Background Note
4.Under the EDP 05 scheme, individuals leaving the armed forces before age 55 who are at least 40 years of age and have at least 18 years of service, are entitled to a lump sum and monthly payments until they reach 65, after which their preserved pension and pension lump sum are payable.
5.An existing tax exemption enables lump sum payments under the EDP 05 scheme to be made without deduction of income tax and there is a corresponding disregard for National Insurance contributions. The tax exemption was introduced in 2005 to ensure continuity of treatment with lump sum payments made under previous Ministry of Defence schemes. EDP scheme monthly payments are treated in the same way as regular pension payments and are subject to PAYE.
6.The Ministry of Defence will introduce a new EDP scheme (EDP 15) on 1 April 2015.
7.This change will extend the existing tax exemption for lump sum payments to include such payments made under the new EDP scheme, from 1 April 2015.
