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A Note on the Tax Treatment of Private Pensions and Individual Savings Accounts
Author(s) -
EMMERSON CARL,
TANNER SARAH
Publication year - 2000
Publication title -
fiscal studies
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.63
H-Index - 40
eISSN - 1475-5890
pISSN - 0143-5671
DOI - 10.1111/j.1475-5890.2000.tb00580.x
Subject(s) - taxpayer , economics , pension , private pension , indirect tax , tax credit , earnings , dividend , tax reform , value added tax , labour economics , finance , business , public economics , macroeconomics
The UK government is planning to introduce stakeholder pensions from April 2001 as an alternative to existing personal pensions for people on moderate earnings. But stakeholder pensions are only one way to save for retirement; the new tax‐free Individual Savings Account (ISA) is another. This note compares the tax treatments of pensions and ISAs and assesses the conditions under which the tax treatment of private pensions is more generous than that of an ISA to a basicrate taxpayer – the typical target for stakeholder pensions. The abolition of dividend tax credits paid to pension funds in July 1997 reduced the relatively tax‐favoured position of pensions, but the tax‐free lump sum means that private pensions continue to be a tax‐favoured form of saving at most reasonable rates of return. We show that employer contributions to private pensions are particularly tax‐favoured.