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The tax treatment of funded pensions

  • Whitehouse, Edward

This report makes an international comparison of the tax treatment of funded pensions and finds that the expenditure-tax system is the best way of taxing pensions because it does not distort the decision whether to consume now or save and consume in the future, unlike the comprehensive income tax; rather it taxes pensions once: either when contributions are made or when benefits are withdrawn. Moreover, it is easy to administer and the tax burden does not vary arbitrarily with inflation. The report also finds that in the context of the design and implementation of a pension reform, it is important to take the cost of tax relief, measured by tax expenditures, into account. The report is structured as follows: Section 1 considers a number of different ways to tax pensions. Section 2 describes the tax treatment of pensions in a range of countries. Section 3 extends the analysis to compute a summary measure of the generosity of tax incentives. Section 4 considers the link between the taxation of pension funds and the tax treatment of the underlying assets in which they invest. Section 5 examines the deductibility of contributions. Sections 6 and 7 look at the importance of pension funds and associated tax incentives in the aggregate. Section 8 assesses the objectives for taxing pensions, the options, and the arguments while section 9 concludes.

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Paper provided by The World Bank in its series Social Protection Discussion Papers with number 20126.

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Date of creation: 30 Apr 1999
Date of revision:
Handle: RePEc:wbk:hdnspu:20126
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  1. Gora, Marek & Rutkowski, Michal, 1998. "The quest for pension reform : Poland's security through diversity," Social Protection Discussion Papers 20111, The World Bank.
  2. Andrew Dilnot & Paul Johnson, 1993. "Tax expenditures: the case of occupational pensions," Fiscal Studies, Institute for Fiscal Studies, vol. 14(1), pages 42-56, February.
  3. Robin Boadway & David Wildasin, 1994. "Taxation and savings: a survey," Fiscal Studies, Institute for Fiscal Studies, vol. 15(3), pages 19-63, August.
  4. Gylfason, T., 1993. "Optimal Saving, Interest Rates and Endogenous Growth," Papers 539, Stockholm - International Economic Studies.
  5. Scott, M. FG., 1987. "A note on king and fullerton's formulae to estimate the taxation of income from capital," Journal of Public Economics, Elsevier, vol. 34(2), pages 253-264, November.
  6. Daniel Feenberg & Jonathan Skinner, 1989. "Sources of IRA Saving," NBER Working Papers 2845, National Bureau of Economic Research, Inc.
    • Daniel Feenberg & Jonathan Skinner, 1989. "Sources of IRA Saving," NBER Chapters, in: Tax Policy and the Economy, Volume 3, pages 25-46 National Bureau of Economic Research, Inc.
  7. Hamilton, Jonathan H, 1987. "Taxation, Savings, and Portfolio Choice in a Continuous Time Model," Public Finance = Finances publiques, , vol. 42(2), pages 264-82.
  8. Chris Heady, 1993. "Optimal taxation as a guide to tax policy: a survey," Fiscal Studies, Institute for Fiscal Studies, vol. 14(1), pages 15-41, February.
  9. Rachel Griffith, 1996. "A note on the taxation of capital income in the Czech Republic and Poland," Fiscal Studies, Institute for Fiscal Studies, vol. 17(3), pages 91-103, August.
  10. Disney, Richard & Whitehouse, Edward, 1992. "The personal pensions stampede," MPRA Paper 10476, University Library of Munich, Germany.
  11. Chris Carroll & Lawrence H. Summers, 1987. "Why Have Private Saving Rates in the United States and Canada Diverged?," NBER Working Papers 2319, National Bureau of Economic Research, Inc.
  12. Davis, E. Philip, 1998. "Pension Funds: Retirement-Income Security and Capital Markets: An International Perspective," OUP Catalogue, Oxford University Press, number 9780198293040, July.
  13. Munnell, Alicia H, 1976. "Private Pensions and Saving: New Evidence," Journal of Political Economy, University of Chicago Press, vol. 84(5), pages 1013-32, October.
  14. Hamilton, Bob & Whalley, John, 1985. "Tax treatment of housing in a dynamic sequenced general equilibrium model," Journal of Public Economics, Elsevier, vol. 27(2), pages 157-175, July.
  15. Mark H. Robson, 1995. "Taxation and household saving: reflections on the OECD report," Fiscal Studies, Institute for Fiscal Studies, vol. 16(1), pages 38-57, February.
  16. Richard Disney & Edward Whitehouse, 1994. "Choice of private pension plan and pension benefits in the UK," IFS Working Papers W94/02, Institute for Fiscal Studies.
  17. Diamond, P. A., 1977. "A framework for social security analysis," Journal of Public Economics, Elsevier, vol. 8(3), pages 275-298, December.
  18. Richard Disney & Edward Whitehouse, 1994. "What are pension plan entitlements worth in Britain?," IFS Working Papers W94/01, Institute for Fiscal Studies.
  19. Dilnot, Andrew & Disney, Richard & Johnson, Paul & Whitehouse, Edward, 1994. "Pensions policy in the UK: An economic analysis," MPRA Paper 10478, University Library of Munich, Germany.
  20. David M. Knox, 1990. "The taxation support of occupational pensions: a long-term view," Fiscal Studies, Institute for Fiscal Studies, vol. 11(4), pages 29-43, November.
  21. Jane G. Gravelle, 1991. "Do Individual Retirement Accounts Increase Savings?," Journal of Economic Perspectives, American Economic Association, vol. 5(2), pages 133-148, Spring.
  22. Richard Disney & Edward Whitehouse, 1992. "Personal pensions and the review of the contracting-out terms," Fiscal Studies, Institute for Fiscal Studies, vol. 13(1), pages 38-53, February.
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