(This archived guidance relates to HMRC discretionary
practice before the 6th April 2006. For current guidance on
Registered Pension Schemes see the Registered Pension Schemes
Manual)
Salary sacrifices are dealt with at
PSI4.1.14. If the sacrifice
is effective for tax purposes the employee's maximum approvable
benefits must be based on the reduced remuneration after the
sacrifice. But an employee who makes a salary sacrifice late in his
or her career can use the definitions of final remuneration in
PSI6.4.15 to avoid this
restriction,
Example an employee due to retire at age 65 enters into a salary sacrifice agreement at age 60 which reduces his or her remuneration from £20,000 to £15,000 per annum. But his or her pension at age 65 may be based on the average remuneration of the 3 years between his or her 57th and 60th birthdays, increased in line with the cost of living up to age 65.
We do not object to this.
