Undeducted Purchase Price (UK AFPS)

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.

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. Note : Taxation Ruling TR 93/13 applies only to British National Insurance Scheme pensions. The undeducted purchase price of eight percent (8%) does not apply to pensions paid from AFPS. Note : Subsections 27A(1) and 27A(5C) of the Income Tax Assessment Act 1936 have been repealed after the 2006-2007 income year, by the Superannuation Legislation Amendment Simplification Act 2007. However, this ATO Interpretative Decision remains current in relation to section 27H of the Income Tax Assessment Act 1936.