFPS 15
AFPS 15 is a Career Average Revalued Earnings scheme, and the clue is in the word revalued. While you are still serving, each year you bank 1/47th of that year's pensionable pay as a slice of annual pension. Those slices do not sit still. Each past year's slice is revalued in line with the Average Weekly Earnings index, the AWE, which broadly keeps your earlier years marching in step with current pay levels. This in-service revaluation is what stops a junior year you served twenty years ago from being frozen at its original cash value while everyone around you earns more.
The index changes the moment your pension stops actively building. Once you leave and your pension is deferred, or once it comes into payment, the increases switch from earnings to prices, so AFPS 15 revaluation and indexation then follow CPI rather than AWE. This is the same CPI uprating that drives the AFPS 75 and AFPS 05 increases, including the 3.8 per cent that applies from April 2026. So the AFPS 15 pension you are building is protected by earnings while you serve and by prices once you have stopped.
Early Departure Payments under AFPS 15 follow the same flat-to-55 pattern as the older schemes. The EDP income that bridges you from your leaving date to pension age is paid flat until age 55, then CPI-uprated from 55 onwards. So whichever scheme you are in, the principle is consistent: an income paid early is held flat to 55, then indexed; a pension or pot that is still building or deferred is revalued in the meantime.
A worked example (illustrative)
Here is an illustrative example built only on the figures published for these schemes. Treat it as a teaching aid, not a forecast of your own pension. Suppose a veteran has an armed forces pension of 12,000 pounds a year already in payment, and the pension is past age 55 so it receives the full annual increase. Applying the April 2026 CPI figure of 3.8 per cent, the pension rises by 12,000 times 0.038, which is 456 pounds. The new yearly pension becomes 12,456 pounds. That extra 456 pounds is not a bonus; it is the amount needed to keep the original 12,000 pounds worth the same after a year of price rises.
Now picture the same 12,000 pound pension being drawn early, before age 55. In that case the flat-to-55 rule means it stays at 12,000 pounds with no annual increase until the veteran reaches 55. At 55, all the accumulated increases that would have applied are added in one step, so the pension jumps to where it would have been had it been indexed each year, and from then on it rises with CPI every April. The total inflation protection is the same over the long run; it is just delivered as a single catch-up rather than year by year.
The compounding effect is the part worth dwelling on. Index-linking applies to the new, higher figure each year, not the original amount, so increases build on increases. A pension that rises by a few per cent annually across a twenty or thirty year retirement can grow substantially in cash terms while holding broadly steady in real terms. Our increase calculator shows a current-rate estimate using the latest published figure; it does not try to predict future years of CPI, which nobody can know in advance, so always treat any projection as illustrative.
Who index-linking affects
Index-linking touches almost everyone connected to the armed forces pension schemes, but at different stages. Pensioners already drawing their pension feel it most directly, as the annual April increase that lands on their payments. Preserved members, who have left but are not yet drawing, benefit through revaluation that keeps their preserved pension in line with prices until it is paid. Serving members under AFPS 15 benefit through in-service revaluation by earnings, which protects each year's slice as their career rolls on.
Early leavers on an Early Departure Payment sit in a particular position because of the flat-to-55 rule. Whether they are on EDP 05 or EDP 15, the bridging income is held flat until age 55 and then indexed by CPI, so the timing of their increases depends on their age, not just the calendar. Survivors and dependants drawing a pension after a member's death also receive index-linked increases, so the protection carries on beyond the member's own lifetime.
The McCloud remedy adds a wrinkle for anyone with service between 1 April 2015 and 31 March 2022. Members affected by the remedy choose, when their pension is paid, whether that period counts towards their legacy scheme or AFPS 15, and the two routes can index slightly differently in the build-up phase, earnings versus prices. From 1 April 2022 all serving members build AFPS 15, so future revaluation follows the AFPS 15 rules. Whatever your mix of schemes, you need at least two years of qualifying service to hold a pension entitlement that index-linking can then protect.
Why index-linking matters to your pension
Index-linking is one of the most valuable features of any armed forces pension, and it is easy to undervalue because it works quietly in the background. Many people leave the forces in their forties and live into their eighties, which can mean forty years of retirement. Across that span, even modest annual inflation would halve the buying power of a pension that never increased. Index-linking is what stops that happening, and a guaranteed, inflation-protected income for life is something that is extremely expensive to buy in the private market.
It also changes how you should think about the headline figure on your forecast. A pension of, say, 15,000 pounds a year is not a fixed sum you live on forever; it is a starting point that grows roughly with prices for the rest of your life. That makes a defined benefit armed forces pension worth far more than the same number attached to a pension that does not increase. When people compare their pension to a private alternative, forgetting the index-linking is one of the biggest mistakes they make, because the inflation protection is a large slice of the real value.
Index-linking interacts with your other choices too. If you commute pension for tax-free cash under AFPS 15, remember that you are giving up future index-linked income, not just this year's pounds, because every pound of pension you surrender would otherwise have grown with prices for the rest of your life. That long-term effect is exactly why commutation deserves careful thought, and why the trade is permanent. The same logic applies to deciding when to draw a pension early versus letting a preserved pension keep being revalued.
Common misunderstandings about index-linking
The biggest misunderstanding is believing that a pension drawn before 55 loses its inflation increases forever. It does not. On AFPS 75, AFPS 05 and AFPS 15 Early Departure Payments, the income is paid flat until 55 and then receives all the accumulated increases in one catch-up at 55, after which CPI increases apply every year. The increases are deferred, not deleted. Once you know the catch-up is coming, the flat years stop feeling like a loss.
A second mistake is assuming the increase is guaranteed to be a fixed percentage every year. It is not a fixed figure; it tracks CPI, which changes annually. The 3.8 per cent that applies from April 2026 reflects the CPI measured to September 2025, and a different year will bring a different figure, higher or lower, depending on inflation. In a year of low inflation the increase is small, and in a year of high inflation it is larger, because the whole point is to mirror the actual change in prices.
A third trap is confusing the two indices used by AFPS 15. While you are serving, your AFPS 15 pot is revalued by the Average Weekly Earnings index, not CPI. People sometimes read about the CPI increase, see that their in-service statement has moved by a different amount, and assume something is wrong. Nothing is wrong: earnings and prices are different indices, and AFPS 15 deliberately uses earnings while you serve and prices once you have stopped. Understanding which index applies at which stage clears up most confusion.
Tax treatment and related AFPS terms
On tax, the annual increase does not change the character of your pension. Pension income from AFPS 75, AFPS 05 and AFPS 15 is taxable as earned income through PAYE, and the index-linked increase simply makes that taxable income a little larger each year. It does not arrive as a separate tax-free payment. The tax-free elements of your pension are the automatic lump sum on AFPS 75 and AFPS 05, the lump sum you create by commuting on AFPS 15, and the EDP lump sum, all of which sit outside the indexation question.
Index-linking connects closely to several other AFPS terms you will meet. A deferred member is someone who has left but is not yet drawing their pension; their preserved benefits are revalued each year, which is index-linking in its build-up form. Preserved pension is the benefit that revaluation protects until pension age. CARE, the design behind AFPS 15, has revaluation built into its very name, with earnings used while serving and prices once deferred or in payment.
Two more terms tie in directly. The Early Departure Payment, or EDP, is where the flat-to-55 rule bites, because the bridging income is held flat until 55 and then CPI-uprated. Commutation, swapping pension for tax-free cash, interacts with index-linking because the pension you give up would otherwise have grown with prices for life, so commutation reduces your future index-linked income as well as your current figure. Seeing how these terms link together helps you read your annual statements and forecasts with more confidence.
How to check your own position and next steps
Start by working out which stage you are at, because that decides which index applies to you. If you are serving under AFPS 15, your pot is being revalued by earnings right now. If you have left with a preserved pension, it is being revalued by CPI until you draw it. If you are already drawing a pension, you receive the annual CPI increase each April, subject to the flat-to-55 rule if you started drawing it early. Knowing your stage tells you exactly what to expect on your next statement.
Then get the real figures rather than relying on rules of thumb. Veterans UK provides official forecasts: serving members request one using form 12, and those with a preserved pension use form 14. An official forecast reflects your own service, scheme mix and the current factors, which a public calculator cannot fully reproduce. If you are affected by the McCloud remedy, your Remediable Service Statement sets out the legacy and AFPS 15 figures side by side so you can see how each route would build and revalue your benefits.
Finally, use what you learn to frame your decisions. When you weigh up commutation, drawing early, or comparing your pension to a private alternative, factor in the index-linking, because it is a large part of the real value and is easy to forget. Our increase calculator gives a quick, transparent estimate using the latest published CPI figure, but it does not project future years and is a starting point rather than a final answer. This site is independent and is not affiliated with the MOD, Veterans UK or JPAC, and it provides estimates rather than regulated financial advice, so for any life-changing decision lean on your official forecast and, if needed, a suitably qualified adviser.