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Future trends in pensions tax relief
The PPI was sponsored by The Resolution Foundation to analyse the impact of a number of potential reforms to the tax and National Insurance relief system as part of their consultation response. This modelling report is based upon this analysis.
The two main reasons why tax relief is given on pensions are to encourage people to save for their retirement, and to make the tax system for pension saving neutral by ensuring that people do not pay tax twice on the same income. The analysis in this report focuses on encouraging people to save. This report sets out the impact that the potential policy reforms might have on the projected cost to the Exchequer, the impact upon particular individuals and how the impact would be spread across the pension savings population.
Chapter one considers the current saving population how the current system of tax relief applies to the individuals within it.
Chapter two sets out the projected impact of pension tax relief reforms to the Exchequer. Flat rate EET (Exempt, Exempt, Taxed) and TEE (Taxed, Exempt, Exempt) variants are compared to the current system, and the projected impact to the Exchequer is calculated as the alternative systems mature. Appendix one details the aggregate modelling used to perform these projections.
Chapter three sets out the projected impact of pension tax relief and National Insurance contributions (NICs) relief reforms upon an individual, considering key earnings levels including the National Living Wage (NWL). Flat rate EET and TEE variants are compared to the current system, and the projected impact upon the individual is calculated as the alternative systems mature.
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