Transitioning out of the Armed Forces is
one of the most significant financial
changes a person can make. You leave with
a pension — one of the most valuable
financial assets you will ever have —
and you begin earning a civilian salary
on top of it.
But the combined tax position is
something most veterans only understand
properly on their first civilian payslip.
This guide explains exactly how your
Armed Forces pension and civilian salary
interact for tax purposes — and what you
will actually take home.
The Three Armed Forces Pension Schemes
AFPS 15 (Armed Forces Pension Scheme 2015)
The scheme for those who joined or were
automatically transitioned after April 2015.
Provides a pension of 1/47th of your final
pensionable earnings for each year of
qualifying service. Payable from age 60.
AFPS 05 (Armed Forces Pension Scheme 2005)
For those who joined between 2005 and 2015.
Provides 1/70th of final salary per year
of service. Payable from age 55 with at
least 16 years of qualifying service.
AFPS 75 (Armed Forces Pension Scheme 1975)
The legacy scheme for those who joined
before 2005. Provides 1/48th of final
salary per year of service, capped at
34 years. Many long-serving veterans
are still on this scheme.
The Critical Tax Point Most Veterans
Miss
Your Armed Forces pension is taxable
income. It is not tax-free.
When you add a civilian salary on top,
both sources of income are added together
and taxed as a single total income. This
means:
Your pension uses your personal allowance
first. If your pension is £12,000 per year,
almost all of your personal allowance
(£12,570 in 2026/27) is used up before
your civilian salary is even considered.
Your civilian salary is then taxed on
the remainder. If your personal allowance
is fully absorbed by the pension, your
civilian salary is effectively taxed
from the first pound.
National Insurance is different. NI
is only charged on your civilian salary
— not your Armed Forces pension. This
is a genuine advantage of the combined
income position.
A Worked Example: AFPS 15, 12 Years
Service
Assume a Corporal leaving with:
Final pensionable pay: £30,000
Years of service: 12
AFPS 15 pension: 12 × £30,000 / 47
= £7,660 per year
Starting civilian salary: £35,000
Combined gross income: £42,660
Personal allowance used by pension:
£7,660 (pension absorbs £7,660 of
the £12,570 allowance)
Remaining personal allowance for
salary: £4,910
Tax on salary (£35,000 − £4,910):
20% on £30,090 = £6,018
NI on salary: £1,795
Monthly take-home:
Pension: £638/month (£7,660/12)
Salary after tax and NI: £2,264/month
Combined monthly take-home:
approximately £2,902
Without the pension, the salary alone
would produce a monthly take-home of
approximately £2,325. The pension adds
approximately £577 per month after its
tax impact.
Why the Addition Is Less Than You Expect
Many veterans are surprised that their
pension adds less to their take-home
than the gross amount suggests. Here
is why.
If your pension is £8,000 per year,
it absorbs £8,000 of your personal
allowance. Your salary then has only
£4,570 of tax-free allowance remaining.
So your salary is effectively taxed
from £4,571 onwards — meaning more
of your salary falls into the taxable
bracket than it would for a civilian
colleague on the same salary.
This is not a penalty — it is simply
how PAYE works when you have two
sources of income. HMRC will typically
issue you a split tax code to manage
this across both income sources.
Resettlement and the First Civilian
Pay Packet
The most common shock for veterans in
their first civilian role is receiving
their first payslip and finding their
take-home significantly lower than
expected — not because their salary
is wrong, but because the interaction
between the pension and salary was
not accounted for.
Payslp’s Armed Forces Pension Calculator
was built specifically to solve this.
Enter your pension scheme, years of
service, final pay and new civilian
salary — and see your exact combined
take-home before your first payslip
arrives.
How to Check Your Tax Code
When you start receiving both a pension
and a civilian salary, HMRC should
issue you two tax codes — one for the
pension (often BR or a reduced
allowance code) and one for your
salary. If you are put on an emergency
tax code, you may overpay tax initially
and need to claim a refund.
If you are unsure about your tax
position, contact HMRC directly at
0300 200 3300 or check your personal
tax account at gov.uk.
Calculate Your Combined Take-Home
The only UK calculator that combines
your Armed Forces pension with your
new civilian salary — with all three
pension schemes supported.
👉 Use the free Payslp Military Pension
Calculator at payslp.com