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A note on the tax treatment of private pensions and Individual Savings Accounts

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  • Carl Emmerson

    ()
    (Institute for Fiscal Studies)

  • Sarah Tanner

Abstract

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 basic-rate 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.

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Bibliographic Info

Article provided by Institute for Fiscal Studies in its journal Fiscal Studies.

Volume (Year): 21 (2000)
Issue (Month): 1 (March)
Pages: 65-74

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Handle: RePEc:ifs:fistud:v:21:y:2000:i:1:p:65-74

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Cited by:
  1. Alessandra Guariglia & Sheri Markose, 2000. "Voluntary Contributions to Personal Pension Plans: Evidence from the British Household Panel Survey," Fiscal Studies, Institute for Fiscal Studies, vol. 21(4), pages 469-488, December.
  2. Richard Disney & Carl Emmerson & Sarah Smith, 2004. "Pension Reform and Economic Performance in Britain in the 1980s and 1990s," NBER Chapters, in: Seeking a Premier Economy: The Economic Effects of British Economic Reforms, 1980-2000, pages 233-274 National Bureau of Economic Research, Inc.
  3. Orazio Attanasio & James Banks & Matthew Wakefield, 2004. "Effectiveness of tax incentives to boost (retirement) saving: theoretical motivation and empirical evidence," IFS Working Papers W04/33, Institute for Fiscal Studies.

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