Simplification is the key - Centre for Policy Studies

APPENDIX VIII
THE MODEL 173
The model projects 35 years of consistent savings history (2008 to 2042) for each
taxpayer group (basic, higher and additional), except for TEE calculations, in which
case it runs to 2064.
The model shows all results in 2007 price terms and therefore assumes no real
increase in salaries, i.e. wage inflation is 0%.
RPI of 2.5 % p.a., used to establish the gross return on assets, and then the net return
to different classes of taxpayer.
Employee and employer contributions, overall, are split roughly 36%:65% of the total,
respectively. More specifically:
o 50% employee/50% employer for basic rate taxpayers;
o 35% employee/65% employer for current 40% taxpayers (excluding future 50%
taxpayers); and
o 20% employee/80% employer for future 50% taxpayers.
Pensioner support ratio (earning workers to pensioners) assumed constant; the
retreating State Pension Age roughly achieves this.
Contributions:
o The distribution of contributions across the income spectrum is per an industry
assessment of pension saving.
o Made from gross income with 20% basic rate relief going into the pension pot
and any additional tax relief being reclaimed via the tax return (and not going into
the pot).
173 Built by Brian Wilson, with assistance from Peter Williams, both of Hewitt Associates.
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