ATO Interpretative Decision
ATO ID 2001/3
SuperannuationUndeducted Purchase Price (UK AFPS)
FOI status: may be released
Status of this decision: Decision Current
This ATOID provides you with the following level of protection:
If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.
Do pensions paid to former members of the UK Armed Forces Pensions Scheme (AFPS) have an undeducted purchase price?
The "pension abatement" does not constitute undeducted purchase price.
Members of the AFPS do not contribute directly to the AFPS. However an adjustment known as the 'pension abatement' is made to the recommended salaries to take into account the relative benefits over those available to civilians.
Reasons For Decision
The taxpayer considered that the 'pension abatement' meant that members of the AFPS had purchased their pensions. However, the 'pension abatement' is not a contribution by the member. It is an employer contribution somewhat analogous to a salary sacrifice arrangement whereby the member receives a reduced salary in return for superannuation benefits. As such there is no undeducted purchase price of an AFPS pension.
Related Public Rulings (including Determinations)
Undeducted purchase price
Date reviewed: 7 August 2018